It all started when…
The first reverse mortgage loan loan was written in 1961 by Nelson Haynes of Deering Savings & Loan (Portland, ME) to Nellie Young, the widow of his high school football coach. This reverse mortgage loan allowed Nellie to stay in her home despite the loss of her husband’s income.
In the 1970’s many “private banks” began offering “reverse mortgage loans” which provided seniors money from their homes equity but did not provide all of the protections that today’s current HECM loans provide. In the early 1980’s the U.S. Senate Special Committee on Aging issued a report stating the need for a standardized reverse mortgage loan product. In late 1987 Congress passed the FHA insurance bill that would insure reverse mortgage loans. On February 5, 1988 President Ronald Reagan signed the FHA Reverse Mortgage Loan bill into law. In 1989 the first FHA-insured HECM was made to Marjorie Mason of Fairway, Kansas by the James B Nutter Co.
Since 1989 reverse mortgage loans have grown in popularity, especially in the mid to late 1990’s. Despite economic upheaval and forward mortgage lending issues, reverse mortgage loans have continued to grow as a safe, government-insured product allowing seniors to access a portion of the equity in their homes while never making a payment.
Below is only a partial list of the many benefits that older homeowners are enjoying from Reverse Mortgage Loans.
- Able to Maintain their Lifestyle and most importantly their Financial Independence!
- Comfort knowing they are secure and not a burden on their family
- Remain living in their home for as long as they wish!
- No restrictions on how they use the money they receive
- No monthly mortgage payments*
- They retain full ownership of their home, such that loan conditions must be met (taxes, insurance, maintenance.)
- Proceeds are Tax Free and may be received in flexible ways**
- The HECM Reverse Mortgage Loan is insured by FHA and regulated by HUD.
- No affect on Social Security or Medicare benefits
- Home improvements and modifications
- Able to purchase gifts for grandchildren and family
- Travel and vacations
- Purchase a new car or other large ticket item
- Able to fund educational needs for their family
- Purchase a new home or vacation property
- Obtain Health and Long Term Care Insurance
- Consolidate, reduce, and pay off debts
- Easy to qualify – homeowners must be at least 62 years of age, own their home, have sufficient equity in home, and occupy the home as their primary residence
*The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, hazard insurance. The borrower must also maintain the home.
**Not tax advice, consult a tax a professional.
In order to qualify for a FHA Insured reverse mortgage loan, all borrowers must receive reverse mortgage loan counseling from a counseling agency that is approved and certified by the Federal Housing Administration (FHA). The counseling session varies between “free” and $150 and is paid directly by the borrower to the counseling agency. In some cases this fee can be paid out of the proceeds of the reverse mortgage loan at closing. If you can show the agency that there is a hardship and cannot afford to pay and prove this with documentation, you may be eligible for free counseling.
You will receive a Certificate of Counseling in the mail once you have completed the counseling. Once you receive your certificate, please sign it and forward the original signed copy of the counseling certificate to us at The HECM Group so we can include it with your loan application to verify that you have completed your federal counseling requirement.
As a lender, loan officer or employee, no one can steer, direct, recommend, or otherwise encourage a client to seek the services of any one particular counseling agency. Federal regulations require HECM Counseling for all borrowers prior to obtaining a Home Equity Conversion Mortgage (HECM). This is a consumer safeguard the Department of Housing and Development requires so Reverse Mortgage Loan borrowers are properly educated and have a solid understanding of how Home Equity Conversion Mortgages work and how obtaining one will impact their financial position.
Required Paperwork for your Reverse Mortgage Loan Application
- Copy of Social Security Card or Medicare Card
- Copy of Driver’s License, ID Card, Passport or Birth Certificate
- Copy of Homeowner’s Insurance Policy (Agent Contact Information Acceptable)
- HUD Reverse Mortgage Loan Counseling Certificate (Original and signed/dated by all borrowers)
- Copy of Mortgage Statement(s), if applicable
- Copy of Death Certificate for any deceased property owners, if applicable
- Copy of Power of Attorney, if applicable
- Copy of Trust, if applicable (All pages and schedules)
- Name, address and phone number(s) of any third parties you wish to be part of your transaction (family, attorney, accountant, financial planner, etc.)
Like any financial application, the more complete the file, the quicker and smoother your loan request will be. If you have any questions regarding the requested information, don’t hesitate to contact me at 714.746.8801.
The Basic requirements for the HECM for Purchase Reverse Mortgage Loan:
Created by the Housing and Economic Recovery Act of 2008, the “HECM for Purchase” Reverse Mortgage Loan became effective January 1, 2009. This product opened up a whole new world of possibilities for seniors. Whether it’s being closer to children or grandchildren, an Adults-Only community with all the amenities, locate to a warmer healthier climate or simply down size to that perfect home to meet your future retirement needs.
Home Equity Conversion Mortgage (HECM) for Purchase allows seniors, age 62 or older, to purchase a primary residence using loan proceeds from a reverse mortgage loan. Specifically, the product allows seniors to purchase a new principal residence and obtain a reverse mortgage loan within a single transaction. Before January 1, 2009, seniors who wanted to purchase their “Perfect Home” were required to pay ALL CASH or qualify for a loan plus pay purchase closing costs and then turn around and obtain a Reverse Mortgage Loan with additional refinance closing costs. This “one time close loan” can save you thousands of precious dollars and time (no delays from purchase to refinance).
- Eligible Property Types
- Ineligible Property Types
- Investment Requirements
- Allowable Funding Sources
- Unallowable Funding Sources
- Home Inspection
- Writing the Offer
The following property types are eligible for a Reverse Mortgage Loan:
- Single Family Residence (detached and attached)
- PUD’s (Planned Unit Developments) (Attached and Detached)
- Condominiums (Attached and Detached) with FHA approved HOA’s
- In Approved HUD Projects Manufactured Houses (Must meet HUD Requirements)
- 2-4 Unit Owner Occupied Properties
The following property types are ineligible for a Reverse Mortgage Loan:
- Co-operative units Condo-Hotel projects
- Manufactured housing built before 1976 and lacking permanent foundation (Mobile Homes)
- Bed and Breakfast properties
- Boarding houses
- Unimproved land
- Working Farms Properties used for agricultural purposes
- Commercial Properties
- Unique Construction (Earth Homes, Dome Homes)
- Timeshares or segmented ownership properties
- Properties situated in: a) Flood Hazard Areas that are NOT eligible for participation in the National Flood Insurance Regular Product b) Any area defined by the US Geological Survey Observation as Lava Flow Zones 1 or 2
At closing, HECM borrowers must provide a monetary investment (commonly known as the Down Payment) which will be applied to satisfy the difference between the HECM principal limit and the sales price for the property, plus any HECM loan related fees that are not financed or offset by other allowable FHA funding sources. In other words, the proceeds from the reverse mortgage loan and any funds from the sale of the old property (or from the borrower’s savings) must be enough to purchase the new property outright. The difference between principal limit and sales price for the property also includes any HECM loan related fees that are not financed or offset by other allowable funding sources. Borrowers may provide a larger investment in order to retain a portion of HECM proceeds for future draws.
- Borrower may only use their own money or money obtained from the sale of assets.
- Withdrawals from borrower’s savings or retirement accounts are acceptable.
Lenders will be required to verify the source of all funds prior to closing. A verification of deposit, along with the most recent bank statement, may be used to verify savings and checking accounts. If there is a large increase in an account, or the account was opened recently, the lender must obtain a credible explanation of the source of those funds.
- Closing cost assistance
- Builder incentives
- Seller contributions or seller financing
- Credit card advances
- Secured or non-secured loans from another asset (car, home equity)
Borrowers may not obtain a bridge loan (also known as “gap financing”) or engage in other interim financing methods to meet the monetary investment(down payment) requirement or payment of closing costs needed to complete the purchase transaction. This restriction includes subordinate liens, personal loans, cash withdrawals from credit cards, seller financing and any other lending commitment that cannot be satisfied at closing.
All seniors are strongly encouraged (but not required) by HUD to get a home inspection from a licensed professional home inspector:
- Evaluates the physical condition: structure, construction, and mechanical systems
- Identifies items that need to be repaired or replaced prior to the scheduled closing date
- Estimates the remaining useful life of the major systems, equipment, structure, and finishes
- Buyers should be at the inspection to ask questions about the condition and maintenance
- Required Repairs Health and safety or structural integrity issues must be completed prior to closing by seller
- Buyer cannot put any money into repairs before they own the home
- Writing an offer: Must state offer contingent on satisfactory inspection conducted by qualified inspector
- Borrower may want attorney to review – increases costs but may be worth it
- Based on the potential number of parties who may be assisting the elder buyers (financial advisors, family members, etc.) please allow for additional time for these parties to review all documents and provide their opinion (longer contingency periods and escrow) as part of the purchase contract language.