Issue 36.12
So many articles highlight the advantages of the HECM mortgage but avoid the critical details which aren’t as palatable as a large chunk of money to spend tax free. This will detail the nuts and bolts of the loan.
The first requirement is age. A qualified borrower must be 62 years of age to acquire the loan for their Primary Residence only. If a spouse is not yet 62, the loan may be obtained by the qualified borrower only. This is not often a good choice but speak to your mortgage advisor for options to make it more feasible. If both parties are 62 or older, the younger of the two will be used to qualify since they will statistically live longer.
Next, certified Counseling is required. HUD regulates this loan so they require all people interested take the time and contact a non-interested third party trained and certified by HUD to explain in detail everything about the loan and provide a certificate. This helps in detouring predatory lending which leads to loans being closed for the wrong reason. The cost of this counseling ranges from $85 to $125 and may be done over the telephone or in person where available.
Once a certificate is obtained, the loan process may begin. The initial cash investment required is determined by age and value of the home. Interest rate becomes a factor at this point as well. Calculations using interest rate, age of borrower and value (max claim amount) project the base loan amount or Principle loan limit. First taken out of the loan limit are the fees or cost of the loan.
Cost is perhaps perceived as the most negative part of these loans. In today’s market, the cost has been greatly reduced compared to years ago. Many loans these days do not even have a loan origination. MIP (Mortgage Insurance Premium) is 2% of the value of the home. The appraisal is usually close to $400 and Title cost make up most of the remaining costs. They are very typical of a normal mortgage so not overly excessive for sure. Make sure and ask your agent about the monthly FHA mortgage Insurance charge as well. This always seems to be a shock. It is required and common on all FHA loans but perhaps gets overlooked in many discussions.
For more specific details on whether a HECM loan is right for you, give me a call to discuss all your personal options. Scott 435-767-1092.