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Reverse Mortgage – HECM

The reverse mortgage, just as the name suggests, works in reverse. In this case, the borrower will borrow the money against the value of the property. This mortgage loan will therefore not need repayment until the homeowner dies or the property is sold. It is defined as reverse because it is the homeowner who is paid by the lender. Colorado Mortgage Pros offers more information about the reverse mortgage loans below.

Advantages of Reverse Mortgage

  •    Provides extra income to people in their retirement
  •    The borrower will continue to live in the house and cannot be evicted as long as the insurance and property tax is paid, and the home is being maintained
  •    The borrower will never owe more than the property’s value if he or she sells to repay the loan
  •    There is no income requirement
  •    The property serves as the collateral
  •    There are no monthly payments required as long as the borrower is living in the home
  •    Credit is irrelevant and in most cases not checked

Types of Reverse Mortgages

The Proprietary Reverse Mortgage- Under this plan, the banks, credit unions, and other financial institutions offer the loan to individuals with very high-value homes. Per the loan type, borrowers can receive payments in either of the following ways:

  •    Line or credit
  •    Lump sum
  •    Fixed monthly payments for a specific time period as long as the borrower is living in the home
  •    Combination of payment options

It is important to note that the money received on the reverse mortgage is normally tax-free and can be utilized for any purpose.

The Home Equity Conversion Mortgage, HECM- This plan is normally given by the Department of Housing and Urban Development, HUD and is insured by the Federal Housing Administration, FHA. This is the most common reverse mortgage accounting for around 95% of all the reverse mortgage loans. Initially, there used to be two categories of HECM plans (i) The Traditional HECM Standard loan. With this loan, all the costs that were linked to the loan were paid from the loan’s proceeds or financing them. The second one, (ii) was the HECM Saver Loan where borrowers could pay lower upfront payments but could not receive as much as they would with the former one. These two plans were stopped in 2013, and only the Home Equity Conversion Mortgage stands to date under the reverse mortgage type. It is worth noting that HECM loan is used in purchasing a primary property if the borrower will be having the cash to pay for the difference between the proceeds of the HECM and the closing as well as sales price costs.

 

Borrower Requirements

  •    Must maintain the property in perfect condition
  •    Not delinquent on federal debts
  •    Must continue paying insurance and tax
  •    Must occupy the home as the primary residence
  •    Must be 62 years of age
  •    Must own the property completely or owe a little on the mortgage
  •    Must partake in a consumer advising meeting by a HUD-approved HECM counselor
  •    Property Requirements
  •    A manufactured home meeting FHA requirements
  •    An HUD-approved house plan
  •    Single family home or 2-4 home with a single unit occupied by the borrower
  •    Must meet all FHA property and flood standards and requirements

 

Payment Plans

  •    Tenure- Equal monthly payments as long as one borrower resides in the home as the primary residence
  •    Line of Credit- Unscheduled installments or payments in a particular amount until the exhaustion of the entire credit line
  •    Term- Equal monthly payments for a set period of months
  •    Modified Tenure- A mixture of monthly payments and a line of credit as long as the borrower lives in the home
  •    Modified Term- A mixture of the monthly payments and line of credit for a fixed monthly period
  •    Single Disbursement Lump Sum- A one-time payment during the closing

The costs of HECM include the mortgage insurance premium, service fee, origination fee, and the third party charges. For more information about HECM reverse mortgage loans, Colorado Mortgage Pro experts are always at your service. Contact us today.