June 20, 2014
In our previous blog post we mentioned some big changes made by the FHA to the Home Equity Conversion Mortgage (HECM) loan program.
HECM loans are for eligible borrowers age 62 or older, and feature no monthly mortgage payment for the borrower, who instead gets a lump sum or regular cash dispersal under the terms of the loan until the borrower either dies or sells the property. That’s when the loan becomes due in full.
Among the new changes announced by the FHA to the HECM program? Limitations on fixed-rate HECM loans and how the money can be paid to the borrower. There’s also a change to adjustable rate HECM loans, and both of these changes are very important for borrowers to understand before committing to this type of mortgage loan.
What are the changes to the fixed rate HECM loan? According to the FHA official site, “FHA will only insure fixed interest rate reverse mortgages where the mortgage limits the mortgagor to:
–A single, full draw to be made at loan closing; and
–Does not provide for future draws by the mortgagor under any circumstances.”
Under the old rules, borrowers could apply for a HECM loan to be paid out in either a lump sum, line of credit, or future cash payments on a regular basis. But now, for fixed rate HECM loans, this is no longer possible.
For adjustable rate HECMs, the following new rules apply, according to the FHA official site:
“FHA will only insure adjustable interest rate reverse mortgages where the payment plan option is either:
–Tenure;
–Term;
–Line of Credit;
–Modified Tenure; or
–Modified Term.
The Single Disbursement Lump Sum payment option shall not be used for adjustable interest rate HECMs. All other HECM program requirements remain unchanged for adjustable interest rate HECMs.”
These changes take effect for all FHA HECM loans with case numbers assigned on or after June 25 2014. For more information, contact the FHA directly by calling 1-800 CALL FHA.
Do you have questions about FHA home loans? Ask us in the comments section. You can get information about applying or getting pre-approved for an FHA loan at FHA.com, a private company and not a government website.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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