2. A HECM (Home Equity Conversion Mortgage) is a
special type of mortgage that enables
homeowners age 62 or older to tap into the
equity in their home. Unlike traditional home
loans, no repayment of the HECM loan is required
until they no longer occupy the home as their
principal residence. At that time, the lender will
declare the mortgage due and payable. What is
borrowed plus interest is due to the lender,
remaining equity remains with the estate.
3. Must be a minimum 62 years of age. Age of the
youngest borrower determines eligibility.
◦ Non-Borrowing Spouses under 62 are allowed beginning
8/4/2014
Max claim amount is the lesser of:
◦ FHA Mortgage Limit ($625,500)
◦ Appraised value
◦ Purchase price
Expected Rate = Fixed Rate / Adjustable Margin + 10
Year SWAP
Generally, the older the borrower is and the higher
the value of the home, the more proceeds they
qualify for.
4. Single Family Residence
1-4 units
FHA approved condos
New construction properties must have the Certificate
of Occupancy issued prior to application
All repairs must be completed by the seller prior to
closing (purchase transactions)
No properties that produce income (farms, ranches,
etc.)
No manufactured, log, dome, extreme unique
No co-ops
5. Must have considerable home equity or provide
monetary investment at closing from allowable
funding source
Home must be primary residence
Funding sources – no loan to get our loan
Repairs must be satisfied by seller
◦ Anything health and safety
No credit score criteria
BK – one day seasoning
Mortgage lates allowed
◦ Major delinquency / NOD (3 years seasoning)
◦ Some exceptions
6. Will I still have an estate that I can leave to my
heirs?
When the borrowers sell their home, their estate
will repay the cash you received from the
reverse mortgage plus interest and other fees,
to the lender. The remaining equity in the
home, if any, belongs to the borrower or to
their heirs.
7. When does the loan become due and payable?
A HECM loan must be repaid in full when the last remaining
borrower permanently vacates the residence. The loan also
becomes due and payable if:
Borrowers did not pay property taxes or hazard insurance
or violate other obligations.
Borrowers permanently move to a new principal residence.
The last borrower fails to live in the home for 12 months
in a row.
◦ An example of this situation would be if they (or the last
borrower) were to have a 12 month or longer stay in a nursing
home.
The borrowers allow the property to deteriorate and do not
make necessary repairs.
8. How long does the Estate have to pay-off the
bank?
Note indicates it is due immediately, however,
industry standard is six months, with 2-3
month extensions as needed.
10. Index is the one month LIBOR.
Typically allows borrower to
receive the most funds.
Borrower has more flexible
options to accessing available
funds.
Funds can be accessed at close
of escrow, monthly
disbursement schedule (term
payment), monthly payment
for life (tenure payment), or
credit line as needed. These
options are flexible and can be
combined and changed at a
later date.
Money left on the credit line
does not incur interest until it
is drawn upon.
Money on credit line grows at
the rate of the credit line
growth rate. The unused credit
line grows!
Ideal program for sustaining
long term cash liquidity.
Ideal program for protecting
the equity position in the home
for the estate. Typically used
to allow borrowers the option
of accessing funds at a later
date.
11. Rate is fixed.
Borrowers are “satisfied” with receiving funds
at closing, with no option of accessing
additional funds at a later date.
Often times the closing costs are less.
Many times this is best suited for Purchase
HECM’s and instances where most available
funds are allocated towards existing lien pay-
off.
12. No monthly mortgage payment is ever required
Credit line growth rate
Unused available funds grow at the same rate as
the interest being charged
Guaranteed regardless of equity position
Borrowers should look at home equity as asset
allocation
No pre-pay penalty – make payments if you want
(I/O)
Funds are tax free
Homeowners keep all future appreciation, no
equity sharing
Borrowers retain Title to the home
13. No limitations to how the borrower may use the
funds
Accessibility – qualifying is typically easier than a
traditional mortgage
Allows seniors 62 or older to buy a home with
HECM proceeds
Purchasing power – lower upfront investment
than a cash purchase
Buy up – buy more house than thought you could
afford
Retain vital cash liquidity for future retirement
needs
14. Reverse Mortgages are Non Recourse Loans
Non Borrowing Spouse (< 62) is now protected!
All FHA HECM’s are insure through the Federal
Housing Administration (FHA)
Borrowers have no limit as to how long they can
stay in the home
Education – counseling is required
Created by the Housing & Economic Recovery Act
of 2008
Safeguards – Mortgage Insurance Premium (MIP)
ensures the amount owed on the loan can never
be more than the value of the home at the time
of sale
15. For any questions please don’t hesitate to
contact our office.
Leila Vaziri- Loan Originator
leila@effective-mortgage.com
818-773-0033
Bijan R. Vaziri
bijan1@effective-mortgage.com
818-773-0033
