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Home Equity Conversion Mortgage (HECM)- extra stuff!

There were significant changes to the HECM reverse mortgage program effective October 2017.  Principal Limits were reduced by about 8% and the former “Standard” and “Saver” programs merged.  In addition, the upfront mortgage insurance is now 2% for all loans, and the annual mortgage insurance on outstanding balances is reduced to 0.500%.

Mandatory obligations include the existing mortgage (refinance) or the purchase price (purchase transaction). Available funds in the first year are limited to mandatory obligation PLUS 10%.

Careful planning will be important to optimize your benefits and reduce your costs. Options to receive proceeds from your reverse mortgage include monthly payments, a lump sum payment, a line of credit or a combination of the three. Funds are advanced to the borrower and interest and mortgage insurance will accrue on the outstanding balance monthly.

A reverse mortgage is due when all borrowers no longer live in the home. At no point will the borrower owe more than the current value of their home. If the loan balance were to exceed the value of the home, FHA insurance fund – not the borrower or their estate – pays any shortfall. As always with a reverse mortgage, there is no risk of passing the mortgage debt to heirs. However, all equity that is available once the loan has been repaid is available to the estate or borrowers.

Certificate of occupancy is no longer required prior to starting the process when purchasing a newly built home. A new home can close shortly after completion as with traditional financing. This had been a significant impediment to purchasing a newly built home because new owners and builders didn’t want to wait 30 -45 days after the home is completed to finalize the transaction.

A non-borrowing spouse or owner can remain on title along with the borrower. They must receive the HECM counseling and sign documentation acknowledging that the property is encumbered by the reverse mortgage. This also can allow the non-borrowing spouse or owner to remain in the home if the borrowing spouse/owner predeceases them. A non-borrowing spouse/owner will lose access to new funds from the reverse mortgage.