The HECM Program is gradually earning itself a renewed consumer confidence—and by no accident.
HUD’s 2015 Financial Assessment implementation set in place borrower protections never seen in the program’s history. But even with the promising traction, far too many seniors are still pacing around the HECM with a guarded against the program stance.
Most of us would agree that a mortgage product decision should entail some measure of borrower contemplation. HECM inquiring seniors face a difficult undertaking in their attempts to navigate through conflicting information. And as a result, these seniors struggle to discern HECM facts from a Reverse Mortgage fiction that’s continually undermined to seniors the program’s life-changing benefit.
The juggling of facts has become for seniors an exhausting pursuit. And the eventual breakdown over time leaves seniors facing a frustrating learning obstacle that leads them down a road to total discouragement. Once this mindset takes form, any interest a senior might’ve had in exploring the program is lost.
Exploring the truths behind the HECM Program—setting the record straight...
The most common Reverse Mortgage misconceptions have built against borrower awareness a financial planning roadblock. Often left uncovered are the possibilities proposed via the HECM, and the revelation to its retirement plan resource potential.
Can I sell my home with a HECM Loan?
Here’s how to see it: the scenario plays out the same way with a HECM Loan than a non-HECM Loan. The home can be sold at any time, without limitations—and can be repaid at any time, penalty free. Should a borrower decide to sell their home while they have a loan balance, lender repayment would be required, as the loan would need be satisfied using the home’s sale proceeds. Once the loan’s been satisfied, provided there aren’t additional property liens, the borrower would be entitled to any remaining equity from the sale.
Consult your financial advisor for more information on Reverse Mortgage, taxes and government benefits.
Do I have to pay income taxes on HECM Loan proceeds?
The HECM allows a borrower access to their home’s equity—it is after all, the borrower’s own home and acquired equity. Since loan proceeds are not considered earned income, Reverse Mortgage proceeds are 100% TAX-FREE.
Consult your financial advisor for more information on tax implications when using Reverse Mortgage for investment purposes, as well as state taxes and government benefits.
Do I need to have good credit to qualify for a HECM Loan?
The HECM borrower’s qualification is not determined or based upon a generated credit score. Loan program criteria does require a credit check to confirm if there are open bankruptcies, property charges and/or government debt(s) delinquencies. This critical step helps to guide the Reverse mortgage Lender toward a most sustainable loan program structure. Based on their findings, a lender may take into consideration any unpaid balances or collection accounts while determining the program type and variation best suited to the Senior’s needs for years to come.
Will the bank take my home?
This is greatest single misconception that exists today—and it’s responsible for discouraging a majority of seniors who’ve subsequently chosen an HECM Program opt-out as a means to their retirement needs. The HECM was distinctly designed to provide borrowers the option and ability to ‘live out their years’ comfortably in their own homes.
HECM Lenders, as well as FHA, are not interested in ‘collecting’ homes. Instead, HECM Lenders, FHA and the HECM industry as a collective whole, benefit only if a senior should live out his/her days in the home—either exiting by sale or passing away.
With a HECM Loan, the title remains with the homeowner/estate. The Lender simply adds-on an ‘outstanding property balance’ lien against the title of the home – no different than previous refinance(s) the senior may have had some years before retirement.
As with any traditional mortgage loan, the Property’s Taxes, Homeowner’s Insurances, Association Dues (if applicable) and Maintenance must be paid on time – no different than if there wasn’t a lien on title.
If housing values should fall, could I potentially owe more than my home is worth?
Simple Answer: No.
The HECM (Home Equity Conversion Mortgage) is an FHA insured loan. Meaning, it has a built-in non-recourse feature that’s meant to place the owner – and/or heirs – never owing more than their home is worth.
Should an owner (or heirs) choose to sell their home and it sells for less than the HECM Loan balance, FHA would step-in to cover the shortfall.
Can I continue making payments on my ‘Payment Free’ Reverse Mortgage?
Outside of the property’s required payments to Homeowner’s Insurances, Taxes and Upkeep, the HECM loan is a payment free structured program. The entire idea is to provide seniors the freedom and flexibility to do what they wish with their money. Elective payments are left to borrower discretion—a borrower may choose to make payments or not make them.