Home Equity Conversion Mortgage (HECM) for Home Purchase

Transcription

1 Home Equity Conversion Mortgage (HECM) for Home Purchase A Guide to HECM s

2 Home Equity Conversion Mortgage (HECM) for Home Purchase A Home Equity Conversion Mortgage for Purchase can be life-changing for many seniors 62 years and older. People decide to move for multiple reasons. Maybe their current home is too big or too small. Perhaps they would like to be closer to family or maybe the current home no longer meets their needs. Whatever the reasons, the exciting news is seniors can use the proceeds from the sale of their previous home to purchase a new home that better suits their needs. Imagine the financial independence that can be achieved by eliminating monthly mortgage payments (borrower must remain current on their property taxes, homeowner s insurance and HOA dues). Borrowers retain full ownership of the property, and any remaining equity in the home after the loan is repaid, stays with them or their heirs. WHAT IS THE HOME EQUITY CONVERSION MORTGAGE (HECM) FOR PURCHASE? An FHA-insured Reverse Mortgage. Enables Senior homebuyers age 62 or older to purchase a new primary residence and obtain a reverse mortgage in simultaneous transactions with no monthly mortgage payments (borrower must remain current on their property taxes, homeowner s insurance and HOA dues). Allows Senior buyers to combine reverse mortgage proceeds with a down payment from their current home sale or other assets, to purchase a new home. 2

3 PROGRAM SPECIFICS Available to seniors, age 62 and older No monthly mortgage payments required (borrower must remain current on their property taxes, homeowner s insurance and HOA dues) Minimal credit and income requirements. Insured by the Federal Housing Administration (FHA). Eligible properties: Single family homes, 2-4 Unit Dwellings (one unit must be owner occupied), Manufactured Homes and FHA-approved condominiums. The Advantages of a HECM for Purchase Senior homeowners can live in their home without making a monthly mortgage payment. With most seniors on fixed incomes, not having to make a monthly mortgage payment can improve cash flow and relax a monthly budget tremendously. Borrowers are required to maintain the home and remain current on their property taxes, homeowner s insurance and HOA dues. The HECM borrower (or his/her estate) will never owe more than the loan balance or value of the property, whichever is less; and no assets other than the home must be used to repay the debt. These are FHA insured, non-recourse loans. Relocate to a home more suitable for retirement and get a nicer home for the money. Property and title remain in the borrower s name, and they retain full ownership. It may be easier to qualify because no monthly mortgage payments are required. Borrowers must maintain the home, and remain current on property taxes, homeowner s insurance and HOA dues. 3

4 A HECM reverse mortgage cannot go into foreclosure as long as the borrowers adhere to the HUD loan guidelines and fulfill the requirements of the loan. If the borrowers want to pay off the HECM reverse mortgage, there are no pre-payment penalties. Why purchase a home using a HECM for Purchase? The following are some of the reasons for using a HECM for home purchase: Time to move. People decide to move for multiple reasons: To be near family. More convenient location. As the years go on, many retirees want to be near family and enjoy their company, but at the same time have a home they can go to when they want to get away. People may not want to drive as much and they may want to be near restaurants, grocery stores and medical facilities A reverse mortgage is only due when both homeowners pass away, sell the home or both choose to vacate the property. Time to downsize/right size. The home is too big or the yard maintenance is overwhelming. Example Ann (78) wanted to move from her Phoenix home she owned free and clear to Tempe, so she would be closer to her daughter and grandchildren. She couldn t qualify for a traditional mortgage due to her limited social security income. A HECM reverse mortgage for purchase allowed her to sell her home and use the proceeds to buy a new home in Tempe. Sell Existing Home for Pay off Existing Mortgage Cash Left Over From Sale $375,000 $000,000 $375,000 Now Ann can purchase a New Home using a HECM for Purchase Cost of New Home Downsize Upsize $ 320,000 $415,000 Estimated HECM Available Funds $187,961 $245,225 Ann would need $132,039 $169,775 Cash remaining after purchase $242,961 $205,225 Estimated HECM Available Funds minus Purchase Price equals the Estimated Funds needed from borrower at closing. However, each situation varies with sales price, date of birth and interest rate. Contact your local Loan Originator for your personal HECM for Purchase analysis. 4

5 HECM FOR PURCHASE SCENARIO: Thomas is 73 years old and wants to move closer to his family. HECM proceeds available to Thomas are calculated based on his age, the property value, sales price and current interest rates. His present home will sell for approximately $400,000 and his mortgage will be paid off. The purchase price of the new home he is interested in is $250,000, has been updated and is closer to his family. To purchase the new home using a HECM for purchase loan, Thomas can use the HECM Available funds of $135,628, make a cash investment from the sale proceeds of his original home and eliminate the burden of monthly mortgage payments going forward. This will improve Thomas cash flow every month and help preserve his savings and other assets. Although he will not have a monthly mortgage payment, Thomas must remain current on his property taxes, homeowner s insurance and HOA dues. Example: Home Purchase Price: $250,000 HECM Loan Amount: $ 149,750 (Available Principle Limit) Total Settlement Costs: $14,122 Available Loan Proceeds: $135,628 Required Cash to Close: $114,372 Thomas Monthly Mortgage Payment: $0.00 Purchasing Power Estimated HECM Available Funds minus Purchase Price equals the Estimated Funds needed from borrower at closing. However, each situation varies with sales price, date of birth and interest rate. Contact your local Loan Originator for your personal HECM for Purchase analysis. Purchase Price Age of yougest borrower $200,000 $300,000 $400,000 $500,000 $600,000 Estimate Reverse Mortgage Available Funds 62 $93,817 $142,937 $192,057 $242,177 $292, $97,617 $148,637 $199,657 $251,677 $303, $104,417 $158,837 $213,257 $268,677 $325, $112,217 $170,537 $228,857 $288,177 $357, $120,817 $183,437 $246,057 $309,677 $373,297 This table shows the estimated funds available from utilizing an FHA-insured HECM reverse mortgage to purchase a home. This information is provided as a guideline and does not reflect the final outcome for any particular homebuyer or property. The actual reverse mortgage available funds are based on current interest rates, current charges associated with the loan, borrower date of birth, the property sales price and standard closing costs. Interest rates and loan fees are subject to change without notice. Following the closing of the home purchase, no further principal or interest payments will be required as long as one borrower occupies the home as their primary residence and adheres to all HUD guidelines of the loan. Borrower must remain current on property taxes, homeowner s insurance and HOA dues. The cost of any reverse mortgage loan depends upon how long the loan is kept and how much the property appreciates in value. Generally, the effective cost decreases across the life of the loan. 5

6 WHAT TYPE OF HOMES ARE ELIGIBLE FOR HECM FOR PURCHASE? Single family homes (attached or detached). 2-4 Unit Dwellings (one unit must be owner occupied). FHA approved Condominiums & Townhouses. Manufactured Homes. New construction properties where the certificate of occupancy has been issued and the property is ready to occupy. No co-ops. What is a Reverse Mortgage? In general, it s easiest to explain reverse mortgages by beginning with a comparison to the home equity loan. The reverse mortgage is a home equity loan that s designed to help seniors tap into the equity in their homes. This loan is only available to homeowners who are 62 or older and have built up substantial home equity. The other unique features of a reverse mortgage are best explained by 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 6

7 may receive payments from the lender and does not need to make monthly mortgage payments back to the lender, so long as he or she lives in and maintains the home, and remains current on the property taxes, homeowner s insurance and HOA dues. The loan balance grows over time as the borrower receives payments and interest accrues on the loan; home equity declines over time. Essentially, the mortgage works in the reverse direction of a forward mortgage, which is where the term reverse comes from. All loans must eventually be repaid, and the reverse mortgage is no different. The loan is due once the borrower sells the home or passes away. Of course, the borrower 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. Who is Eligible for a Reverse Mortgage? One of the strengths of the HECM program is that there are not overly restrictive requirements, often 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 are eligible for a reverse mortgage if: You are 62 years of age or older. The home is your primary residence. The house is a Single family, 2-4 unit dwelling (one unit must be owner occupied), an FHA approved condominium or a Manufactured home. 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. The counseling sessions will help you understand how the loan works and different alternatives that are available to you. All prospective borrowers will need to undergo a financial assessment to make sure that they can afford to pay property taxes and homeowner s insurance going forward. 7

8 The HECM for Home Purchase Process Reverse Mortgage vs. Traditional Refinance Loans Traditional refinance loans allow credit-and-income qualified homeowners to borrow money and require repayment in the form of monthly payments. With a reverse mortgage, there are minimal income or credit score qualifying restrictions and payments may be made to you (according to HUD guidelines). Purchasing a home with a reverse mortgage is very similar to purchasing a home with a conventional mortgage, except rather than determining the borrower funds needed at closing based solely on the purchase price, the minimum borrower funds needed at closing will be based on a factor of the borrower s age, current interest rates, and the lesser of the home s appraised value, purchase price or FHA-imposed national lending limit. Once an offer is accepted, your Senior Loan Consultant will work with the seller or seller s agent to open escrow with a title or escrow agency familiar with reverse mortgages. Reverse mortgage appraisals, inspections, contingencies, documents, and closings are virtually the same as those with a conventional mortgage. Because of the HUDrequired independent borrower counseling, some reverse mortgage escrow periods may be slightly longer than those of a conventional mortgage although this isn t always the case. Eligibility Requirements The basic eligibility requirements to purchase a home with a HECM are: All titleholders must be aged 62 or over. The purchased home must be the principal residence. The purchased home must meet HUD s minimum property standards and be either a single-family residence, a residence in a 2- to 4-unit dwelling (one unit must be owner occupied), a Manufactured Home or an FHA approved condominium. 8

9 Borrowers must complete a HUDapproved counseling session. What does it take to get prequalified? If a borrower has selected a home to purchase, we will need the following information: Borrower s name(s). Date of birth for all borrowers. Property address. Purchase price. Amount of funds borrower has available to bring to closing. OBLIGATIONS DURING THE LOAN Maintain the home as primary residence. Keep the home in good condition. Maintain paying homeowner s insurance, property taxes and HOA dues. Continue to use the property for its intended zoned use. Items Needed With a Reverse Mortgage Purchase Contract Fully Executed Sales Contract - executed by all parties: buyers, sellers and Realtors. What are the advantages of using a HECM to right size and move into a new home? There are no monthly mortgage payments required (borrower must remain current on property taxes, homeowner s insurance and HOA dues) when you use a reverse mortgage to purchase a new home. There are minimal credit or income requirements and none of the pre-payment penalties that come with some traditional forward mortgages. Is there a credit line to access like other reverse mortgages? Yes, if you choose not to use all of the reverse mortgage funds towards the purchase of your new home. How should I compare all of my options on financing a new home: cash down, traditional mortgage, and reverse mortgage for moving? The best way to think through your choices is by considering the following questions: How much money do you have as a down payment? Can you afford to make monthly mortgage payments? Do you have the income to qualify for a traditional mortgage? FHA Real Estate Certification - executed by all parties: buyers, sellers and Realtors. FHA Amendatory Clause - must be dated on the contract date and executed by all parties: buyers, sellers, and Realtors. Property Condition Disclosure - completed by seller and generally acknowledged by buyers. Any inspections that are included in the contract must be provided to the lender. 9

10 Who owns the house? You retain full ownership of your house. The title remains in your name. What fees can the seller pay and what fees must the buyer pay? Allowable fees must be typical for the market. Costs associated with the reverse mortgage must be paid by the buyer. Seller cannot pay prepaid costs. Taxes and HOA dues are paid by buyer on a prorated basis. Seller can only pay the transaction fees such as transfer tax, real estate commissions, title search and fees typically paid by the seller. At what point must reverse mortgage counseling be completed? Counseling is required prior to opening escrow or ordering an appraisal. In California, counseling is required prior to making application. Is new construction acceptable? Reverse mortgages are permitted on new construction as long as a Certificate of Occupancy has been issued and the property is ready to occupy. What if borrowers using the Reverse Mortgage for Purchase for a new primary residence, choose to retain their existing home as a rental property? Lenders must ensure the borrower has sufficient income to maintain the costs associated with the new home financed with the HECM for Purchase (i.e.: taxes, insurance, maintenance). The monetary investment for the Reverse Mortgage for Purchase transaction must be satisfied. Borrowers must continue to fulfill any other financial commitments on their existing properties. How is the down payment determined? The calculation is based on the age of the youngest borrower, the current expected interest rate and the FHA Maximum Claim Amount (the lower of the actual sales price, appraised value or FHA limit). 10

11 HECM PURCHASE MYTHS I would be buying my house but the bank will own my home: FALSE---You keep the title to your house. My heirs won t inherit anything: FALSE---Your estate only owes the balance on the reverse mortgage. I could get forced out of my home: FALSE---FHA/HUD reverse mortgages specifically state that, as long as you comply with the terms of the loan, you cannot be forced out of your home. Social Security and Medicare will be affected: FALSE---Money from a reverse mortgage is not considered income and doesn t lower Social Security or Medicare Benefits (consult your local program office or your attorney to determine how, or if, reverse mortgage proceeds might affect your specific situation). There are big out-of-pocket expenses: FALSE---All of the costs, whether closing costs or interest, are financed. 11

12 Contact: 1st Reverse Mortgage USA A division of Cherry Creek Mortgage Co., Inc, NMLS # S. Wadsworth Blvd., Suite 500 Lakewood, CO Phone (303) Toll Free (877) Fax (303) This promotional material is provided by 1st Reverse Mortgage USA and is not from or approved by the U.S. Dept. of Housing and Urban Development (HUD), the Federal Housing Administration (FHA) or the Federal Government. Cherry Creek Mortgage Company is not endorsed by, acting on behalf of, or at the direction of HUD, the FHA or the Federal Government. This material is not from HUD or FHA and the document is not approved by the Department of HUD or any Government Agency. HUD does not approve the material presented. Cherry Creek Mortgage Company, is not endorsed by nor acting on behalf of or at the direction of the US Department of Housing and Urban Development, the Federal Housing Administration, the US Department of Agriculture or the Federal Government. Copyright 2015 Cherry Creek Mortgage Co., Inc., NMLS #3001 dba 1st Reverse Mortgage USA. CA: Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act, License # ; MN: This is not an offer to enter into an agreement. Any such offer may only be made in accordance with Minn. Stat (3) & (4); NV: NV Mortgage Banker License #4195, NV Mortgage Broker License #4196; OR: License Number ML-4807; TX: This office is licensed and examined by the Office of Consumer Credit Commissioner of the State of Texas. To check the license status of your mortgage broker, visit