REVERSE MORTGAGE LOAN PROGRAMS
In order to close a Reverse Mortgage, a borrower needs to select a specific Loan program and payment plan. The borrower can change their initial payment plan at a later date if they choose. Parameters for the change are in the following list. If a borrower selects a payment plan with a line of credit, the unused portion of the line of credit will grow. This list contains features of the growth.
HECM Payment Plan Options
- Line of Credit. Borrower funds are available as needed upon request. The unused portion grows at a note rate plus 0.50% / 12
- Tenure. Borrower receives all funds in fixed monthly payment for as long as they remain in the home.
- Modified Tenure Borrower receives a lower fixed monthly payment and a line of credit for as long as they remain in the home.
- Term. Borrower receives fixed monthly payments for a fixed period or term. X amount a month of Y months.
- Modified Term. Borrower receives a fixed monthly payment for a fixed period or term and a line of credit for as long as they remain in the home.
- Lump Sum. Borrower receives all funds at funding.
- Partial Lump Sum. Borrower receives a portion of their available funds at closing. The remaining funds are distributed as one of the other payment plan options.
- Change Parameters
- A written request must be faxed to customer service
- A $20 fee is charged
- The borrower can request as many changes as they would like
- Line of Credit Growth Rate
- Only the unused or available portion will continue to grow
- Line of credit is the only structure that gives the client access to growth
- Once the client has used the line of credit completely there will be no more growth and the line closes
- Annual growth rate = the note rate plus 0.50%
- Monthly growth rate = Annual growth rate /12
REFINANCING A REVERSE MORTGAGE
In some cases borrowers may decide to refinance their existing HECM.. In these cases a HECM refinance may be done as long as there is a bona fide benefit to the borrower. The following guidelines determine whether or not that benefit exists:
- The FHA case number date must be 18 months or more after the date of the closing of a prior HECM loan.
- The increase in the new principal limit must be equal to or greater than 5 times the closing costs to do the refinance.
- The new available benefit amount must be equal to or exceed 5% of the existing principal limit.
- If the HECM to HECM refinance is done only to provide a change in product type, that alone is not considered a bona fide benefit.
WAIVING COUNSELOR WITH A HECM TO HECM REFINANCE
Please note that some counseling may be waived for a HECM to HECM refinance, if the following requirements are met:
- The borrower(s) has received the required Anti-Churning Disclosure (HUD-92901)
- The increase in the principal limit (provided in block #2 of the Anti-Churning Disclosure) exceeds the total cost of the refinance by an amount equal to five (5) times the cost of the transaction, as provided in block #1 of the Anti-Churning Disclosure.
- The period of time between the closing of the original HECM and the application for the refinancing does not exceed five (5) years.
- The borrower provides a copy of the original counseling certificate dated within the five (5) year period (Effective for loan submissions on/after 5/15/17).
- Written confirmation of borrower(s) choice to forego counseling.
- If the borrower has refinanced his or her existing HECM multiple times, the five-year requirement to waive counseling must be calculated from the date of the original HECM closing and not the closing date of the borrower’s last HECM refinance transaction.
REVERSE MORTGAGE PURCHASE
Many people do not realize they can purchase a new home with a Reverse Mortgage.
The HECM for purchase allows seniors age 62 or older to purchase a new principal residence using loan proceeds from the Reverse Mortgage. This program was designed to allow seniors to purchase a new principal residence and obtain a Reverse Mortgage within a single transaction. This program was also designed to enable senior homeowners to relocate to other geographical areas to be closer to family members, or to downsize to homes that meet their physical needs.
In other words, when purchasing a new home with a Reverse Mortgage, seniors have several options with their current home. They can choose to keep it, which means they will need income documentation and property charges documentation. They can also choose to sell their current property, which means they will need a fully executed Closing Disclosure, the proceeds in a form of a check or wire, and proof of deposit of the funds into the borrower’s account.
REVERSE MORTGAGE PURCHASE REQUIREMENTS
The requirements for a purchase are as follows:
- The original purchase contract is required
- A counseling certificate will show the subject property if a sales contract is executed
- Otherwise the counseling certificate will show the buyer’s current address
- The buyer also needs to sign an additional home inspection disclosure.
Seller contributions are defined as a contribution provided by the seller towards a buyer’s closing costs. These “seller contributions” are typically provided to borrowers by sellers in lieu of reducing the sales price. The seller may not pay the following buyer’s fees:
- Seller financing
- Builder incentives
- Seller contributions/Property
- Seller concessions
- Trade equity or sweat equity
- Rent credits
- Split fees
Seller Can Pay
However, sellers may pay for the following fees on behalf of the borrower strictly when these fees are validated by the assigned title company.
- Pro-rated share of property taxes
- Pro-rated share of HOA dues
- Transfer and intangible taxes
- Fees paid for the seller’s benefit
- Repairs MUST be paid for and completed by the seller
- Home warranty fees
- Any Fees that are required to be paid by sellers by local or state law
- Any Fees that are typically paid by the seller in the subject market
Fees for the HECM for purchase transaction must be reviewed in the contract and included on the Good Faith Estimate (GFE). These fees include any pest inspection fee any other inspection items listed in the contract. Also included may be owner’s title insurance and one-year Hazard Insurance. In terms of funds to close, the lender needs to know the source and seasoning of the funds. Gifts funds and earnest money are allowed.