What is a good definition of “reverse mortgage”?
The official name of a reverse mortgage is Home Equity Conversion Mortgage (HECM). It is a home loan that allows older homeowners (62 and older) to access a portion of their home equity now in a lump sum or over time with monthly draws or a growing line of credit.
What is the difference between a 1009 and a 1003 application?
The 1009 is the required application form to be used specifically for reverse mortgages. The 1003 is commonly used for traditional mortgages.
For how much can I qualify?
That will depend on your age, the interest rates, and your home’s value. Older borrowers generally qualify for more funds, as well as lower interest rates.
Does FHA round up borrower ages?
Yes, but the youngest borrower must already be 62. If the closing occurs within 6 months of the youngest participant’s next birthday, FHA rounds up to the nearest age for calculating the borrower’s Principal Limit.
Can a borrower go into assisted living?
Yes, for a period of time. However, if no borrowers remain in the home after 1 year, it is considered permanently vacating (a maturity event).
Can the heirs refinance the property?
Yes. After the borrowers have passed, the heirs may seek financing of their own to refinance home, often for the lesser of the mortgage balance or the property value.
Is there a monthly service fee?
Servicing fees are based on market conditions at the time of origination, and at this time, we do not have servicing fees on HECMs. If that changes, it will only be for new applicants.
What happens when the borrower dies?
The heirs have the opportunity to sell the home. The HECM is paid off at closing, and any remaining equity becomes their inheritance. Otherwise, they can refinance, pay off, or walk away through the use of a Deed in Lieu of foreclosure.
HECM FOR PURCHASE FAQs
Can we set-aside funds for repairs to be completed after closing?
No. All repairs must be completed by the seller, and paid for by the seller, prior to loan closing.
Is Home Inspection REQUIRED?
Not usually, unless it is in the sales contract or the appraiser notates a need.
What fees CAN the seller pay?
The seller can ONLY pay their pro-rated share of taxes or HOA dues, transfer or intangible taxes, costs of repairs, and fees that are required to be paid by the seller for the seller’s benefit.
What fees may be different from traditional HECMs?
Owner’s Title Policy, Transfer Taxes, Homeowners Insurance. Also review the purchase contract to see what additional fees will be required.
Are counselors part of the government or are they a private company?
HECM counselors usually work for non-profit organizations, but they are approved by HUD and in some cases by their state. In addition, they are required to complete training so they can advise the client on more than just HECMs.
Does the counseling have to take place before the application?
That is preferable. HUD allows the application to be taken first, but no processing can take place until the lender has a signed and dated counseling certificate.
How long is a typical counseling session?
It depends on the agency and the borrower’s needs, but may take up to an hour or more.
Is counseling required for HECM to HECM refinances?
Yes. The program changes periodically and an updated counseling certificate will be required.
When does a counseling certificate expire?
180 days from the day the counseling was completed. However, it is generally alright for it to expire during processing. Yet, if we have not assigned it an FHA case number by the expiration date, they will need to be re-counseled.
Where do I go for counseling?
Your loan originator will generate a list based on the subject property zip code. It will include the 8 national agencies as well as local counselors so the borrower can meet face to face.
Who must attend counseling?
All borrowers, co-borrowers, POAs for incompetent borrowers, conservators, and guardians are required to be counseled.