About Reverse Mortgages for seniors

Section 255 - Home Equity Conversion Mortgages (HECM)

About the HECM Program

The HECM FHA insured reverse mortgage program could be used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. A lending institution such as a mortgage lender, bank, credit union or savings and loan association funds the loan, commonly known as HECM.

Features

Non-Taxable Income (TAX FREE MONEY);

The funds received by the borrower from a Reverse Mortgage are not really income. They are loan proceeds. Therefore it is not subject to income tax, as income would be. (With this or any other income tax or legal questions, be sure to speak to a qualified accountant or legal advisor).

Program Changes Midstream;

Borrower can change from a monthly income to a larger one-time cash payment, even after the loan is set up. Borrower can make multiple changes over the life of the loan, paying a small administrative fee for each change (around $50.00).

No Loan Balance Overage;

The property stands for the loan. Heirs, or the borrowers estate will not be liable for loan balances that exceed the property value or sales proceeds at the time the borrower leaves the property.

No Loan Prepayment Penalty;

The Reverse Mortgage can be paid off at any time, without incurring a prepayment penalty.

Borrower Requirements

• Age 62 years of age or older (all borrowers on title must be at least 62 years or older and living in the home)

• Own your property

• Occupy your property as primary residence

• Participation in a consumer information session given by an approved HECM counselor

• There are no medical requirements No medical examination or other reference to borrowers medical condition is required.

Mortgage amount is determined by

• Dates(s) of birth of borrower(s) [Age of the youngest borrower]

• Zip code and property address

• Loan Limits for County in which property is located (Lesser of appraised value or the FHA insurance limit)

• Prevailing interest rates (The interest rate at the time of loan closing impacts how much interest will accrue during the life of the loan, so it impacts the maximum loan that can be granted to the borrower). Please Note: The loan amount is based on current interest rates. If interest rates increase in the future, the loan amount at that time may be less.

Financial Requirements

• No income or credit qualifications are required of the borrower (even if borrower has late payments, Notice of Default Filed, or recent Bankruptcy discharge. Why? Because the Lender is not relying on the borrower making monthly mortgage payments.

• No repayment as long as the property is the primary residence

• Closing costs may be financed in the mortgage

Property Requirements

• 1 family home or 2-4 unit property with one unit occupied by the borrower

• Condominiums or Planned Unit Developments (PUD) must be HUD-FHA approved

• Cooperatives that meet HUD guidelines

• Mobile Homes that meet HUD guidelines

• Property must qualify and meet certain minimum health and safety requirements (borrower may fund repairs in the mortgage)

What are the possibilities of a Reverse Mortgage in general?

• Short-term survival Medical needs/expenses, home maintenance needs, eliminate existing mortgage payment

• Home improvements or remodeling to suit physical limitations, home repairs

• Day-to-day living expenses, long-term health care needs, New automobile, Travel

• Prepare for future Set aside funds for emergencies, use credit line for financial emergencies

• Protection against declining real estate values What this means is that a senior may look at today's values and feel they have a lot of options, as far as selling the home for a high price, etc. As home values drop, their options decrease greatly. By taking out a Reverse Mortgage, they have already obtained a good portion of the money from their home and are less impacted as property values drop.

The Loan Process

1. Loan Application

2. Counseling Reverse Mortgage borrowers are required to attend a one hour counseling session with a qualified housing counselor, who cannot be affiliated with or compensated by the loan broker or the lender.

• One hour counseling session No cost to borrower

• Funded by Government and by other donors

• Borrower gets choice of counselors

• Family advisors can, and are welcomed to attend (loan brokers are not permitted to attend)

3. Obtain a counseling certificate when counseling is successfully completed.

4. Home appraisal is ordered (appraisal conditions resolved)

5. Loan Approval

6. Loan closing Within the loan closing process, there are numerous additional protections afforded the borrower, such as a 3-day right to rescind the transaction after executing the loan documents and receiving the final disclosures.

Trusts

• Loans can be made to a Trust.

• Lender and Title Company must approve the Trust.

• The borrower must sign a Trust Certification form.

Payoffs and Estates

• Loan is paid off from proceeds of the sale of home when the borrower leaves the home.

• The home does not have to be sold, if loan is otherwise repaid (for example, if the heirs refinance the home and pay off the Reverse Mortgage).

• Loan balance exceeding value or sales proceeds is paid from the Mortgage Insurance.

• No liability to the heirs or to the estate of the borrower.

How the Home Equity Conversion Mortgage Program Works

Homeowners 62 and older who have paid off their mortgages or have only small mortgage balances remaining, and are currently living in the home are eligible to participate in HUD's Reverse Mortgage Program. The program allows homeowners to borrow against the equity in their homes.

Homeowners can receive payments in a lump sum, on a monthly basis (for a fixed term or for as long as they live in the home), or on an occasional basis, such as a line of credit. Homeowners can select from following payment plans:

• Monthly payments Borrower(s) can receive monthly payments (as long as at least one borrower lives and continues to occupy the property as a principal residence).

• One lump sum of cash Borrower(s) can receive one lump sum of cash (when loan closes).

• Credit Line Borrower(s) may use the money as needed (the unused portion of the Credit Line grows each year)

• Combination Borrower(s) can receive part of the money in cash upfront and part in monthly income or Line of Credit.

Homeowners whose circumstances change can restructure their payment options for a nominal fee (as stated in the Features section, above)

Unlike ordinary home equity loans, a HUD Reverse Mortgage does not require repayment as long as the home is the borrower's principal residence. Lenders recover their principal, plus interest, when the home is sold. The remaining value of the home goes to the homeowner or to his or her survivors. You can never owe more than your home's value.

If the sales proceeds are insufficient to pay the amount owed, HUD (Department of Housing and Urban Development) will pay the lender the amount of the shortfall. HUDs Federal Housing Administration (FHA), which is part of HUD, collects an insurance premium from all borrowers to provide this coverage.

The size of the Reverse Mortgage loan is determined by the borrowers age, the interest rate and the homes value. The older a borrower is, the larger the percentage of the homes value that can be borrowed.

For example, based on a loan with an interest rate of approximately 9 percent, a 65-year-old senior could borrow up to 26 percent of the home's value; a 75-year-old senior could borrow up to 39 percent of the home's value; and, an 85-year-old senior could borrow up to 56 percent of the home's value. The percentages do not include closing costs because these charges can vary.

There are no asset or income limitations on borrowers receiving HUDs reverse mortgages.

There are also no limits on the value of the homes qualifying for a HUD reverse mortgage. The value of the home will be determined by an independent appraisal. However, the amount that may be borrowed is capped by the maximum FHA mortgage limit for the area, which currently varies from $172,632 to $312,895. For Alaska, Guam, Hawaii and the Virgin Islands, the FHA mortgage limits may be adjusted up to 150 percent of the ceiling depending on the area. The FHA limits usually increase each year. As a result, owners of higher-priced homes can't borrow any more than owners of homes valued at the FHA limit.

HUDs reverse mortgage program collects funds from insurance premiums charged to borrowers. Senior citizens are charged 2 percent of the homes value as an upfront payment plus a 0.5% annual premium, which is paid out on a monthly basis for the life of the loan. These amounts are usually paid by the lender and charged to the borrowers principal balance.

FHAs Reverse Mortgage insurance makes HUDs program less expensive to borrowers than the smaller Reverse Mortgage programs run by private lenders without FHA insurance.

A homeowner must receive consumer education and counseling by a HUD-FHA approved HICM counselor.

To find out what approximate Loan Amount you can qualify for, please complete the form below and a representative can email or call you with the information (with no obligation whatsoever!)

PLEASE NOTE: You may rest assured that all information provided will be kept strictly confidential and for the use of Aiello & Associates only.

Click on the following links for additional information:

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