1. Is a Financial Assessment required even if the borrower has enough RI and excellent credit?
YES. F/A is required by HUD on every file, even for the perfect borrower. It must be performed in all cases, and the ratio of property taxes to RI must also be calculated now, even though it has no current effect on the decision.
2. Can I take an application on a borrower who is going to turn 62 shortly, in order to get started?
FHA rules require that the borrower be 62 “at the time of the loan closing”. So yes, you can take an application 30-60 days prior to the borrower turning 62. You have to adjust the date of birth in the system in order to ‘trick’ the software and then we can close after their birthday. We recommend NOT closing on the actual birthday due to system limitations, but waiting a few days after.
3. Is a reverse mortgage really non-recourse, or is that just a marketing effort of the industry?
It’s true – nothing other than the property secured by the HECM can be used to satisfy the loan when due and payable. Neither the borrower, nor any heirs are responsible for any deficiency that may arise if the property value is insufficient to satisfy the HECM. This is printed in the Note.
4. Can we lend on a Co-op or Condo?
At the present time, Co-ops are ineligible for HECM financing. Condos are eligible if they are on the list of FHA approved condos, which can also be checked here: CONDO Lookup
Single family, or 1-4 family owner-occupied homes are otherwise eligible.
5. What is the minimum credit score that is required by FHA for a HECM under Financial Assessment?
Potential borrowers must show that they are willing and capable of paying their monthly obligations once they receive a reverse mortgage. This is the credit part of F/A. However, there is no minimum score required to satisfy this review.
6. Is there a way to choose a higher monthly servicing fee and not have the ongoing monthly MIP?
Simply put, no. There is no way to avoid the ongoing mortgage insurance premium which is assessed on the outstanding loan balance monthly.
7. What is the best way to describe a HECM when comparing it to a HELOC?
The biggest difference is the monthly payment required on a HELOC, which starts out as interest-only and then increases over time to principal and interest. Also, we can lend on a HECM in a life-estate; typically you cannot find any bank that will do that on a HELOC. Also, compare the qualifications regarding income, excellent credit and a full underwrite on a HELOC, with the fact that a HECM compares residual income, credit (no score) and a HECM underwriting process which is generally less involved due to the way this loan is structured.
8. Are proceeds from a reverse mortgage taxed as income when the client receives it?
No. Proceeds are not considered income, they are strictly loan proceeds. Therefore they do not affect any income based programs that the borrower receives. The IRS clearly states that loan proceeds are not taxable income. As with any taxation situation, the borrower should always consult their tax advisor for definitive answers on their own situation.
9. What happens if there are multiple people on title – can someone still get a reverse mortgage?
Yes. Currently (as of 01/2017) any title holders must be eligible borrowers for a reverse mortgage, unless they qualify as a Non-Borrowing Spouse or are otherwise a remainderman with a life estate to the borrower(s). If they do not fit either of these situations, then they must come off deed completely. **HUD has proposed rules that would take effect in September of 2017 to cover these situations, but they are not in effect currently.
10. What are the obligations of a borrower once they have taken out a HECM?
They are required to keep their property taxes and any homeowners and flood insurance (if needed) current and paid up to date at all times. Additionally, they must keep the home in general good repair and always maintain the home as their principal residence for a majority of the year.
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