Reverse Mortgages

Residential and reverse mortgages are offered through Prestige Home Mortgage NMLS #14216.  These services are not offered through BR Capital, Inc.

FHA Reverse Mortgages (HECMs) for Seniors

If you are a homeowner age 62 or older and have paid off your mortgage or paid down a considerable amount, and are currently living in the home, you may participate in FHA’s Home Equity Conversion Mortgage (HECM) program.  The HECM is FHA’s reverse mortgage program that enables you to withdraw some of the equity in your home. You choose how you want to withdraw your funds, whether in a fixed monthly amount or a line of credit or a combination of both.

You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.

How the Program Works

There are many factors to consider before deciding whether a HECM is right for you.  To aid in this process, you must meet with a HECM counselor to discuss program eligibility requirements, financial implications and alternatives to obtaining a HECM and repaying the loan. Counselors will also discuss provisions for the mortgage becoming due and payable.  Upon the completion of HECM counseling, you should be able to make an independent, informed decision of whether this product will meet your specific needs.

Borrower Requirements

You must:

  • Be 62 years of age or older
  • Own the property outright or paid-down a considerable amount
  • Occupy the property as your principal residence
  • Not be delinquent on any federal debt
  • Participate in a consumer information session given by a HUD- approved HECM counselor

Property Requirements

The following eligible property types must meet all FHA property standards and flood requirements:

  • Single family home or 2-4 unit home with one unit occupied by the borrower
  • HUD-approved condominium project
  • Manufactured home that meets FHA requirements

Financial Requirements

  • Income, assets, monthly living expenses, and credit history may be verified.
  • Timely payment of real estate taxes, hazard and flood insurance premiums may be verified.

You can select from five payment plans:

  • Tenure – equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
  • Term – equal monthly payments for a fixed period of months selected.
  • Line of Credit – unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.
  • Modified Tenure – combination of line of credit and scheduled monthly payments for as long as you remain in the home.
  • Modified Term – combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.

Mortgage Amount

The amount you may borrower will depend on:

  • Age of the youngest borrower
  • Current interest rate
  • Lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price; and
  • Initial Mortgage Insurance Premium–your choices are HECM Standard or HECM SAVER

You can borrow more with the HECM Standard option. Although you may borrower less money with HECM Saver, your upfront fees are lower than the upfront fees a HECM Standard.  In addition, the more valuable your home is, the older you are, and the lower the interest rate, the more you can borrow. If there is more than one borrower, the age of the youngest borrower is used to determine the amount you can borrow.

HECM Costs

You can pay for most of the costs of a HECM by financing them and having them paid from the proceeds of the loan. Financing the costs means that you do not have to pay for them out of your pocket. On the other hand, financing the costs reduces the net loan amount available to you.

The HECM loan includes several fees and charges, which includes:

  1. Mortgage insurance premiums (initial and annual)
  2. Third party charges
  3. Origination fee
  4. Interest and
  5. Servicing fees.

The lender will discuss which fees and charges are mandatory.

You will be charged an initial mortgage MIP at closing, which is either 2% (HECM Standard) or .01% (HECM Saver) of the lesser of the appraised value of your home, the FHA HECM mortgage limit of $625,500 or the sales price.  Over the life of the loan, you will also be charged an annual MIP that equals 1.25% of the mortgage balance.

  1. Mortgage Insurance Premium – You will incur a cost for FHA mortgage insurance.  The mortgage insurance guarantees that you will receive expected loan advances. You can finance the mortgage insurance premium (MIP) as part of your loan.
  2. Third Party Charges – Closing costs from third parties can include an appraisal, title search and insurance, surveys, inspections, recording fees, mortgage taxes, credit checks and other fees.
  3. Origination Fee – You will pay an origination fee to compensate the lender for processing your HECM loan. A lender can charge a HECM origination fee up to $2,500 if your home is valued at less than $125,000. If your home is valued at more than $125,000 lenders can charge 2% of the first $200,000 of your home’s value plus 1% of the amount over $200,000. HECM origination fees are capped at $6,000.
  4. Interest Rate – You can choose an adjustable interest rate or a fixed rate. If you choose an adjustable interest rate, you may choose to have the interest rate adjust monthly or annually. Lenders may not adjust annually adjusted HECMs by more than 2 percentage points per year and not by more than 5 total percentage points over the life of the loan. FHA does not require interest rate caps on monthly adjusted HECMs.
  5. Servicing Fee – Lenders or their agents provide servicing throughout the life of the HECM. Servicing includes sending you account statements, disbursing loan proceeds and making certain that you keep up with loan requirements such as paying real estate taxes and hazard insurance premium. Lenders may charge a monthly servicing fee of no more than $30 if the loan has an annually adjusting interest rate and $35 if the interest rate adjusts monthly. At loan origination, the lender sets aside the servicing fee and deducts the fee from your available funds. Each month the monthly servicing fee is added to your loan balance.

HECM for Purchase

You can use a HECM for Purchase reverse mortgage loan to buy your next home if:

  • The youngest homeowner is 62 or older
  • The purchased home will be occupied within 60 days of closing
  • The purchased home will be the primary residence
  • Only the HECM mortgage loan can be used to purchase the home
  • The difference between the purchase price of the home and the HECM proceeds will be paid in cash from the sale of an existing home or another source of funds

Example – Selling an existing home

  • A single man, age 62, recently had his home appraised for $250K and still owes $50K; leaving him with remaining home equity of $200K
  • He wants to purchase for $300K
  • Based upon many factors including, the age of the youngest borrower (in this case 62), current interest rates, the lesser of the home’s appraised value, purchase price or FHA national lending limit, and loan fees he is eligible to borrow approximately $165K on the new property
  • He decides to buy the new property using $200K from the sale of his existing home and $100K available from the total HECM loan proceeds of $165.
  • This leaves him with a $65K line of credit from the remaining HECM proceeds
  • As with all mortgage loans you must continue to pay your property taxes and homeowner’s insurance premiums

Example – Paying cash

  • A single woman, age 70, rents a home but has saved $100K to purchase a property
  • She wants to purchase a home for $250K
  • After putting her $100K savings toward the home purchase, she is still short the remaining $150K
  • She decides that a HECM for Purchase is her best option.
  • Based upon many factors including, the age of the youngest borrower (in this case 70), current interest rates, the lesser of the home’s appraised value, purchase price or FHA national lending limit, and loan fees, she is eligible to borrow approximately $150K on the new property
  • She takes the full $150K from the HECM loan proceeds and combines it with her $100K savings for a total of $250K
  • She purchases the new home and will not be required to make monthly mortgage payments
  • As with all mortgage loans you must continue to pay your property taxes and homeowner’s insurance premiums

Special restrictions

  • Gift funds are not acceptable as a form of down payment
  • If the homeowner is using cash, the cash must be seasoned for 60 days
  • There must be proof that the homeowner has “eligible funds” for the closing and must provide all corresponding documents such as:
    • Letter of Verification
    • Proof of liquidation of retirement assets
    • Deed of Sale
    • HUD1 Home Sale Statement

The property must be a primary residence and can be

  • 1 to 4 units
  • Approved Condominiums

Ineligible property types include

  • Cooperatives
  • Newly constructed principal residences where a Certificate of Occupancy or equivalent has not been issued by the appropriate local authority
  • Boarding house
  • Bed and Breakfast establishments
  • Existing manufactured homes built before June 15, 1976
  • Existing manufactured homes built after June 15, 1976 that does not conform to the manufactured home construction safety standards or lack a permanent foundation

All major home repairs must be completed by the property seller before the loan can close:

  • Critical health, safety and structural integrity issues must be repaired
  • The buyer cannot pay for any repairs before they own the home
  • The repairs must be included in the purchase agreement

Costs

With a HECM for Purchase loan the usual costs associated with selling and buying a property apply as well as the normal reverse mortgage loan fees.

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Residential and reverse mortgages are offered through Prestige Home Mortgage NMLS #14216.  These services are not offered through BR Capital, Inc.