Home Equity Conversion Mortgage HECM. Presented By: Doris Batty NMLS #

Transcription

1 Home Equity Conversion Mortgage HECM Presented By: Doris Batty NMLS #

2 What is a Reverse Mortgage? Created for homeowners 62 & older. Converting their home s equity into cash. Payment stream reversed. No monthly mortgage payment.

3 Program Eligibility Homeowner must be 62 years of age or older. Borrower must occupy the property.(primary Residence) Single Family, FHA approved Condo. Borrower must have Equity graded by age. Mandatory HUD-Approved Counseling Session. Financial Assessment at time of application.

4 HECM Counseling Requirement Counseling required for all borrowers. HUD Certified Counselor acting as 3 rd party. Cost generally $ Most counseling sessions done via phone. Average counseling session 1 hour.

5 Reverse Mortgage vs. Traditional Mortgage Reverse Mortgage: No Monthly Mortgage Payment. Payments are made bythe lender not tothe lender. Negative Amortization. (Balance increases over time) Traditional Mortgage: Borrower pays monthly payment of principal & interest. Positive Amortization. (Balance decreases over time)

6 Loan Amount / Principal Lending Limit A clients loan amount will be based on: The younger borrower s age. The appraised value of the home. The current interest rates.

7 Reverse Mortgage Myths (These are all FALSE statements) I would be selling my home to the bank. No, it s a mortgage. You still own the home. My heirs won t inherit the home. Yes, they can inherit but less available equity is likely. I might outlive this loan. No, that is not possible. I could get forced out of my home. Only if I do not pay my Taxes, HO Insurance & HOA. Social Security & Medicare will be affected. Only Medicaid/SSI programs could possibly be affected. I will need to pay taxes on the HECM proceeds. There are big out-of-pocket expenses. For a refinance only upfront cost is the Appraisal and the Counseling Session. All remaining costs are financed into the loan.

8 How does the HECM loan get paid back? Selling the property. Heirs may pay off and keep the home. Heirs may refinance and keep the home. If the loan balance is higher than the current value, FHA will cover the difference. Note: FHA insures the loan. Borrower pays an upfront and monthly mortgage premium for this protection.

9 HECM Fees Financed Fees: Origination Fee. MIP Fee. (Mortgage Insurance Premium) Closing Costs. Out of Pocket Costs: Appraisal Fee. (Generally $ to $475.00) Counseling Fee. (Maximum $150.00)

10 Interest Rates Fixed Rates Adjustable Rates Adjustable rates will have a set margin. The marginis then added to the current index. (Index based on the Libor Rate)

11 Distribution of HECM Proceeds Lump Sum. (60% first year, 40% after) Monthly Payment. Line of Credit. Combination of any of the above.

12 Keeping HECM s in good standing Must be primary home. Must pay Property Taxes. Must pay Homeowners Insurance. If applicable, one must pay HOA dues. If applicable, must pay SIDS/LIDS. Must keep property condition to FHA standards.

13 Refinance Example Property Appraised Value: $250,000. Principal Limit Qualified Amount: $144,000 (Based on Age 70) Fees: Mortgage Insurance: -$6,250. (2.50% of Appraised Value) Origination Fee: -$4,500. (2% of $200,000 Appraised Value and 1% on the remaining Appraised Value) Estimated Closing Cost: -$2,150. Qualified Amount less the Total Fees: $131,100 Payoff Current Mortgage Balance: -$100,000. Line of Credit Reserves: $31,100. New HECM Loan Balance: $112,900. (Mortgage Balance + Total Fees) (No Mortgage Payment as long as you live in the home!!!)

14 Purchase Example Purchase Price: $200,000. Principal Limit based on age 66: $109,800. Down Payment Amount: $90,200. Estimated Closing Costs: $11,058. Fees: Mortgage Insurance: $5,000. (2.50 of Appraised Value) Origination Fee: $4,000. (2% of the $200,000 Appraised Value) Estimated Closing Cost: $2,058 (third party fees) CASH FROM BORROWER: $101,258. (No Mortgage Payment as long as you live in the home!!!)

15 Cons to the HECM Negative amortization. Only eligible on primary residence. Interest Rates slightly higher. Interest is not tax deductible. May impact homeowner to loose Medicaid/SSI. Consequences for non-borrowing spouse. Do not invest HECM proceeds in stock market.

16 Pros to the HECM Homeowners/Trust retain title to their property. FHA insured loan / Non-recourse loan. No monthly mortgage payment. No effect on Medicare or Social Security. Proceeds from Reverse Mortgage is tax free. Allows client s additional savings for retirement. Extra cash flow of equity.

17 Doris Batty, NMLS # HECM Loan Originator Website: W. Russell Rd, Suite 210 Las Vegas, NV Office Phone: Cellular Phone: