This handbook describes the Department’s Home Equity Conversion. Mortgage ( HECM) program and provides instructions for HUD staff, participating lenders. Refresher Training Curriculum – Originators and Servicing Operations. Page 1 of Loan Setup – Manual and B2G (Business to Government) a. HECM- Persons Not Requiring Reverse Mortgage Housing Counseling. .. The staff also provides technical assistance and training regarding HUD‟s.
|Published (Last):||7 December 2005|
|PDF File Size:||1.57 Mb|
|ePub File Size:||4.26 Mb|
|Price:||Free* [*Free Regsitration Required]|
A reverse mortgagehcem known as the home equity conversion mortgage HECM in the United States, is a financial product for homeowners 62 or older who have accumulated home equity and want to use this to supplement retirement income.
Unlike a conventional forward mortgage, there are no monthly mortgage payments to make. Borrowers are still responsible for paying taxes and insurance on the property and must continue to use the property as a primary residence for the life of the loan. Want to learn more? Click here to get free information about a reverse mortgage! These loan products can be a challenge manul explain or understand, even for people who have plenty of financial experience.
This loan is only available to homeowners who manjal 62 or older and have built up substantial home equity. The other unique features of a reverse mortgage are best explained trxining a comparison to traditional forward mortgages.
In a forward mortgage, the borrower makes monthly payments to the lender, gradually reducing the loan balance and building equity. With a reverse mortgage, the borrower receives payments from the lender and does not need to make payments back to the lender so long as he or she lives in the home and continues to fulfill his or her basic responsibilities, such as payment of taxes and insurance.
The loan balance grows over manyal as the borrower receives payments and interest accrues on the loan; home equity declines over time.
Home Equity Conversion Mortgages Handbook (4235.1)
All loans must eventually be repaid, and this one is maanual different. The loan is due once the borrower sells the home or passes away. Of course, the trainjng may also choose to pay off the loan at any time.
In most instances, a reverse mortgage is paid off when the mortgaged home is sold. It is important to note that reverse mortgages are designed so that the amount owed cannot exceed the value of the home. This means that you do not need to worry about your reverse mortgage lender failing to make payments to you.
One of the strengths of the HECM program is that there are not overly restrictive requirements, making these loans easier to qualify for than other financial products such as a mortgage refinance, home equity loan, or home equity line of credit HELOC. You must meet with a HUD approved counselor before obtaining a reverse mortgage to determine if the product is suitable for your needs.
The counseling sessions will help you understand how the loan works and different alternatives that are available to you. All prospective borrowers trainig also undergo a financial assessment to qualify. This assessment makes sure that the borrower can pay for:. When you own a home with a traditional mortgage, you gain equity over time as you pay down the loan.
Home equity is the difference between what your home is worth, its appraised value, and any debt that you have from mortgages against the home. There are a few options for tapping into your home equity that you majual be familiar with — selling the home, taking out a home equity loan, or obtaining a home equity line of credit. There is an alternative solution, however, and that is the reverse mortgage. If you are eligible and the product is suitable for your needs, a lender can offer you fixed monthly payments or a line of credit based on the value of your equity.
Though there are other factors involved, you can think of the lender giving you a loan to you based upon how much equity you have in the property. The becm of your reverse mortgage is based on how old you are, how much your trainin is worth, and the interest rate that you are offered on the loan. One of the best features of the HECM program is that borrowers are given a great deal of flexibility in how they receive the proceeds of the reverse mortgage.
Of course, a senior obtaining a reverse mortgage can also choose to combine multiple options into a plan that best suits his or her needs. For example, a senior could choose to take out a certain amount of cash at closing while also receiving an annuity.
There is also significant flexibility with changing from one option to another over time. For example, if a borrower receiving an annuity wished to switch to a line of credit instead, he or she could do so by paying a small fee.
You are working with a private company, and the FHA is providing a guarantee on your loan. This guarantee protects you in two significant ways.
Fannie Mae Updates Reverse Mortgage Loan Servicing Manual – Reverse Mortgage Daily
First, the FHA guarantees that the senior will receive all the payments that he or she is entitled to as a result of the reverse mortgage. This removes the risk of the lender going bankrupt or simply refusing to make good on its obligations.
In circumstances where the debt outstanding on the reverse mortgage exceeds the value of the home, the FHA covers the difference. The amount of your reverse mortgage is based on how old you are, how much your home is worth, and what interest rate the lenders offers to you. With a reverse mortgage there is no loan to repay as long as you are alive, living in the home, and keeping the terms of your loan.
You can have the money disbursed to you in the form of a check or a line of credit. The loan generally does not have to be paid back until either the last surviving homeowner dies or moves out of the home. After that happens, the estate typically sells that home and uses the proceeds from that sale to repay the reverse mortgage loan. If there hraining extra money left over the heirs get to keep it.
They have to accept the financial loss and cannot go after the heirs for the balance. There are three major fees that borrowers must pay.
Most are similar to those paid on a forward mortgage. Over the life of the reverse mortgage, borrowers must also continue to trainlng a 0. Interest will also accrue on the balance. Generally, the costs of a reverse mortgage are financed into the loan so that the borrower does not have to pay out of pocket.
What is a Reverse Mortgage Explained – Definition & Rules
Of course, not all lenders charge the maximum origination fee possible. First of all, the home must continue to be used as the primary residence. Otherwise they risk default. Bankruptcy can also be a violation of the reserve mortgage agreement.
Thankfully the financial assessment added in makes this far less likely. Manuzlthe Consumer Finance Protection Bureau put together a report to examine the reverse mortgage industry.
This report concluded that the following groups of seniors were most likely to benefit from obtaining a reverse mortgage:. This list is a good start, and we have a few trxining uses for reverse mortgages that consumers may find useful. Here are trainjng ways that a senior could use the proceeds of a reverse mortgage:.
Is there anyone who lives in the home that will be mortgaged besides the borrower or borrowers? When the borrower dies or moves out of the home, the reverse becomes due. This could affect those living with you, manuap as a younger spouse, children, or other family members. Discuss the situation with them traning and then proceed if it makes sense for you. There is no need to worry about hecj family or loved ones needing to move out when the reverse mortgage becomes due.
Reverse mortgages are expensive over a short time horizon and get progressively less expensive as more time passes. Thus, mamual reverse mortgage is more likely to be right for you if you will remain in your home for a long time.
A reverse mortgage is probably not right for you. If you are comfortable leaving some debt on your home, there are reverse mortgage options that will limit the amount of equity that you withdraw, leaving your heirs with a more valuable inheritance. Additionally, the senior must continue to use the home as his or her primary residence. Once the home is not used as a primary residence for 12 months, the reverse mortgage becomes due.
You can check out these guides by following the relevant link below: You can also read our guide for manufactured homes. The program began picking up steam in the early s, and today somewhere between 50, and 60, seniors typically manhal out a reverse mortgage each year. National Council on Aging.
Who is Eligible for a Reverse Mortgage? You are eligible for a reverse mortgage if: You are 62 years of age or older You own your home and use it as your primary residence The house is single family, multi-family up to 4hec an approved condominium or manufactured home You own your own home free and clear or only have a small amount left to pay on the existing mortgage Your home is in good condition prior to taking out the loan You must meet with a HUD approved counselor before obtaining a reverse mortgage to determine if the product is suitable for your needs.
This assessment makes sure that the borrower can pay for: How Much Can I Borrow? Generally speaking, your borrowing power increases: When you are older. An 80 year hscm will be able to borrow more than a 62 year old if all other factors are equal. As interest rates hrcm. Options for Withdrawing Your Money One of the best features of the HECM program is that borrowers are given a great deal of flexibility in how they receive the proceeds of the reverse mortgage.
There are four basic options: Withdraw a lump sum of cash when the loan closes Receive a monthly annuity for mnaual long as the borrower lives in the house. Receive a monthly annuity for a set period of time chosen by the borrower. This credit line actually grows with the passage of time.
How is the Government Involved? Key Benefits The amount of your reverse mortgage is based on how old you are, how much your home is worth, and what interest rate the lenders offers to you. These are the upfront fees that you will need to pay: Origination fee paid to the lender.
Appraisal, title, inspection and so on. Upfront mortgage insurance premium MIP. This premium pays for the protections that the FHA gives to borrowers. Is hscm Reverse Mortgage Right for You?
This report concluded that the following groups of seniors were most likely to benefit from obtaining a reverse mortgage: Those looking to supplement a fixed income in retirement.