Home Equity Conversion Mortage (HECM)

What You Need To Be Aware Of With Getting A HECM in Including, Options, Costs, Requirements and Obtaining The Best Deal

The HECM program helps elderly homeowners in to withdraw some of the equity in their home in the form of monthly payments for life or a fixed term, or in a lump sum, or through a line of credit. This reverse mortgage loan program allows families to stay in their home while using a portion of its equity. The total income that an owner will get from the program is the maximum claim amount, which is calculated with a formula including the age of the owner, the interest rate, and the value of the home. The borrower remains the owner of the home and may sell it and move at any time, keeping the sales proceeds that exceed the mortgage balance. No repayment is necessary up until the borrower moves, sells, or dies.

How the HECM Program Works in

There are several factors to consider before determining if acquiring a HECM loan in meets your needs. To assist in this process, you must meet with a HECM counselor to discuss program eligibility requirements, financial implications and alternatives to receiving a HECM reverse mortgage in and repaying the loan. Counselors will go over provisions for the mortgage becoming due and payable. Upon the completion of HECM counseling, you will be able to make a completely independent, informed decision of whether this product will meet your specific needs. You can search online for a HECM counselor or call (800) 569-4287 toll-free.

There is borrower and property eligibility qualifications that must be met. You may use the listing below to determine if you qualify. In the event you meet the eligibility criteria, you can complete a reverse mortgage application by contacting a FHA-approved lender. You can search online for a FHA-approved lender or ask the HECM counselor to provide you with a list. The lending company will discuss other specifications of the HECM program, such as first year payment limitations, available payment options, the loan approval process, and repayment terms.

HECM Borrower Requirements Living in

You must:

• Be 62 years of age or older
  Own the house outright or paid-down a large amount
• Occupy the home as your primary residence
  Not be delinquent on any federal debt
• Have financial resources to continue to make timely payment of recurring property charges which include property taxes, insurance and Homeowner Association fees, etc.
• Take part in a consumer information session given by a HUD- approved HECM counselor

Property Requirements with the HECM

The following eligible property types in are required to meet all FHA property standards and flood requirements:

Single family home or 2-4 unit home with one unit occupied by the borrower
HUD-approved condominium project
Manufactured home that satisfies FHA requirements

HECM Financial Requirements of Borrowers in

Income, assets, monthly cost of living, and credit profile are going to be verified.
Timely payment of real estate taxes, hazard and flood insurance premiums will be confirmed

For adjustable interest rate mortgages, you are able to select one of the following payment plans:

Tenure – equal monthly payments provided that no less than one borrower lives and continues to inhabit 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 up until the credit line is exhausted.
Modified Tenure – combination of line of credit and scheduled monthly payments 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 rate home loans, you will receive the Single Disbursement Lump Sum payment plan.

Mortgage Amounts Are Based On the Following

The amount you may borrow depends on:

Age of the youngest borrower or eligible non-borrowing spouse
Current rates; and
Lesser of:
appraised value;
the HECM FHA mortgage limit of $679,650; or
the sales price (only applicable to HECM for Purchase)

Whether 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.

HECM Loan Costs

You can pay for almost all costs of a HECM by financing them and having them paid from your proceeds of the loan. Financing the fees means that you don’t have to pay for them out of your pocket. Conversely, financing the fees lowers the net loan amount available to you.

The HECM loan includes several fees and charges, which include: 1) mortgage insurance premiums (initial and annual) 2) third party charges 3) origination fee 4) interest and 5) 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, you will be charged 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’ll 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
You will pay an origination fee to compensate the mortgage company for processing your HECM loan. A lender may charge the higher 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
Mortgage companies in or their agents provide servicing through the life of the HECM. Servicing includes sending you account statements, disbursing loan proceeds and making certain that you stay up with loan requirements which includes paying property 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. At loan closing, the lender sets aside the servicing fee and deducts the fee from your available funds. Each month the monthly servicing fee is added to your loan balance. Lenders may also choose to include the servicing fee in the mortgage interest rate.

Shopping for a Home Equity Conversion Mortgage in

If you are considering getting a HECM in , shop around. Decide which type of reverse mortgage may be best for you. That might depend on what you need to do with the loan. Do a comparison of your choices, terms, and fees from various HECM mortgage lenders in . Learn as much as you are able to about reverse mortgages before you talk with a counselor or lender. And ask lots of questions to be sure a HECM could work for you – and that you’re receiving the right kind for you.

Here are some things to consider:

Are you interested in a HECM loan to pay for home repairs or property taxes? If that’s the case, determine whether you qualify for any low-cost loans in your . Employees at the Area Agency on Aging might know about the programs in your . Look for the nearest agency on aging at eldercare.gov, or call 1-800-677-1116. Ask about “loan or grant programs for home repairs or improvements,” or “property tax deferral” or “property tax postponement” programs, and the ways to apply.

Are you living in a higher-valued house? You may be capable of borrow more money by using a proprietary reverse mortgage. But the more you borrow, the higher the fees you will pay. You also might think about a HECM loan. A HECM counselor or a lender in can assist you assess these sorts of loans side-by-side, to determine what you will get – as well as what it costs.

Look at fees and rates. This bears repeating: shop around and evaluate the costs of the HECM loans available to you in . Even though the mortgage insurance premium is usually the same between various lenders, most loan costs – including origination fees, interest rates, closing costs, and servicing fees – range among loan companies.

Understand total costs and loan repayment. Ask a counselor or lender to explain the Total Annual Loan Cost (TALC) rates: they show the expected annual average cost of a HECM, which includes each of the itemized costs. And, regardless of the kind of HECM you’re thinking of in , understand all the reasons why your loan might have to be repaid before you were planning on it.

What You Need To Know About HECM Loans in

If you get a HECM of any kind, you receive a loan in which you borrow from the equity in your home. You retain the title to your home. Rather than paying monthly mortgage payments, though, you will get an advance on part of your home equity. The money you get usually is not taxable, and it usually will not affect your Social Security or Medicare benefits. Once the final surviving borrower dies, sells the home, or no longer resides in the house as a principal residence, the HECM will have to be repaid. In certain situations, a non-borrowing spouse may be able to continue to live in the home. Here are some things to consider about home equity conversion mortgages in :

• You will owe more over time. As you obtain money through the home equity conversion mortgage, interest is added onto the balance you owe every month. That means the total amount you owe gets bigger as the interest on your loan accumulates over time.
• Interest rates could change over time. Almost all HECM’s have variable rates, which are linked with a financial index and change with the market. Variable rate loans tend to give you more options on how you get your money through the HECM loan. Some reverse mortgages – mostly HECMs – offer fixed rates, however they tend to demand that you take your loan as a lump sum at closing. Typically, the total amount you can borrow is lower than you could get with a variable rate loan.
• Interest is not tax deductible each year. Interest on reverse mortgages is not deductible on tax returns – until the loan is paid off, either partially or in full.
  You have to pay other costs related to your home. In a HECM, you keep the title to your
  home. That means you are responsible for property taxes, insurance, utilities, fuel, maintenance, in addition to other expenses. And, if you don’t pay your property taxes, keep homeowner’s insurance, or take care of your home, the lender might require you to repay your loan. A financial assessment is required when you apply for the mortgage. As a result, your lender may require a “set-aside” amount to pay your taxes and insurance during the loan. The “set-aside” reduces the amount of funds you can get in payments. You are still responsible for maintaining your home.
• What happens to your spouse? With HECM loans, if you signed the loan paperwork and your spouse didn’t, in certain situations, your partner may continue to live in the home even after you pass away if he or she pays taxes and insurance, and will continue to maintain the property. However your spouse will stop receiving money from the HECM, since he or she wasn’t a part of the loan agreement.
• What can you leave to your heirs? HECM’s may use up the equity in your home, which implies fewer assets for you and your heirs. Most reverse mortgages have something called a “non-recourse” clause. Which means you, or your estate, can not owe more than the value of your home when the loan becomes due and the home is sold. With a HECM, generally, if you or your heirs need to pay off the loan and retain the home rather than sell it, you wouldn’t have to pay more than the appraised value of the home.