| Questions & Answers: |
What is a Home Equity Conversion Mortgage (HECM)?
Answer: Home Equity Conversion Mortgage (HECM) is one type of reverse mortgage regulated by HUD. It allows a homeowner to convert a portion of the equity in his/her home into cash. Unlike a traditional home equity loan, the borrower is not required to make repayment as long as he/she occupies his/her home as the principal residence.
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What are the advantages of HECM reverse mortgage?
Answer: There are many advantages of HECM reverse mortgage and we will name a few in the following:
- No credit qualification: No matter what your credit score is, it does not affect your eligibility for a HECM loan.
- No income restriction: HECM does not have any minimum income requirement.
- Free you from existing loans: It pays off your existing loans by using the proceeds from the HECM loan.
- No more monthly payments: You do not have to make any monthly payment to repay the loan as long as you live at your home.
- Monthly cash flow: You can receive a guaranteed tax-free monthly cash flow for your entire lifetime.
- Line of credit: You may also have a credit line established and request money at any time for any purpose.
- Limit on the amount you owe: No matter how much cash you have received during the course of the loan, you will never owe the lender more than the value of your home.
- Use the money any way you wish.
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What is the minimum age requirement?
Answer: All the borrowers on the title must be at least 62 year of age.
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What is the role of the counseling agency? Is it required?
Answer: HUD is monitoring your interest carefully. For that reason, HUD requires all HECM borrowers receive counseling from a HUD-approved counseling agency.
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Can I apply if my existing loan is not FHA-insured?
Answer: Yes, as long as the appraisal shows that your home meets HUD's minimum property standard.
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What types of homes are eligible for a HECM loan?
Answer: Your home can be a single-family residence, a one-to-four unit building with one unit occupied by the borrower, a manufactured home (must have permanent foundation and must be installed), a unit in an FHA-approved condominium, or a unit in a PUD project.
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Do I have to live in my home?
Answer: Yes. However, if you need to be hospitalized or moved into a health facility, you may be absent from your home as long as you provide the appropriate notification as required by HUD and FNMA.
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Do I still have to continue making payments on my existing home loan?
Answer: No, you will NEVER have to make any monthly payment on your home anymore since Sun West will pay off your existing home loan out of the new HECM loan proceeds.
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Must the home be debt-free to qualify for a HECM loan?
Answer: No, a home that has an existing lien will qualify for a HECM loan as long as the proceeds of the loan are large enough to pay off existing mortgage(s) on your home.
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Why can't I just get a home equity loan?
Answer: With a traditional home equity loan, you must qualify for the loan and you are required to make a monthly mortgage payment. With HECM, there is no income or credit qualification required and you do not have to make any mortgage payments. This loan is primarily based on your age and the value of your home.
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How much money is available to me?
Answer: Lender calculates it based on your age, the interest rate, the value of your home, the county your home is located, the total closing costs, the amount of lien against your home and some other factors.
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Whose name does the Title remain?
Answer: Title of your home always remains in your name, NOT in the name of the lender. Lender has no interest in your home except for the amount you owe the lender.
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What if I am deemed to be mentally incapacitated?
Answer: Your spouse, or if not available, your appointed guardian will continue with the management of the loan.
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Can the title be held in the name of my trust instead of my name?
Answer: Yes, if it is revocable.
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How much does it cost to get this loan?
Answer: You practically have the same fees as in any other loan such as origination, appraisal, title, escrow, and the upfront mortgage insurance premium to HUD. All fees are regulated by HUD.
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Do I need an appraisal?
Answer: Yes, the value of your home is one of the most critical parameters in determining how much borrowing power you have.
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Do I have to pay these fees at closing?
Answer: Yes. However, most of these fees can be financed into the loan, which means that you do not have to come up with cash out of your pocket.
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What is the interest rate on the reverse mortgage and how is it determined?
Answer: Interest rate is set by Fannie Mae under HUD's guidelines. It is equal to the 1-year US Treasury constant maturity rate plus a margin, currently at 1.5%, for monthly adjustable HECM.
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Who pays the taxes and insurance?
Answer: You do. However, you may authorize us to do so if there are enough funds in the line of credit.
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Is the money from the HECM loan taxable?
Answer: No, it is tax-free. For further information, please contact your tax attorney.
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Will the money from the HECM loan affect my Social Security and Medicare benefits?
Answer: No, it does not affect Social Security and Medicare. For more information, please contact these agencies for your specific circumstances.
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How do I receive my payments?
Answer: There are five options you may choose:
- Tenure - Equal monthly payments as long as at least one borrower continues to occupy your home as the principal residence.
- Term - Equal monthly payments for a fixed period of months selected by you.
- Line of Credit - Unscheduled payment at times and amounts chosen by you until the line of credit is exhausted.
- Modified Tenure - Combination of a line of credit and monthly payments as long as at least one borrower remains in your home.
- Modified Term - Combination of a line of credit and monthly payments for a fixed period of months selected by you.
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Can I use the payment from the lender to pay for hazard insurance?
Answer: Definitely! You will need to notify us as required by HUD/FNMA. Lender will pay the insurance premium directly out of the funds in the credit line.
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What if my financial need changes?
Answer: If you have money available in your credit line, you can request it any time for medical or personal need. You can also cut back or increase the monthly payment amount. There will be a minimal handling charge as regulated by HUD.
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Do I have to pay anything during the course of the loan?
Answer: No. However, you are responsible for paying the real estate tax, hazard insurance and flood insurance if applicable. You also need to maintain the condition of your home.
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Is there any prepayment penalty?
Answer: No. You may make a full or partial repayment at anytime without any penalty.
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What if the loan balance becomes greater than the value of my home?
Answer: No matter how large the loan balance becomes, you have the right to continue to live in the house. Lender cannot take over your home as long as it is your principal residence. Besides, you will NEVER owe the lender more than the value of your home. HUD will pay the shortage for you, if there is any.
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What happens if I die? Will the lender be taking my house?
Answer: No. After you pass away, your heirs may pay the loan balance in full by cash or by refinancing the debt and they can keep your home.
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What happens if I move out of my home?
Answer: The HECM loan becomes due and payable as soon as your home is no longer your principal residence.
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Are there other situations in which my loan will become due and payable?
Answer: Yes. Two of the other situations in which the HECM loan may become due and payable are:
- You fail to pay real estate tax or hazard insurance.
- You fail to maintain your home in acceptable condition.
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Is there a time limit for my heirs to liquidate my home and payoff the lender after I die?
Answer: Your heirs should pay the debt in full or liquidate your home within 30 days after the Repayment Notice is issued. Otherwise, the servicer will initiate foreclosure proceedings within 6 months of the Repayment Notice.
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How is the lender paid?
Answer: The lender is paid at the time when the loan becomes due and payable, for example, when you sell your home. The lender will receive a payment from your heirs or sale proceeds of your home.
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How much will be owed when the loan is due and payable?
Answer: The total loan balance will include all the payments to you, the accrued interest, accrued mortgage insurance premiums, servicing fee, and other costs such as closing costs or repair fee financed as part of the loan balance. Note that the repayment amount will never exceed the appraised value of your home when your loan becomes due.
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