HECM Reverse Mortgages: Facts & Misconceptions
HECM stands for Home Equity Conversion Mortgage, which is an FHA insured reverse mortgage. There are many misconceptions when it comes to reverse mortgages. The most common ones I hear are that the lender actually owns the home and the children are left with the debt. Neither of these is true.
First, when you have a reverse mortgage on your home it is just like having any other mortgage with regard to your ownership. You remain the owner and hold title the same way as you are holding it now. You are still able to sell or refinance out of the reverse mortgage if choose to do so. And there is no time limit as to how long you can stay in the home. Lenders cannot evict the homeowner provided they continue to live in and maintain the home in good condition and pay insurance and property taxes.
Second, when you pass away your children or whomever you leave the home to have three options: 1) Sell the home and keep the proceeds, 2) Refinance the home and keep it, and 3) Let the home go back to the lender. In addition, your children are left with no additional debt and have a variety of options.
Reverse mortgages are non-recourse loans – meaning the borrower (or his or her estate) will never owe more than the loan balance or the value of the property, whichever is less. The maximum amount owed is the lesser of the value of the home at the time of sale or the balance of the mortgage.
You do not need to own the home outright. There does need to be considerable equity which is based on the age of the youngest borrower.
The home must meet FHA guidelines. Two to four unit properties are acceptable as long as the borrowers occupy one of the units. Condominiums must be on HUD’s FHA approved list.
An individual 62 or older can also use a reverse mortgage when buying a home. However, a significant down payment would be needed in order to meet reverse mortgage equity requirements. This eliminates the need to take out one mortgage for the purchase and refinancing into a reverse mortgage.
How does a Reverse Mortgage work?
A reverse mortgage allows seniors 62 years or older to convert home equity into cash and/or eliminate monthly payments. You have the option to take cash out in a lump sum or utilize an open line of credit. There are two monthly payment options, one which guarantees payments for life.
What is the maximum loan amount? The FHA Reverse mortgage current limit is $625,500.
What’s the process? First, we need to chat on the phone or in person to figure out what your needs are and what you are trying to accomplish with the reverse mortgage. After discussing your options and deciding which best fits your needs, we will proceed with preparing initial documents for signature. While we are doing this, it is important that you complete the required reverse mortgage counseling. This can be done over the phone with any approved HECM counselor. Once the counseling is complete and we have received the certificate from the counseling agency, we can order the appraisal, which typically takes from 2 to 3 weeks. When we are in receipt of the appraisal and any requested documentation, we will submit your loan to underwriting. When we receive approval, there may be additional documents requested. After those are provided, we will sign final closing documents. Your loan will fund three business days after we sign, and record two business days after funding. Recordation is when your money is available.
I encourage seniors to explore the reverse mortgage as an option to retire completely or enhance retirement by eliminating monthly payments and freeing up cash. Please feel free to call me at any time at (808) 783-5815 and I will be happy to answer all your questions. Or you can apply online at www.mannhawaii.com/ joeschmitz.