Congress Creates a New Liquid Market
The Home Equity Conversion Mortgage is a new product created by Congress to provide some liquidity to the struggling home market. The amount you can borrow depends on age, current interest rates, and the appraised value of your home or FHA's mortgage limits,whichever is less. Generally, the more valuable your home is, the older you are and the lower the interest, the more you can borrow.
1. No payments are necessary as long as the house is your principal residence.
2. No need to repay the loan as long as you or one of the borrowers continues to live in the house
3. You can never owe more than the value of your home at the time you or your heirs sell the home.
4. When you sell your home, you or your estate will repay the cash you received from the reverse mortgage plus interest and fees.
5. The rest is yours.
The Rules Have Changed
More seniors are turning to reverse mortgages to supplement their retirement savings, which have been decimated by market losses. At the same time, more seniors can qualify for a reverse mortgage since Congress recently raised the maximum home value that seniors can borrow against to $625,500 from $417,000. The bill also capped origination fees at 2% on the first $200,000 and 1% on any amount over that. Maximum fees are capped at $6,000 plus insurance and closing costs.
Only One Player Left
Banks were traditional lenders in the reverse mortgage market. No longer. The risk that the property will be worth less than the amount lent when its sold was too great and so they bailed. The FHA is effectively the only game in town, although there is some private equity money available for HECM's. Fannie Mae has been buying up most of the reverse mortgages to keep this market alive and to provide an avenue of retirement planning for those who have been hit hard and wont have the time to recover.
Senior Market
Retirement savings have been decimated and the housing markets are still in disarray. So selling is a none option in many cases. Many realize its going to be quite a while before they can down size or move to a retirement community. The best option now is to borrow out the equity and buy some time. Its not cheap. You have loan fees and closing costs. Its the thing you do after you have depleted savings.
62 or Over and Flush
You can buy a home using a reverse mortgage.
You can purchase a principal residence without a mortgage payment using a Federally Insured Purchase Reverse Mortgage. For those individuals with cash who want to move closer to family or buy into a senior housing community, its an option. For Realtors, its a market.
The Home Equity Conversion Mortgage is the FHA reverse mortgage program that enables you to withdraw some of the equity in your home. You can use it to buy a primary residence,if you have cash for difference between the HECM proceeds and the sales price. There is HUD counseling info below if you would like to learn more about it.
Here is what the Wall Street Journal had to say about liquidity in this market: In March and April 2009, the number of reverse mortgages backed by the government jumped nearly 20% from the same period last year. In April alone, the government insured 11,660 reverse mortgages, the highest monthly total since the government-backed program began in 1990. By contrast, the number of new home-equity loans, which similarly allow homeowners to tap the equity in their homes, fell around 70% in the first quarter from the prior-year period, according to Inside Mortgage Finance.
Realtors: If you are interested in a senior market of individuals with high net worth, home equity and motivation driveen by life cycle changes then look into the HECM Purchase Mortgage. Its a new Congressional creation and so far, its a functioning market.
Here are some credible resource sites:
HUD:
HUD: Housing Counseling Clearinghouse on (800) 569-4287 for the name and telephone number of a HUD-approved counseling agency and a list of FHA-approved lenders within your area.
FHA:
AARP:
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