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Home Loan & Home Mortgage Article Series
Reverse Mortgages:
Home Equity Conversion Mortgage (HMEC)
All reverse mortgage products have the same
basic function. They allow you to tap into your home’s equity
and receive funds in a predetermined manner. Depending on your
circumstances, you may receive a certain amount of money from
one option and a smaller amount from another.
The
option you chose is significant. Without knowledge of
all available options, you could receive thousands of dollars
less.
HEMC Product Profile
The Home Equity Conversion Mortgage, or HMEC,
is the only reverse mortgage program insured by the
federal government. It is available through the Federal Housing Administration
(FHA), a division of the US. Department of Housing & Urban
Development also know as (HUD).
Over 95% of all reverse mortgage borrowers choose the Home
Equity Conversion Mortgage product. What makes it so
popular? FHA provides insurance. And, unless you have a high valued
home, you generally get more money. This is because the Federal
government insures this product. It is considered the safest
reverse mortgage product currently available.
Mortgage insurance is the safety measure that ensures you
will always receive your reverse mortgage funds as long as
you maintain primary residence in that particular home. For
example, if your lender refuses to continue monthly payments,
or if your lender is no longer in business, you would continue
to receive your monthly payments through FHA.
Mortgage
insurance also protects the lender; it ensures that the lending
institution will receive the total repayment of
the reverse mortgage balance, even if your home’s value is
less than the total amount due. As long as you occupy the home
as your primary residence, you will not be forced to sell.
The FHA insurance guarantees that the lender will receive its
full payment, and neither you nor your heirs will be held financially
responsible if your loan balance exceeds your home’s value.
Eligibility of a Home Equity Conversion Mortgage
The
Home Equity Conversion Mortgage product includes eligibility
requirements beyond the general requirements that are usually
needed for other reverse mortgage products. If you are delinquent
on a debt related to a federal agency such as a VA-guaranteed
mortgage, Federal student loan, Small Business Administration
loan or Title 1 loan, your social security number is added
to this database. Your lender will check this list for your
social security number. If your number appears, you will not
be able to receive a HEMC reverse mortgage or any other type
of federal loan. Your social security number must be off
this list for at least 36 months before you are eligible
for any HUD insured loan or mortgage.
Home Equity Conversion Mortgage – Minimum Property Standards
Under the HECM program, potential properties must meet HUD’s
minimum property standards. These standards were established
as a guide for all buildings and homes that participate in
HUD housing programs.
Because the collateral for a reverse mortgage is your home
and nothing else, the FHA must take precautions to protect
its “investment”. Once you have completed the initial paperwork,
an FHA approved appraiser will inspect your home from the exterior
paint to the kitchen cabinets and carpeting. If the appraiser
discovers any deterioration in the interior and exterior of
your home, it will be noted within the appraisal.
If
the appraiser notes any physical conditions that do not meet
HUD standards, you will be required to fix the problems
before your reverse mortgage process is completed.
Always keep in mind that your reverse mortgage balance is
equal to the total amount borrowed, plus interest and other
costs such as servicing fees, origination fees, insurance premiums,
and, if applicable, costs from cosing.
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