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HECM Reverse Mortgages Explained
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Borrower Qualifications
- You must be 62 years of age or older to particpate
- Own the property outright or have paid-down a sizeable amount
- Occupy the property as your principal residence
- Not be delinquent on any federal debt
- Have the financial resources required to make timely payment of ongoing property charges such as property taxes, insurance and HOA fees, etc.
- Participate in a consumer information session given by a HUD- approved HECM counselor
Property Requirements
- Single family home or 2-4 unit home with one unit occupied by the borrower
- HUD-approved condominium project
- Manufactured home that meets FHA requirements
All properties must meet FHA property standards and flood requirements.
Financial Requirements
In order to ensure borrowers will have financial resources to continue to make timely payment of property taxes, insurance and Homeowner Association fees, etc. a portion of the qualifications are based on:
- The borrower(s) income, assets, monthly living expenses, and credit history are required to be verified
- Verification of timely payments of real estate taxes, hazard and flood insurance premiums
Pay Out Plans - How you get paid
For adjustable interest rate mortgages, you can select one of the following payment plans:
- Tenure – equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
- Term – equal monthly payments for a fixed period of months selected.
- Line of Credit – unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.
- Modified Tenure – combination of line of credit and scheduled monthly payments for as long as you remain in the home.
- Modified Term – combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.
For fixed interest rate mortgages, you will receive the Single Disbursement Lump Sum payment plan.
Factors That Effect How Much You Get
- Age of the youngest borrower or eligible non-borrowing spouse
- Current interest rate; Call for quote
- Current loan balance
- Appraised property value
- Lesser of: appraised value; the HECM FHA mortgage limit of $970,800; or the sales price (only applicable to HECM for Purchase)
If there is more than one borrower and no eligible non-borrowing spouse, the age of the youngest borrower is used to determine the amount you can borrow.
What Are The Costs
You can pay for most of the costs of a HECM by financing them and having them paid from the proceeds of the loan. Financing the costs means that you do not have to pay for them out of your pocket. On the other hand, financing the costs reduces the net loan amount available to you.
The HECM loan includes several fees and charges, which includes:
- mortgage insurance premiums (initial and annual)
- third party charges
- origination fee
- interest and
- servicing fees.
The lender will discuss which fees and charges are mandatory.
You will be charged an initial mortgage insurance premium (MIP) at closing. The initial MIP will be 2%. Over the life of the loan, and an annual MIP that equals 0.5% of the outstanding mortgage balance.
Mortgage Insurance Premium
You will incur a cost for FHA mortgage insurance. The mortgage insurance guarantees that you will receive expected loan advances. You can finance the mortgage insurance premium (MIP) as part of your loan.
Third Party Charges
Closing costs from third parties can include an appraisal, title search and insurance, surveys, inspections, recording fees, mortgage taxes, credit checks and other fees.
Origination Fee
Origination fees are paid to compensate the lender for processing your HECM loan. Lender can charge the greater of $2,500 or 2% of the first $200,000 of your home’s value plus 1% of the amount over $200,000. HECM origination fees are capped at $6,000.
Servicing Fee
Lenders or their agents provide servicing throughout the life of the HECM loan. This includes sending you account statements, disbursing loan proceeds and making certain that you keep up with loan requirements such as paying real estate taxes and hazard insurance premium. Lenders may charge a monthly servicing fee of no more than $30 if the loan has an annually adjusting interest rate or has a fixed interest rate. The lender may charge a monthly servicing fee of no more than $35 if the interest rate adjusts monthly.
Reverse Mortgage loans to keep your American dream alive!
I promise not to inundate you with phone calls or emails. I am within driving distance of most Florida residents and believe that doing business face-to-face is better than the stress of dealing with a faceless, out-of-state company by phone or email. I want your trust and your business and I’m willing to earn both.
Jimmy Todd, Sr. Mortgage Loan Advisor
NMLS: 1608236
Coast2Coast Mortgage, LLC
93 ½ King Street
St. Augustine, FL 32084
jimmy@coast2coastml.com
(904) 589-8372
Let’s take the journey together
Overcoming financial challenges during retirement may lead to potentially life altering crossroads. If you find yourself in a situation that requires options to overcome unexpected income limitations and you are a homeowner, a reverse mortgage might be the solution. I can guide through the loan program(s) that fit your needs and help you secure the financing when you’re ready.
How Reverse Mortgages Help
What are the advantages of a reverse mortgage?
- Easy To Qualify
- Generally no impact on Social Security or Medicare Benefits (Exceptions may apply)
- You Maintain Ownership as long as you abide by the HUD conditions
- Proceeds are NOT CONSIDERED INCOME
- May Eliminate Your Monthly Principal and Interest Mortgage Payment (You must stay current on paying property taxes, insurance, HOA fees, maintain home and comply with loan terms)
What are the different reverse mortgage programs?
- Standard HECM – Home Equity Conversion Mortgage (Accounts for the majority of Reverse loan borrowers)
- HECM for Purchase – Use of a reverse mortgage in tandem with the sale and purchase of a new home. Typically used for downsizing to accommodate smaller space requirements
- HECM to HECM Refinance – After 6 months the property value may increase enough to allow for the option of refinancing to realize the additional equity
- Proprietary Jumbo Loans and Hybrid Loans – Typically used to address the needs of borrowers with higher value homes and those who are at least 55 years of age.
What are the Top 7 Reverse Mortgage Myths?
MYTH: the downside of a reverse mortgage is that the bank takes your home.
TRUTH: you own your home. Not the bank or lender.
Lenders are not in the business of owning homes — they wish to make loans and earn interest. The homeowner keeps the title to the home in their name, as long as they keep current with property taxes, insurance, and home maintenance. What the lender does is add a lien onto the title so that the lender can guarantee that it will eventually get paid back the money it lends when the loan is paid off or when the last borrower dies or vacates the home.
MYTH: Will you be able to pass on the home to your kids?
TRUTH: your heirs can inherit the home.
Your heirs inherit the house, just as they would with any other mortgage. When the loan comes due, they can decide what to do to repay the loan balance. They can:
- Arrange their own financing, pay off the loan, and keep the house for themselves
- Sell the house and pay off the balance, keeping any extra funds
- Or they can do nothing with the house and deed it to the lender
MYTH: you can be forced out of your home for not paying a reverse mortgage.
TRUTH: it was designed to help people stay in their homes. Reverse mortgages were created specifically to allow seniors to live in their home for the rest of their lives. Because the homeowner typically receives payments from a reverse mortgage—instead of making payments to a lender—the homeowner can never be evicted or foreclosed upon for non-payment. However, it is the homeowner’s responsibility to maintain the home in good condition, keep property insurance current, and pay property taxes.
MYTH: Reverse mortgages are for people who are desperate.
TRUTH: a reverse mortgage is a powerful tool—not a last resort.
When it comes to reverse mortgage loans, the fact is that they are a powerful financial tool that can be an important part of your overall financial plan. From paying off an existing mortgage to delaying social security, or even creating an emergency line of credit*, it’s a flexible product that gives you options. In fact, many financial planners have begun to discuss reverse mortgages with clients who need additional sources of retirement funding.
MYTH: You won’t be able to get your Social Security and Medicare.
TRUTH: Those benefits are generally unaffected by a reverse mortgage.
Government entitlement programs such as Social Security and Medicare are not affected by a reverse mortgage—however, need-based programs such as Medicaid may be. To stay eligible for Medicaid, you’d need to manage how much you take from the reverse mortgage per month to ensure you don’t exceed Medicaid limits. Consult a qualified financial advisor or appropriate government agency to learn how a reverse mortgage may impact your eligibility for some government benefits.
MYTH: There a lot of upfront costs with a reverse mortgage, it’s a rip-off.
TRUTH: Reverse mortgages don’t require large out-of-pocket expenses.
Mortgage loan origination costs and reverse mortgage interest rates are comparable to those of traditional mortgages. There are FHA insurance costs that some traditional mortgages do not require, but they are relatively small. Typically, lender closing costs and fees can be financed into the loan, so there’s little required out of pocket.
MYTH: You have to pay taxes on the reverse mortgage.
TRUTH: The proceeds are not considered income, and are not taxable.
The money from a reverse mortgage comes from your home’s equity, which already belongs to you, so it’s not considered income. Plus, the interest on a reverse mortgage can be tax-deductible when it’s repaid. Consult a financial advisor and appropriate government agencies for any effect on taxes or government benefits. To learn more about common reverse mortgage myths