Written By: Joan Ewing, Op-Ed Writer
Hello All – Last week I covered the basic guidelines for the HECMs (Home Equity Conversion Mortgage). As outlined the guidelines are very basic since there is no credit qualifying; and could make an excellent source of additional income for seniors on fixed income. However, there are many questions that seniors as well as their heirs need answered before deciding to commit to the HECM.
Need FHA Training? CLICK HERE: http://www.FHA-Classes.org
First, I will re-iterate there are no asset or income limitations of borrowers nor is there a limit on the value of homes qualifying for the FHA Reverse Mortgage. However, the amount borrowed is limited to the maximum loan amount for the area of the property. The amount of loan allowable by area, in addition to the maximum loan amount by FHA, is based on the age of the borrower.
What are some of the most common questions asked by borrowers and their heirs?
The first questions usually asked is – What is a Reverse Mortgage and how is it different than a Home Equity Loan?
A reverse mortgage allows homeowners to convert the equity in their present primary residence into cash that does not need to be repaid until the property is sold. A Home Equity Loan on the other hand, is a loan that must be repaid monthly. If the borrower can qualify for a Home Equity Loan, they still must decide if they want to make a payment every month, which will reduce their spending allowance; whereas a Reverse Mortgage will increase their spendable cash.
How do I know if I can qualify for a FHA Insured Reverse Mortgage? To be eligible – the borrower must be 62 years old or older; own their own home either outright or with a small mortgage balance. You must receive consumer counseling from an approved HUD counseling agency who can also give you information on lenders who can process your mortgage application.
Why must a 62 year old person attend HUD Counseling? FHA wants to make sure that the person obtaining the Reverse Mortgage thoroughly understands all phases of the mortgage. If the borrower would like, it might be a good idea for the borrower to bring along a son or daughter or even accountant who can understand and explain the process to the borrower – also to feel confident the borrower is getting the type of loan that will get the results wanted.
What types of homes are eligible for a Reverse Mortgage? Your home must be a single family or 2-4 unit property that you own and occupy. Townhouses are eligible as well as detached homes. Condominiums are eligible if they are in an FHA approved project. Manufactured homes built after June 15, 1976 which are attached to a permanent foundation are also eligible.
Can the borrower lose their home if they outlive the loan? Absolutely NO!!! – As long as the borrower continues to occupy the property as their primary residence and all property taxes and insurances are current, and as long as the borrower meets the criteria of the Reverse Mortgage, they may continue to reside in the property.
Should I choose a lender who is recommended by my accountant or estate planner? That will be fine – if you are not charged a fee for the referral. However, if a fee is charged to you for a recommendation; keep in mind HUD provides this service free through the FHA counselors. There is also a listing of HUD approved lenders on line or you can call - - - - - - - 1-800-569-4287 – this telephone number also provides a list of HUD-approved counseling agencies near you.
After my loan is approved – how do I receive my payments? There are five different options for receiving payments:
1. You may receive equal monthly payments as long as one borrower lives and continues to occupy the property as a principal residence.
2. You may receive equal monthly payments for a fixed number of months.
3. Line of credit - You request payments when you need them, until you reach your loan amount.
4. You may receive payments for a number of months then decide you only want payments when you request them.
5. You may modify the term of the loan with the combination of line of credit and monthly payments for a fixed number of months.
It is important to remember that whichever option you choose for your payments – the loan does not get repaid until the property is sold or the borrowers no longer live in the property.
Reverse mortgages are becoming extremely popular for seniors. FHA’s reverse mortgage is a federally-insured private loan and it’s a safe plan that gives older Americans greater financial stability in this uncertain economy. You can use it to your advantage as long as you live in the property.
Need FHA Training? CLICK HERE: http://www.FHA-Classes.org
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.
