Written By: Joan Ewing, Op-Ed Writer
Hello All – I am sure that once President Obama has had time to digest all his duties, there will be changes in the mortgage industry; however, until then everything is pretty much status quo.
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As everyone is aware, the declining stock market has affected the income of many seniors receiving IRA distributions and stock dividends. In this market of decline house prices in some markets – a Reverse Mortgage could still be the answer for seniors who need additional income.
The FHA Reverse Mortgage known as HECM (Home Equity Conversion Mortgage) is with a lending institution such as a bank, credit union or savings and loan company. Seniors homeowners who are age 62 and older can use the FHA program. The program will enable seniors with equity in their homes to convert this equity to additional income. Homeowners who feel this stream of income is for them must attend consumer education and counseling by a HUD approved counselor to determine this program meets their needs.
HECM counselors will discuss program eligibility, financial implications and other types of financing instead of obtaining a HECM plus provisions for the mortgage becoming due and payable. Upon the completion of the HECM the consumer should be able to determine if this program is for them.
Of course, homeowners must meet the eligibility criteria and must complete an application through an FHA approved lender.
The basic borrower requirements for the HECM program are: The homeowner must be 62 years old; the homeowner must own the property and living in the property as a primary residence. And the housing counseling mentioned above must be completed.
What determines the amount of mortgage the borrower will be entitled? The age of the youngest borrower will be taken into account; the current interest rate and the lesser of the appraised value or the FHA limit for the area the property is located.
Does the borrower need good credit? There is no income or credit qualification associated with this program. There is no repayment as long as the property is the primary residence and the closing costs may be financial into the mortgage.
The property can be a single family home or 2-4 unit home with one unit occupied by the borrower. The property must also meet FHA property standards and flood requirements.
Homeowners 62 and older who have paid off their mortgages and have only a small balance remaining and are currently living in their home are eligible to participate in this program. Now – how are the payments repaid? I know I said above no payments were required on the loan – that is true, however, the loan must be repaid at some point.
The borrower may receive monthly payments from FHA as additional income – or they can make their loan a line of credit and draw down the same as any credit line. The borrowers may also choose to make monthly payments on their loan. In addition – if the borrower’s circumstances change they can restructure their payment options for a nominal fee of $20.
Since lenders recover the principal, plus interest when the house is sold – FHA does not require monthly payments be made. If any home equity remains after the sale of the property, the remaining value goes to the homeowner, estate or heirs. The really criteria with this loan program is – you can NEVER owe more than your home’s value when sold.
If the sales proceeds are insufficient to pay the amount owed to the lender, HUD will pay the lender the amount of the shortfall. The Federal Housing Administration (FHA) collects an insurance premium from all borrowers to provide this coverage.
Next week – we will get into examples of the amount borrowers could borrow and what criteria is used for determining the amount borrowed. We will also review frequently asked questions about this program.
Need FHA Training? CLICK HERE: http://www.FHA-Classes.org
So – until next week – keep processing. More later.
About The Author
Joan Ewing - As an op-ed writer and active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP®, please email us at: contact@mortgageprocessor.org.
