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If you are a homeowner with age 62 years or older, have paid off your mortgage or paid down a considerable amount, and are currently living in the home, a Reverse Mortgage may be a suitable option for you. This special type of home loan lets homeowners convert a portion of their home equity into cash selling the home, giving up title, or taking on a new monthly payment. The money from the reverse mortgage provides seniors with the financial security they need to fully enjoy their retirement years.
You can also use a reverse mortgage to purchase a primary residence if you are able to use cash on hand to pay the difference between the reverse mortgage proceeds and the sales price plus closing costs for the property you are purchasing.
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What is a Reverse Mortgage?
Unlike a traditional mortgage that you pay back each month, a reverse mortgage makes payments to you. You can get these payments in a lump sum to cover an unexpected bill, or as a regular supplement to your monthly income, or at intervals and amounts that are best for you.
We offer reverse mortgage loans that require no repayment as long as your home is your principal residence and you fulfill the borrower’s obligations, such as continuing to maintain the property and paying your property taxes and hazard insurance. You pay the money back plus interest and other charges when you sell or permanently move out of your home.
If you pass away, the loan is due, but the amount due will always be the lesser of your loan balance or the market value of your home. Even if the amount you borrowed eventually exceeds the value of your home, you or your heirs will never owe more than the value of your home. All proceeds in excess of what you owe belong to your estate, which means the remaining equity in your home can be passed on to your heirs.
Unlike the loan balance of a conventional mortgage, which becomes smaller with each monthly payment, the loan balance of a reverse mortgage grows larger over time.
As you receive your payments, your equity – the amount of cash you have left after selling and paying off the loan – generally grows smaller. But with a reverse mortgage you can never owe more than your home’s value at the time the loan is repaid.
If you own your home free and clear or if you have very little mortgage principal outstanding, a reverse mortgage may be a good option for you.
Reverse mortgages are tax-free and following are the payment plans available:
- A single lump sum of cash
- Regular monthly payments as long as at least one borrower lives and occupies your home
- Regular monthly payments for a fixed period of time
- A line of credit paid at your discretion
- A combination of monthly payments with line of credit
- 62 years of age or older
- Own a property or paid-down a considerable amount
- Occupy the property as primary residence
- Not be delinquent on any federal debt
- Have financial resources to continue to make timely payment of ongoing property charges such as property taxes, insurance and Homeowner Association fees, etc.
- Participate in a consumer information session given by a HUD-approved HECM counselor
- Income, assets, monthly living expenses, and credit history will be verified
- Timely payment of real estate taxes, hazard and flood insurance premiums will be verified
Frequently Asked Questions
What is a Home Equity Conversion Mortgage (HECM)?
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 and fulfills obligations, such as continuing to maintain the property and paying property taxes and hazard insurance.
What are the advantages of HECM reverse mortgage?
There are many advantages of HECM reverse mortgage and we will name a few in the following:
- Free you from existing loans: It pays off your existing loans on the property 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 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.
What is the minimum age requirement?
All the borrowers on the title must be at least 62 year of age.
What is the role of the counseling agency? Is it required?
HUD requires that all HECM borrowers must receive counseling from a HUD-approved counseling agency. The objective of the counseling session is to educate you about the features of reverse mortgage, the appropriateness of a reverse mortgage for your personal and financial situation, other financial options that might meet your needs, and to provide you with the guidance and resources to make an informed decision.
Can I apply if my existing loan is not FHA-insured?
Yes, as long as the appraisal shows that your home meets HUD’s minimum property standard.
What types of homes are eligible for a HECM loan?
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.
Do I have to live in my home?
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.
Do I still have to continue making payments on my existing home loan?
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.
Must the home be debt-free to qualify for a HECM loan?
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. If the proceeds of the loan are not sufficient to payoff the existing liens, HECM may not be for you unless you have sufficient assets to payoff the difference in amount.
Why can’t I just get a home equity loan?
With a traditional home equity loan, you must qualify for the loan and you are required to make a monthly mortgage payment. With HECM, you do not have to make any mortgage payments. This loan is primarily based on the age of the youngest borrower or eligible non-borrowing spouse, current interest rate, and lesser of the appraised value the FHA mortgage limit and the sales price (for HECM Purchase loan).
How much money is available to me?
Money available to you through a HECM depends upon the age of the youngest borrower or eligible non-borrowing spouse; current interest rate; lesser of the appraised value; the HECM FHA mortgage limit and the sales price (for HECM purchase loan); total closing costs; the amount of lien against your home; and some other factors.
In whose name does the Title remain?
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.
What if I am deemed to be mentally incapacitated?
Your spouse, or if not available, your appointed guardian will continue with the management of the loan.
Can the title be held in the name of my trust instead of my name?
Yes, if it is revocable.
How much does it cost to get this loan?
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.
Do I need an appraisal?
Yes, the value of your home is one of the most critical parameters in determining how much borrowing power you have.
Do I have to pay these fees at closing?
Yes. However, most of these fees can be financed into the loan if there is sufficient equity.
How is the interest rate on the reverse mortgage determined?
Interest may accrue at a fixed or adjustable rate, as negotiated between the borrower and the lender. For adjustable rate mortgages, the mortgage interest rate is set at the U.S. Treasury Securities rate adjusted to a constant maturity of one year, plus a margin which is the same as the margin used to determine the expected average mortgage interest rate.
Who pays the taxes and insurance?
You do. If the loan is subjected to a fully funded set-aside out of your HECM proceeds available to you, then lender will use such HECM proceeds to pay property taxes and insurance premiums on your behalf. If the loan is subjected to partially funded set-aside, then you will receive semi-annual payments from HECM proceeds to be used to pay property taxes and insurance premiums.
Note that in either case, you remain responsible for payment of all other property charges such as HOA dues, water/sewage, etc.
Is the money from the HECM loan taxable?
No, it is tax-free. For further information, please contact your tax attorney.
Will the money from the HECM loan affect my Social Security and Medicare benefits?
No, it does not affect Social Security and Medicare. For more information, please contact these agencies for your specific circumstances.
How do I receive my payments?
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.
Can I use the payment from the lender to pay for hazard insurance?
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.
What if my financial need changes?
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.
Do I have to pay anything during the course of the loan?
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.
Is there any prepayment penalty?
No. You may make a full or partial repayment at anytime without any penalty.
What if the loan balance becomes greater than the value of my home?
No matter how large the loan balance becomes, you have the right to continue to live in the house. You will NEVER owe the lender more than the value of your home. HUD will pay the shortage for you, if there is any.
What happens if I die? Will the lender be taking my house?
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.
What happens if I move out of my home?
The HECM loan becomes due and payable as soon as your home is no longer your principal residence.
Are there other situations in which my loan will become due and payable?
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.
Is there a time limit for my heirs to liquidate my home and payoff the lender after I die?
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 six (6) months of the Repayment Notice.
How is the lender paid?
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.
How much will be owed when the loan is due and payable?
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.
What Sun West Offers
Advantages / Benefits:
- Free you from existing loans on the property: The current mortgage and any other liens against the property will be paid off by proceeds from the reverse mortgage.
- The loan is not due as long as you live in the property: There will be no mortgage payments as long as you are current with your property taxes, have an active homeowner’s insurance policy, maintain the property according to the FHA’s minimum standards and pay other related charges such as H.O.A. dues, water/sewage, etc.
- A line of credit with growth: You may also choose to have a line of credit that grows every month.
- Use the proceeds for any purpose: The loan proceeds can be used to pay off credit card bills, medical insurance, or anything you can think of.
- No prepayment penalty: You may terminate the loan anytime you like by paying off the loan balance without any penalty.
- Limit on the amount you owe: You will never owe the lender more than the appraised value of your property since the program is FHA-insured.
- Closing costs may be financed: Almost all of the closing costs can be financed as part of the loan, which means no out-of-pocket expense for you if you have equity in the property to pay for the such closing costs.
- Social Security & Medicare unaffected: The loan will not affect your existing Social Security and Medicare benefits.