HECM Reverse Mortgages in Utah
Home Equity Conversion Mortgages (HECMs) are federally-insured reverse mortgages backed by the U.S. Department of Housing and Urban Development (HUD). They allow older homeowners to use the equity they have built up on their home to acquire a loan that does not necessarily require monthly payments. The interest builds, but the loan does not have to be repaid until the borrower moves out or passes away. As the loan is backed by HUD, if when the payment of the loan is due the debt exceeds the value of the home, the government insurance fund covers the remaining balance.
Reverse mortgages have had a bad reputation in the past, but there are now new regulations and safeguards that make them a great option! The FHA and HUD regulate the HECM loan amounts, loan terms, loan fees, and the maximum and minimum origination fees. HECM loans are also non-recourse loans. A non-recourse loan is a loan where neither the borrower nor the borrower’s family is held responsible for the repayment of the debt. The debt can either be paid off or when the loan ends, the proceeds from the sale of the house will pay off the debt.
Another safeguard is that before obtaining an HECM reverse mortgage, the borrower must meet with an independent third party counselor from HUD. Reverse Mortgages are not subject to income tax, do not affect your Social Security, and have no effect on Medicare. Lastly, there is a three day period after signing the loan documents when the borrower can continue to review the closing documents, ask questions, and even cancel the loan if they would like.
There are a few myths about HECM loans that need to be debunked. With an HECM reverse mortgage, there is no potential to be forced out of your home. The bank does not assume any ownership of your home, you retain the title to the property. You may still be able to qualify for a reverse mortgage if you currently have a mortgage. There are also new rules and regulations that protect the spouse of the borrower, so that they will not be left with any debt or kicked out of the home. The loan remains for the lives of both the borrowers if they remain in the home. The borrower is not required to make any payments on the loan.
How Do I Qualify for an HECM Reverse Mortgage?
In order to qualify for an HECM loan, the borrower must be at least 62 years of age or older, possess a substantial amount of home equity on their current home or the home they wish to purchase, and either be the principal resident of the property or plan to be soon. The property must be a single family home or a 2-4 unit home with the borrower currently occupying one of the units, a HUD-approved condominium, or a home that meets FHA requirements.
How Do I Receive the HECM Funds?
There are several ways to receive the payments from an HECM reverse mortgage. The different payment plans are tenure, term, line of credit, modified tenure, modified term, and single disbursement lump sum.
- Tenure - The borrowers receive equal monthly payments for as long as at least one of them is alive and continue to be the principal resident of the property.
- Term - The borrowers receive equal monthly payments for a fixed period of time selected by themselves.
- Line of Credit - The borrowers receive unscheduled payments at the times and in the amounts of their choosing until the line of credit is exhausted.
- Modified Tenure - This is a combination of the line of credit and scheduled monthly payments for as long as at least one borrower lives and remains in the home.
- Modified Term - This is a combination of the line of credit and scheduled monthly payments for a fixed period of time selected by the borrower.
- Single Disbursement Lump Sum - The borrowers receive a single lump sum at the closing of the mortgage (required for a fixed rate HECM loan).
HECM Loan For Purchase
HECM reverse mortgages are also available for the purchase of a home. By using an HECM loan to purchase a home, a person 62 years of age or older can completely bypass having a mortgage on their new home. The calculations to see if you qualify are calculated as if you already own the home. These calculations are based on the size of your down payment, the appraised value of the new property, and your age. Using an HECM reverse mortgage to purchase a home does require a large down payment, but this money can come from the proceeds from the sale of your current home and/or any other assets that you might own. Once you own the home, the HECM Loan for Purchase acts the same and your obligations are the same as if you had obtained a regular HECM reverse mortgage.
What Are My Obligations?
If the borrower still has an existing mortgage, it must be paid off immediately after obtaining the HECM loan. The borrower is also required to pay property taxes on the property, keep their homeowners insurance current, and maintain the property.
If you would like to know more about HECM reverse mortgages or are interested in obtaining one, please give us a call. We've helped many of our friends here in Utah with their HECM loans and we'd love to help you.