Home Equity Conversion for Mortgage, is it for you?

Written on May 6, 2009 by Charles Kim

The Home Equity Conversion for Mortgage progam (aka: HECM) was authorized by Congress in the the Housing and Economic Recovery Act of 2008 that took effect in January 1. What exactly is the HECM? The program primarily targets people 62 years or older who want to move and downsize thier living quarters from their current home. HECM allows seniors to sell their current residence and use a reverse mortgage to buy a new property, all in a single transaction that eliminates the the cost of paying for two seperate closing costs for each transaction and insured by the Federal Housing Administration. No income verification and little down paymet makes this an attractive option for those looking to downsize, but haven't sold their current home. The down payment on the new residence is based on three factors: 1: The youngest purchaser's age. The older the buyer,the smaller the down payment. 2: Prevailing interest rates. The lower the rate, the smaller the down payment on a reverse mortgage that comes with a fixed rate that never changes over the life of the loan. But adjustable-rate reverse loans "have a special rate factor" called "the expected rate" that is used in the down payment calculation. 3: Value. Lenders use either the property's sale price or appraised value, whichever is less, to determine the loan amount, which is then used to determine the down payment. But for properties valued above the current FHA HECM lending limit of $625,000, you'll have to come up with more cash, for every dollar in value above the limit will add a dollar to the down payment. The purchaser's income nor credit score are factors in qualifying for a HECM. But there is limited asset verification. Purchasers must demonstrate that they have the required down payment and that the money has not been borrowed. Financial gifts appear to be acceptable under certain guidelines intended to confirm that the funds are truly a gift, not an undocumented loan. In addition, purchasers are not required to sell their current home prior to the closing of their reverse mortgage purchase. But they must occupy their new home within 60 days of closing. Purchasers can retain their current home as a rental property as long as they are capable of meeting the financial obligations of maintaining both homes.

No Comments

---