Issue 39.17
FHA has recently taken steps to strengthen the Home Equity Conversion Mortgage (HECM) loan program and make it more sustainable. These changes are also designed to help homeowners retain more of their equity for a longer period of time. That means homeowners can now secure cash for their current living needs and increase their odds of passing some of the equity in their home onto their children.
Here are just a few of the significant changes:
Mortgage Insurance
When the last remaining HECM borrower either passes away or decides to move out the house, the home is either refinanced or sold. If the money from the sale of the home is not enough to pay off the mortgage there is a shortfall. FHA insures against such a shortfall and is required to pay the lender the unpaid balance still owing on the loan on behalf of the borrower. Currently FHA charges both an up-front and an ongoing mortgage insurance premium to compensate for this risk. Effective October 2, the up-front premium will decrease from 2.5% to 2.0% of your home’s value and the ongoing premium will decrease from 1.25% to 0.5% of the loan balance per year.
Closing Costs
Until just recently, if you bought a home using a HECM loan, you were required to pay for the seller’s title policy and a home inspection if you chose to have one. These expenses are typically paid by the seller in all non-HECM purchases. The new program changes allow sellers to pay these expenses, just as they would in any other real estate transaction, saving the home buyers between $1,800-$3,500 in a typical home purchase.
Loan Amounts
Probably the biggest change to the HECM loan program is that FHA has reduced the amount that you can borrow on your home. This may be a frustration to potential HECM borrowers, however, anticipated interest rate reductions and the changes mentioned above may help offset some of the reduced loan amounts.
There are several other positive changes that have already taken affect and more changes are anticipated in months to come. To see how these changes may affect you, give me a call at 435-669-0009 and we can discuss you specific loan situation.
Veritas Funding (NMLS#25108) is an equal Housing Lender. This is not an offer of credit or commitment to lend. Loans are subject to owner/property qualification.