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FHA HECM Loans

Reverse Mortgages

Simply explained.

 

By far one of the most misunderstood, controversial, and yet useful tools in our mortgage tool belt is the FHA HECM or more commonly called “Reverse Mortgage”.

Whenever a product is exclusively designed to target and benefit the senior population (62+), there is going to be some anxious discussions about the pros and cons of a Reverse Mortgage (RM) loan.  To start this discussion, lets clear up some issues:

 

  1. A homeowner does NOT give up, sell, or otherwise transfer ownership of their home to a lender OR anyone in the RM loan process. This is a lien against property you own. It is your continuing obligation to pay property taxes, insurance, keep it maintained and sell it, refinance it, or pass the home along to your heirs in any manner you choose.
  2. Once you are no longer living in the home as your PRIMARY residence (travelling throughout the year is just fine) you or your heirs have SIX (6) months to pay back the RM loan. You can sell the home, refinance it with a normal forward mortgage, or hand the keys over to the bank.
  3. In the unlikely event that your home ends up with MORE mortgage than the home is worth (typically upon the heirs inheriting the home), NOBODY is responsible for paying back the mortgage in excess of its value. For example, you live in the home for 20 years and then your kids inherit the house. The RM loan has grown to $500,000 and the market value is $450,000. Not an issue for you or your family. Hand the keys back to the lender. At the beginning of the loan, you paid upfront Mortgage insurance (MIP) which was an insurance policy for the lender to cover them in just this possible scenario.
  4. Qualifying for a RM loan is VERY simple. Age and Value home are the only two initial criteria. There is no credit score requirement, no income verification. The final loan amount is based upon the age of the youngest borrower and the home value. In the event you have a large loan on your home now, you may not qualify for enough RM loan to pay it off entirely. Therefore you may need to bring in some money OR the RM loan may not be the right choice for you.
  5. Yes, you can use an RM loan to PURCHASE a home. Again, the loan amount is determined by your age and the purchase price. Typically, the RM loan would fund about 55-60% of the price.