A record number of homeowners 62 and over have recently utilized a federally insured reverse mortgage called a Home Equity Conversion Mortgage, or HECM, to provide financial assurance during these tough economic times.
Ginnie Mae just announced a “best month on record” in June for the issuance of $590 million HECMs, smashing its previous record of $262 million in May. Ginnie Mae is a wholly-owned government corporation within the U.S. Department of Housing and Urban Development.
It provides a fixed-rate reverse mortgage guaranteed by the Federal Housing Administration, or FHA, to seniors over the age of 62. The government guarantee reduces the risk for the lender, thus lowering the costs to the borrower.
With a reverse mortgage, a homeowner can convert the equity of their home into cash without any monthly payment obligation. Borrowers can take their proceeds in the form of a lump sum, line of credit or monthly payment, and the loan money is generally tax free.
The news of record issuance of reverse mortgage securities comes off the heels of the stimulus bill passed earlier this year that raised the lending limits from $417,000 to $625,500. The increased limits will fall back to $417,000 at the end of the year.
The increased borrowing limit is a great boon to seniors living in higher cost areas, such as Carlsbad. Senior homeowners are able to utilize more of the equity locked away in their highly appreciated homes.
Before the limit increase, the 72-year-old owner of a $650,000 Carlsbad property may have borrowed no more than $160,000 in a reverse mortgage. Some would argue that is not enough to create a feeling of security over the next decade.
With the increased limits, that same homeowner can borrow $363,000 and structure it in a credit line that could grow to more than $500,000 in 10 years.
A recent Kiplinger's article on reverse mortgages pointed out that a 65-year-old might be able to borrow up to 35 percent of a home's value. The percentage would rise to roughly 45 percent for a 75-year-old and 55 percent or more for an 85-year-old.
One of the many benefits to an HECM loan is that there are no asset or income limitations in order to qualify for the loan. Homeowners are not obligated to pay back the loan as long as one of the borrowers continues to live in the property and keep the taxes and insurance current.
The loan only becomes due if the borrower moves out, dies or sells the property. The HECM reverse mortgage is also a non-recourse loan, which means if the future sale of the home cannot cover what is owed, the owners or heirs are not responsible to make up the difference.
Senior homebuyers are now also able to utilize a reverse mortgage for a purchase of a new home. A senior couple that is 68 could buy a new home in San Marcos for $300,000 with an HECM reverse mortgage for only $140,000. They would have no mortgage payment.
Interested homeowners are encouraged to gather information for their individual situation and meet with an independent, government-approved housing counseling agency. For more information, visit www.hud.gov.
FHA and tax credits
A number of first time homebuyers have been taking advantage of the $8,000 federal tax credit for purchasing a property in 2009.
In May, buyers utilizing FHA financing were told they could use the tax credit to pay for the required 3.5 percent minimum down payment. This allowed buyers to purchase a home with little to no money of their own.
The FHA recently changed its stance and won't allow the tax rebate to be used for the required down payment. Homebuyers are still able to use that money toward a rate buy-down, closing costs or one fantastic housewarming party.
For more information, contact Tyson Lund at (760) 438-0800 or [email protected].
Ginnie Mae just announced a “best month on record” in June for the issuance of $590 million HECMs, smashing its previous record of $262 million in May. Ginnie Mae is a wholly-owned government corporation within the U.S. Department of Housing and Urban Development.
It provides a fixed-rate reverse mortgage guaranteed by the Federal Housing Administration, or FHA, to seniors over the age of 62. The government guarantee reduces the risk for the lender, thus lowering the costs to the borrower.
With a reverse mortgage, a homeowner can convert the equity of their home into cash without any monthly payment obligation. Borrowers can take their proceeds in the form of a lump sum, line of credit or monthly payment, and the loan money is generally tax free.
The news of record issuance of reverse mortgage securities comes off the heels of the stimulus bill passed earlier this year that raised the lending limits from $417,000 to $625,500. The increased limits will fall back to $417,000 at the end of the year.
The increased borrowing limit is a great boon to seniors living in higher cost areas, such as Carlsbad. Senior homeowners are able to utilize more of the equity locked away in their highly appreciated homes.
Before the limit increase, the 72-year-old owner of a $650,000 Carlsbad property may have borrowed no more than $160,000 in a reverse mortgage. Some would argue that is not enough to create a feeling of security over the next decade.
With the increased limits, that same homeowner can borrow $363,000 and structure it in a credit line that could grow to more than $500,000 in 10 years.
A recent Kiplinger's article on reverse mortgages pointed out that a 65-year-old might be able to borrow up to 35 percent of a home's value. The percentage would rise to roughly 45 percent for a 75-year-old and 55 percent or more for an 85-year-old.
One of the many benefits to an HECM loan is that there are no asset or income limitations in order to qualify for the loan. Homeowners are not obligated to pay back the loan as long as one of the borrowers continues to live in the property and keep the taxes and insurance current.
The loan only becomes due if the borrower moves out, dies or sells the property. The HECM reverse mortgage is also a non-recourse loan, which means if the future sale of the home cannot cover what is owed, the owners or heirs are not responsible to make up the difference.
Senior homebuyers are now also able to utilize a reverse mortgage for a purchase of a new home. A senior couple that is 68 could buy a new home in San Marcos for $300,000 with an HECM reverse mortgage for only $140,000. They would have no mortgage payment.
Interested homeowners are encouraged to gather information for their individual situation and meet with an independent, government-approved housing counseling agency. For more information, visit www.hud.gov.
FHA and tax credits
A number of first time homebuyers have been taking advantage of the $8,000 federal tax credit for purchasing a property in 2009.
In May, buyers utilizing FHA financing were told they could use the tax credit to pay for the required 3.5 percent minimum down payment. This allowed buyers to purchase a home with little to no money of their own.
The FHA recently changed its stance and won't allow the tax rebate to be used for the required down payment. Homebuyers are still able to use that money toward a rate buy-down, closing costs or one fantastic housewarming party.
For more information, contact Tyson Lund at (760) 438-0800 or [email protected].