HECM Reverse MHECM Mortgage
Reverse mortgages have become more popular in recent years. They allow seniors who own a home but have little cash or savings to benefit from the equity in their home while still living in it. Reverse mortgages work similar to a home equity loan, except that funds aren’t repaid until the owner dies or leaves the residence permanently; any equity left in the home after repayment will still go to the heirs of the borrower.
The most common type of reverse mortgage is a Home Equity Conversion Mortgage, otherwise known as an HECM reverse mortgage; HEMCs constitute approximately 90% of the market for this type of loan. A HECM reverse mortgage is insured by the FHA, which implemented the program in 1989.
Despite the advantages of obtaining an HECM reverse mortgage, relatively few homeowners have taken the initiative to try them out; less than 5% of seniors who qualify for this program have participated since the HECM reverse mortgage was first offered by the FHA.
A part of the problem may be a reluctance to let of the value in a home that they worked so hard to pay off; another factor may be a lack of understanding about how an HECM reverse mortgage works.
IS AN HECM REVERSE MORTGAGE RIGHT FOR ME?
Everyone’s situation is different, and in order to decide if an HECM reverse mortgage is right for you, you must take a look at the benefits and drawbacks and apply them to your circumstances.
The Benefits of an HECM Reverse Mortgage
- Many lenders won’t take your credit rating into consideration.
- You still retain ownership of the home; you can sell it or move out whenever you wish, and any equity left after settlement belongs to you.
- The terms and payment schedules are very flexible.
- There is a non-recourse feature to most HECM reverse mortgage s, which means you will never repay more than the value of the home.
- A HECM reverse mortgage is non-taxable income.
- No worries about foreclosure as long as the taxes and insurance are kept current.
The Disadvantages of an HECM reverse mortgage
- An HECM reverse mortgage is still a loan, and must be paid back by you or your heirs when circumstances warrant repayment (death, relocation, or sale of the the home.).
- There are fees involved. You can lower these by shopping around, and they can be added to the balance of the loan.
- If housing values fall or stay flat, there is less left over for your heirs.
WHO CAN QUALIFY FOR AN HECM REVERSE MORTGAGE?
In general terms, any homeowner over the age of 62 who has paid off or paid down their mortgage is eligible to apply for an HECM reverse mortgage. However, there are a few other qualifiers for borrowers as well as for the eligibility of properties.
In addition to those requirements, all income must be verified; taxes must be up to date with no delinquencies; the home must be fully insured, including flood and hazard insurance; and the borrower may not have any Federal delinquencies, such as student loans outstanding.
To be eligible for an HECM reverse mortgage, the property must be the main residence of the borrower. It must also be a single-family home, or a multiple-unit home with no more than four units; the borrower must live in one of the units. In addition, condos or manufactured homes can be considered for an HECM reverse mortgage as long as they meet HUD or FHA standards.
HOW DOES AN HECM REVERSE MORTGAGE WORK?
An HECM reverse mortgage works much the same as any other home loan. An eligible homeowner will apply for an HECM reverse mortgage, and after performing a title search and verifying income and credit the borrower can be approved for an HECM reverse mortgage for the amount of the estimated sales value, up to the FHA HEMC cap of $625,500.
The amount you qualify for depends on the age of the youngest person on the loan agreement, the current interest rate, and the appraised value of the property.
There are two different types of HECM reverse mortgage: HECM Standard, which has higher fees at closing but allows for a larger loan amount; or an HECM Saver mortgage which has lower fees and insurance, but reduces the amount for which you can qualify.
HECM Reverse Mortgage Fees
Other HECM reverse mortgage fees include:
- FHA insurance premiums, which can be added to the balance of your loan.
- Origination fees. These are currently set at $2,500 for homes valued at $125,000 or less, and at two percent of the value for every $200,000 of assessed value, up to six percent.
- Third-party fees, for appraisals, inspections, and other costs to outside companies.
- Service charges, which are limited to $30-35, depending on your interest rate. These are added to your loan balance on a monthly basis.
- Interest. You can choose a low adjustable or fixed interest rate. The adjustable rate is capped at five percent over the life of the loan.
Educate yourself and shop around for the best HECM reverse mortgage for you and your situation.