The
Home Equity Conversion Mortgage (HECM) is FHA's reverse mortgage program which
enables you to withdraw some of the equity in your home. You choose how you want
to withdraw your funds, whether in a fixed monthly amount or a line of credit
or a combination of both. You
can also use a HECM to purchase a primary residence if you are able to use cash
on hand to pay the difference between the HECM proceeds and the sales price plus
closing costs for the property you are purchasing.
HECM counselors will discuss program eligibility requirements, financial implications
and alternatives to obtaining a HECM. They will also discuss provisions for the
mortgage becoming due and payable. Upon the completion of HECM counseling, you
should be able to make an independent, informed decision of whether this product
will meet your needs. You can search online for a HECM
counselor. You
can use a reverse mortgage calculator to
help you see if you qualify. If you meet the eligibility criteria, you can complete
a reverse mortgage application by contacting a FHA-approved
lender. Borrower
RequirementsYou
must: - Be
62 years of age or older
- Own
the property outright or have a small mortgage balance
- Occupy
the property as your principal residence
- Not
be delinquent on any federal debt
- Participate
in a consumer information session given by an approved HECM counselor
Mortgage
Amount Based On - Age
of the youngest borrower
- Current
interest rate
- Lesser
of appraised value or the HECM FHA mortgage limit
Financial
Requirements - No
income or credit qualifications are required of the borrower
- No
repayment as long as the property is your principal residence
- Closing
costs may be financed in the mortgage
Property
RequirementsThe
following eligible property types must meet all FHA property standards and flood
requirements: - Single
family home or 1-4 unit home with one unit occupied by the borrower
- HUD-approved
condominium
- Manufactured
home that meets FHA requirements
How
the Program WorksIf
you are a homeowner age 62 or older and have paid off your mortgage or have only
a small mortgage balance remaining, and are currently living in the home, you
are eligible to participate in FHA's reverse mortgage program. The program allows
you to borrow against the equity in your home. You can select from five 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 plus 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.
You
can change your payment options for a fee of $20. Unlike
ordinary home equity loans, a FHA reverse mortgage HECM does not require repayment
as long as the home is your principal residence. Lenders recover their principal,
plus interest, when the home is sold. The remaining value of the home goes to
you or your heirs. You can never owe more than your home's value. If
the sales proceeds are insufficient to pay the amount owed, FHA will pay the lender
the amount of the shortfall. FHA collects an insurance premium from all borrowers
to provide this coverage. The
amount you can borrow depends on your age, the current interest rate, other loan
fees, and the appraised value of your home or FHA's HECM mortgage limit for your
area, whichever is less. Generally, the more valuable your home is, the older
you are, and the lower the interest, the more you can borrow. If there is more
than one owner, the age of the youngest owner is used to determine the amount
you can borrow. For an estimate of HECM cash benefits based on your age, home
value, and current interest rate, go to the online
calculator.
There are no asset or income limitations in order for you to be eligible for a
HECM. In addition, there is no limit on the value of homes qualifying for a HECM.
The value of your home will be determined by an appraisal. However, the amount
that you may borrow is derived from the lower of the appraised value or the FHA
HECM mortgage limit of $625,500. You are charged an upfront insurance premium
of 2 percent of the maximum claim amount that may be borrowed plus a 0.5 percent
annual premium. HECM
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, including an origination fee, closing costs,
mortgage insurance premium, interest and servicing fees. Origination
Fee
You
will pay an origination fee to compensate the lender for processing your HECM
loan. A lender can charge a HECM origination fee up to $2,500 if your home is
valued at less than $125,000. If your home is valued at more than $125,000 lenders
can charge 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. Closing
Costs Closing
costs from third parties can include an appraisal, title search and insurance,
surveys, inspections, recording fees, mortgage taxes, credit checks and other
fees. Mortgage
Insurance Premium (MIP) You
will incur a cost for HECM insurance. You can finance the mortgage insurance premium
(MIP) as part of your loan. You will be charged an upfront MIP at closing which
will be 2% of the lesser of your home's value or the FHA HECM mortgage limit for
your area. You will also be charged a monthly MIP that equals 0.5% of the mortgage
balance. The
HECM insurance guarantees that you will receive expected loan advances and that
you will not have to repay the loan for as long as you live in your home. The
insurance also guarantees that, if you or your heirs sell your home to repay the
loan, your total debt can never be greater than the value of your home. Servicing
Fee Lenders
or their agents provide servicing throughout the life of the HECM. Servicing includes
sending you account statements, disbursing loan proceeds and making certain that
you keep up with loan requirements such as paying taxes and insurance. HECM lenders
may charge a monthly servicing fee of no more than $30 if the loan has an annually
adjusting interest rate and $35 if the interest rate adjusts monthly. At loan
origination, HECM lenders set aside the servicing fee and deduct the fee from
your available funds. Each month the monthly servicing fee is added to your loan
balance. Interest
Rate HECM
borrowers can choose an adjustable interest rate or a fixed rate. If you choose
an adjustable interest rate, you may choose to have the interest rate adjust monthly
or annually. Lenders may not adjust annually adjusted HECMs by more than 2 percentage
points per year and not by more than 5 total percentage points over the life of
the loan. FHA does not require interest rate caps on monthly adjusted HECMs.
Repaying
a HECM A
HECM loan must be repaid in full when you die or sell the home. The loan also
becomes due and payable if: -
You do not pay property taxes or hazard insurance or violate other obligations.
-
You permanently move to a new principal residence.
- You, or the last borrower,
fail to live in the home for 12 months in a row. An example of this situation
would be if you (or the last borrower) were to have a 12-month or longer stay
in a nursing home.
- You allow the property to deteriorate and do not
make necessary repairs.
HECM
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