FHA Home Equity Conversion Mortgage
FREQUENTLY ASKED QUESTIONS

The Federal Housing Authority (hereinafter referred to as FHA) Home Equity Conversion Mortgage (hereinafter referred to as HECM) offered by Weichert Financial Services, might be exactly what you need to provide yourself with extra cash. There are several payment plans available so that you choose the best option for your particular circumstance. You spend the money any way you choose – so you may make some home improvements, take vacations, payoff medical expenses or just improve the quality of your life. You retain full ownership of your home and there is no obligation to pay back the loan as long as you live in your home.

Here are a few frequently asked questions regarding the FHA HECM:

Q: What is a reverse mortgage?
A. It is a loan against your home that requires no repayment for as long as you live there. The reverse mortgage is aptly named because the payment stream is "reversed". Instead of making monthly payments to a lender, as with a regular first mortgage or home equity loan, a lender makes payments to YOU.

Q: What is a FHA HECM?
A. It is a special type of mortgage program available to homeowners who want to utilize the equity in their homes without the need for repayment of the loan for as long as they continue to occupy the home as a primary residence.

Q: Do I still own my home with a reverse mortgage?
A. YES! While the reverse mortgage loan is outstanding, you continue to own the home and hold title to it.

Q: Who is eligible for a HECM?
A. The following are the requirements for the HECM:

1. The homeowners must own their home and be at least 62 years old;
2. The home must be the "principal residence" which means that the homeowner lives in the home more than half of the year;
3. The home must be a single family home, a 2-4 unit building or a federally approved condominium or planned unit development; and
4. If there is debt against the home, then the homeowner must either pay it off before getting the reverse mortgage OR – and this is what most people do – use the reverse mortgage to pay it off

Q: How do HECM loans differ from regular mortgage loans?
A. The benefits of a reverse mortgage over a regular mortgage are:

1. No monthly repayments and no repayment of any kind for as long as you live in your home;
2. An open-ended monthly income guarantee or a guaranteed credit line

Q: How do home equity and HECM loans differ?
A. With a home equity loan you begin repaying the loan as soon as the loan is taken out. Usually within thirty days of the closing, you start paying monthly payments on the money drawn against the loan. In addition, you must provide proof that you have the monthly income to qualify for a home equity loan and you may be required to qualify again every year. With a HECM loan, there are no monthly payments to be made at any time during the loan for as long as you continue to occupy the home as a primary residence. There are no monthly income requirements for setting up the program....ever.

Q: How will the amount of the payment that I receive be calculated?
A. The amount depends on the age of the youngest borrower, the average expected interest rate, the anticipated appreciation rate of your home, the value of your home, the amount of monthly servicing fees and the length of time that you will be receiving payments.

Q: Will the money I receive affect my Social Security?
A. Monies received will not affect eligibility for retirement, survivor, disability or Medicare benefits payable under the Social Security Act. However, eligibility for need-based programs, such as Supplemental Security Income (SSI) could be affected if advances are not spent in the month received.

Q: What about taxes?
A. An American Bar Association guide to reverse mortgages advises that generally:

1. The IRS does not consider loan advances to be income;
2. Annuity advances may be partially taxable; and
3. Interest charged is not deductible until it is actually paid, in the case of reverse mortgages, at the end of the loan. ("Reverse Mortgages: A Lawyer’s Guide", American Bar Association 1997.)

Q: Are fixed rate loans available?
A. Not at this time. The adjustable rate mortgage (ARM) features annual rate adjustments with a 5% cap on the annual amount that the interest rate may change and a 10% cap over the life of the loan. Interest is paid to the lender only when the home is sold.

Q: Will I have to pay any fees to obtain a HECM?
A. Yes. The out-of-pocket cash cost to you is most often limited to an application fee that covers a property appraisal (which determines the value of your home) and a minimal credit check (to see if you are delinquent on any federally-insured loans). Most of the other costs may be included in your loan balance so that you do not have to pay them in cash. You will pay an origination fee, ordinary closing costs and an FHA mortgage insurance premium of 2% up-front and a ½% annual FHA renewal premium on the outstanding balance of the loan. A monthly service fee will also be charged. It also may be financed into the loan balance so you will not have to pay it in cash.

Q: Are there any restrictions on the use of the money I will receive?
For example: Can I just buy a new car or take a trip each year to visit my grandchildren? A. The money from a reverse mortgage can be used for ANYTHING! We do not ask any questions regarding the use of your funds. This is YOUR equity. It is your money to spend as you wish.

Q: Will I have to sell or vacate my home if the money I owe on the loan exceeds the value of my home?
A. Absolutely not! As long as you continue to live in your home as your primary residence, you will never be asked to sell or move out of your home. The FHA insurance you acquire in connection with the mortgage covers any potential financial obligation to your lender.

Q: Are there any other special requirements?
A. Yes. You must agree to accept free mortgage counseling from a Department of Housing and Urban Development (HUD) approved counseling agency. This counseling is provided to assist you in understanding the HECM loan program so that you can be comfortable in knowing whether or not a HECM is right for you. Friends and/or family members are also encouraged to attend the counseling session with you.

Q: How much can I borrow?
A. The maximum amount that can be borrowed is based on a HUD formula that factors in the age of the youngest borrower, the average expected interest rate, the anticipated rate of your home’s appreciation and the current value of your home. The amount may be limited by mortgage insurance limits for the area where your home is located as established by the Federal Housing Authority (FHA).

Q: What types of payment plans are available with a HECM?
A. You may choose from five different payment plans:

1. TERM: You receive equal monthly payments for the fixed period of time that you select.
2. TENURE: You receive equal monthly payments for as long as you occupy your home as your principal residence.
3. LINE of CREDIT: You have a maximum amount of cash available to draw upon at any time and in the amounts of your choosing.
4. MODIFIED TERM: You may set aside a portion of your loan proceeds as a line of credit and receive the balance in the form of equal monthly payments for a fixed period of time.
5. MODIFIED TENURE: You may set aside a portion of your loan proceeds as a line of credit and receive the balance in the form of equally monthly payments for as long as you occupy your home as a primary residence.

Q: May I switch payment plans in the future?
A. Yes, for a nominal fee, you may switch payment plans at any time.

Q: Will my heirs owe anything to the mortgage lender?
A. Your heirs may either repay the loan or sell the property at "fair market value" through a licensed real estate broker. No additional financial claims may be made against your heirs or estate. If the loan amount is greater than the home’s value, any outstanding debt balance will be forgiven.

Q: If my home’s value appreciates during the mortgage term then who will be entitled to that money?
A. Under the terms of a HECM, you are legally required to pay back the outstanding balance of your loan. You or your heirs are entitled to any and all appreciation in the value of your home that exceeds the loan balance.

Q: What if I decide to sell my home?
A. If you choose to sell your home, the outstanding HECM loan balance will have to be paid at closing. You or your estate will receive any proceeds exceeding the loan balance.

Q: Can I sell my home to my children and continue to live in it?
A. If you sell your home to your children or any other individual, the HECM balance will be due and payable at closing.

Q: What is the Federal National Mortgage Association’s (Fannie Mae) role in the HECM program?
A. Fannie Mae has agreed to purchase all adjustable rate HECM loans from lenders like Weichert Financial Services who originate them.

Q: Why should I choose Weichert Financial Services as my HECM specialist?
A. Weichert Financial Services is one of the very few lenders who are privately owned and care about your well being. With our Gold Services Program and our Real Estate Company, we can help you make the right choices during your golden years. We are a financial institution that has flourished through the uncertainties of fluctuating economic cycles and have served America’s financing needs for many years.

For more information about this program, please contact:

Mark Rostek
973-490-8003
Cell 973-951-3340
mrostek@moacc.com

Weichert ...We helped you buy your home, we’ll help you stay in it!