Reverse Mortgage Blog

Realtors would be wise to pay attention to the HECM Reverse Mortgage for Home Purchase. 

The HECM for Purchase provides the opportunity to purchase a new principal residence with HECM loan proceeds in a single transaction. 

 Because the HECM loan does not require repayment until the borrower leaves the home permanently, it allows buyers to qualify with no income or credit factors.

Many seniors are looking to downsize or move closer to family.  They will want to sell their current residence and purchase a new residence.  you are opening your agency to a whole new source of buyers and sellers.  What a great opportunity to generate more business!

The key component to qualifying for home purchase is a sizable down payment.  There is no income or credit qualification because the new owner will not have any mortgage payments to make. 

It is very important for the Real Estate Agents on both sides of the transaction to know the HECM for Purchase Guidelines. The transaction is different from conventional purchases.  The purchase agreement must be setup properly at the beginning.  Understand what is necessary before the offer is submitted.  Provide documentation that is legible and specified in the guidelines.     This will assure the transaction will be successful and save everyone involved from delays.  For properties in California and Nevada, you are encouraged to call Maggie O’Connell at the initial stages of interest from prospects who are at least 62 years old and have substantial down payment funds. 

(800) 489-0986  ReverseMortgageStore.com

HECM for Purchase Guidelines

 (updated 5-26-09)

The property must be an eligible HECM property and must be single family residences only, no 2-4 unit properties qualify. Construction must be completed and property ready for occupancy.  The borrower must occupy the home within 60 days of closing. 

The maximum claim amount will be the lower of the actual sales price, appraised value or FHA maximum loan limit.

The required monetary investment is the difference between the principal limit and the sales price plus the total of the HECM closing costs and the servicing set aside amount. 

The borrower may provide a larger monetary investment in order to retain some HECM proceeds for future draws.

If a gift is being used, a gift letter, evidence of donors ability to provide gift and evidence that funds have been transferred into Borrower’s account prior to closing or a certified check showing remitter is required.

We must Verify Funds from mortgagor.  Funds for purchase must be borrower’s own funds for the required monetary investment. Including cash on hand or proceeds from sale of home or assets.  A verification of deposit along with original bank statements that cover the most recent 3-month period and previous month’s balance are used to verify savings and checking accounts. and certified check bearing the name of the borrower can be used to verify funds from the sale of a home.  A wire transfer statement showing Settlement Agent as sender and Borrower as recipient can also be used.

Earnest Money Deposit must be verified and a copy of the HUD-1 and executed Purchase Contract provided.

Ineligible Funding Sources include; gifts, credit card advances, bridge loans, personal loans, subordinate liens, loan discount points, interest rate buy downs, closing costs assistance, builder incentives, gifts or personal property given by the seller or any other party, seller concessions or financing, loans against borrower assets, down payment assistance programs are prohibited.

Allowable Fees  must be typical for the market.  Costs associated with the HECM loan must be paid by the buyer.  Seller cannot pay pre-paid costs.  Taxes and HOA fees must be prorated.  Seller can only pay the transaction costs (transfer tax, real estate commissions, title search, etc.) typically paid by the seller.

Counseling Certification:  All borrowers, non-borrowing spouses and attorney-in-facts must receive counseling and the certification must reference the subject property being purchased and to be provided to the loan originator prior to opening escrow.

Origination Fee is up to 2% of the first $200,000 and 1% thereafter of the Maximum Claim Amount subject to a minimum origination fee of $2,000 and a maximum origination fee of $6,000.  100% of closing costs are allowed to be financed into the loan amount.

Servicing Fee varies by Product and an amount sufficient to fund the servicing fee for the duration of the mortgage must be set aside.

A Contract of Sale, fully executed with all changes initialed must be provided.  The following must be included in the Contract of sale:

            -FHA Amendatory Clause

            -FHA Real Estate Certification

-Contingency for a satisfactory Home Inspection conducted by a qualified Home Inspector

-Language indicating Seller is responsible for completing and paying for structural repairs that affect the safety and soundness of property prior to closing.

-It is recommended to include a Mortgage Contingency

Closing must take place in the Settlement Agent’s office.

Property Flipping is not allowed and lenders must take the following additional steps to ensure that the borrower has not been coerced into obtaining a reverse mortgage:

-Confirm only current owners of record may sell properties that will be financed using FHA-insured mortgages

-Any resale of a property may not occur 90 or fewer days from the last sale to be eligible for FHA financing and;

-For re-sales that occur between 91 and 180 days where the new sales price exceeds 100% of the previous sales price, additional documentation validating property’s value must be obtained.

Inter-Vivos trusts and life estate that meet guidelines are acceptable.  See HUD Guide for special restrictions/ requirements.

Mortgage Insurance Premium (MIP)  is required on all loans and is non-refundable. 

            -Initial MIP is 2% of maximum claim amount (may be financed or paid in cash)

-Monthly MIP is 1/12^th of .5% (of outstanding balance) is added to principal monthly

All Title Holders must be eligible Borrowers. Borrower cannot change title to property after receiving a HECM loan.

Only one FHA Insured Loan  per borrower at a time.  Therefore, if any of the Borrower’s existing real estate holdings are secured by an FHA mortgage, they must be paid off at or prior to closing.

This is a non-recourse loan.   The borrower or their estate will never owe more than the loan balance aor value of the home, whichever is less.

The following documents are required from the borrower at or soon after application:

The Contract of Sale must include:

            -Amendatory/Escape Clause

            -FHA Real Estate Certification

- Contingency for a satisfactory Home Inspection conducted by a qualified Home Inspector

-Language indicating Seller is responsible for completing and paying for structural repairs that affect the safety and soundness of property prior to closing.

Documentation required:

Counseling Certificate (original and signed and dated)

Verification of Social Security Card (legible copy of Social security card or medicare card)

Acceptable Photo ID

Proof of Age (legible copy)

Trust Agreement (if property is held in a trust)

New Homeowners Insurance Policy (and flood if needed)

(see required monetary investment and verification of funds for documentation of money from buyer/borrower) 

If you are in the market for a reverse mortgage, I can't stress enough the importance of getting the process started now. With the announcement on margin increases by Fannie Mae, it is extremely important to secure a reverse mortgage before interest rate indexes start moving up. A higher expected interest rate results in lower cash available, lower credit lines and lower monthly income amounts to you. Also, the high maximum claim amount is good only through 2009, and there will be a rush of loans going through at the end of the year. So don't miss the boat!

Contact us for FREE information and advice at the reverse mortgage store today!

As at the time of writing, the President has signed the Economic Stimulus package, part of which includes the provision for the HECM limit to increase to $625, 500 for the balance of 2009. THis is great news for homeowners in higher value homes as they can get more value from their home equity.

Visit us at reverse mortgage store for more information!

Age is one factor in determining the amount available from a reverse mortgage.  The best age to get a reverse mortgage depends on various factors.  Is there an existing mortgage with payments that create a financial strain on the budget?  What is important to the individual or couple, making the most out of life or retaining the most equity as possible for their heirs?  Is your existing financial situation fine at this time and do you want to preserve your equity for later years when financial needs may be greater?  The best time can only be determined by you and perhaps your family and your current financial status, your future needs, your concerns and personal attitudes and beliefs.  If you are ready, we are approaching a great time to get a reverse mortgages as interest rates are declining and the lending limits will be increased soon.

I hear from  people want to wait until they get older to get a reverse mortgage for the simple reason that reverse mortgage calculations provide more money at an older age.  This strategy on the surface makes sense but this strategy could backfire as there are other factors in play to determine the amount available from a HECM reverse mortgage.  The three factors in determining the amount available from the HECM reverse mortgage are age of the youngest borrower, current expected interest rate and appraised value of the home or FHA maximum claim amount, whichever is lower. Many people are not aware how dramatically the loan amount is affected with just a one point increase in the interest rate.  It could be very disappointing to wait and find the amount available is dramatically lower after waiting a few years.  Below is an example based on the amount available to a borrower at age 65 at the expected interest rate (current, and age 68 at one point higher and two points higher.  Notice the amount available, whether lump sum or monthly stipend is dramatically lower when calculated at a higher interest rate.

Age                  Home value               Rate                             Lump sum/LOC  or Monthly Stipend

65                    $350,000          5.56%                          $207,000                     $1,180

68                    same                6.56%                          $168,600                     $1,077 

68                    same                7.56%                          $136,500                     $969 

The reason less money is available with the higher interest rate is because of the way a reverse mortgage is structured, in that payments are not made over the life of the loan.  At a higher rate the lender assumes the balance will increase more rapidly, therefore they provide less money initially.        

 Let's look at an example with the home value appreciating to $417,000 by the time this borrower is age 68 but the rate is 2 points higher. (assuming the FHA maximum claim amount will be $417,000 by then). The amount available is $164,000, still much lower than the amount today at the current rate.  But with the increased value, closing costs increase by $1,100.  So waiting created less money available to the borrower but added more to the loan balance in fees because of the higher value.  We don't know what interest rates or home values will be in the future, but we do know what is available today.  And interest rates are at near historical lows.  The best strategy may be to take out the reverse mortgage now, even if you don't need the money until later because you can leave the money in the line of credit which will increase at the same interest rate that's charged on the balance, so you can be certain the amount available will be higher in the future.  This strategy minimizes the guesswork in timing your reverse mortgage transaction.

Other advantages of doing the reverse mortgage when rates are low is a lower cap on the adjustable rate reverse mortgage and if a fixed rate reverse mortgage works well for you, the low rate will certainly preserve equity for your heirs when the loan becomes due. 

On the date this article was written, the Housing and Recovery Act of 2008 has been signed into law, but not yet implemented.  Many prospective reverse mortgage borrowers with high value homes are waiting for the lending limits to increase, and for good reason.  The increased limits will provide more money and the current economic situation does not indicate interest rates will jump over the short term.  Let's hope home values don't slide before the new FHA lending limits are implemented.  If your home value is within the current lending limits, your best bet is to do the reverse mortgage now.

Written on 9/16/2008 by:  Maggie O'Connell, maggie@rmstore.net  www.ReverseMortgageStore.com &      www.ReverseMortgagesofNevada.com     

Disclaimer: Reverse Mortgage Store Blog does not guarantee nor is in any way responsible for the accuracy of the information provided herein, and provides said information without warranties of any kind, either expressed or implied.  Blog posts on the Reverse Mortgage Store Blog represent the opinions and ideas of the author(s). Reverse Mortgage Store Blog does not express the views of  Reverse Mortgage Store or those of the broker.

The housing and credit crisis of 2008 doesn’t limit its impact to speculators and risk takers. Senior homeowners have also been impacted. Home equity represents a large portion of net worth for the older set. Often, people sell their family home and downsize after retirement. But, in many areas of California and Nevada with home prices realizing dramatic reduction as we enter the fall of 2008, selling a home at this time may not be a good option or may not be an option at all! That’s where the reverse mortgage comes in. You can stay in your home, pull cash out and you don’t have to make payments (but you can if you want). We’re all waiting in anxious anticipation for HUD to announce exactly when, where, how and what the new lending limits will be. We do know there are exciting advances with reverse mortgages that will help more people get more money and enjoy more financial security. We do know the lending limits will increase soon. Many people with existing reverse mortgages will be able to refinance and have more money available, especially if they live in an area that had reduced lending limits up to now. Stay tuned to see what the new limits will be. Up to now, you could only get a reverse mortgage if you already had title to the home. With the new bill, people will be able to purchase a home using a reverse mortgage for financing. A larger down payment that standard financing is required (because no payments are required over the life of the loan). Since we are in a buyer’s market, this is a great opportunity for older people to purchase a new home. Reverse mortgage financing will also be available on Co-ops. The bill puts a cap on the origination fee a reverse mortgage originator can charge. But with the increasing limits and the 2% HUD charges for mortgage insurance, the loan is still costly in terms of up front fees (but no out of pocket fees). It is worth the cost over the long run when it helps maintain a comfortable lifestyle. I’ve always been adverse to cross selling financial products with reverse mortgages and I’m glad to see it has been addressed in the FHA Modernization Act that is part of this large housing bill, although there seems to be some contradiction on the bill. One paragraph strictly prohibits an individual from cross selling a financial product using HECM proceeds, if they receive financial incentive for the sale of the financial product and the reverse mortgage. However the second paragraph indicates that this maybe permissible if a lender has “safeguards and firewalls.” HUD lawyers are working on this but they way I see it, the reverse mortgage works well on it’s own. If you are interested in other financial products, that’s your business. Get your reverse mortgage through a knowledgeable reverse mortgage specialist (I know a good one if you are in California or Nevada), and get rid of mortgage payments, or get a monthly income or establish a line of credit for the future. And you know it’s safe!  by Maggie OConnell www.ReverseMortgageStore.com  800-489-0986

Music and reverse mortgage recordings - adding that personal touch? In this recording, I add in my piano playing as background to some recorded client testimonials and reverse mortgage discussions. It adds that 'personal touch'- what do people think?

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Hi there,

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On this podcast, I discuss one of the comonly asked- about fees regarding reverse mortgages - the servicing set-aside fee. I explain what this is and how it works. Keep watching for further recorded discussions on other fees.