FHA`s HECM insurance helps seniors use their nest egg.
The Federal Housing Administration has been helping family’s secure sustainable mortgages since its inception in 1934. In 1989, the Ministry of Housing and Urban Development introduced the agency’s first mortgage reverse mortgage called Conversion Mortgage Home Equity, qualifying for an FHA loan, or HECM. HUD selected 50 lenders by draw to originate the first HECM loans. All approved FHA lenders have been able to finance loans since 1991. Assessment guidelines help ensure the survival of the FHA Reverse Mortgage Insurance.
HECM Reverse Mortgages, also known as Section 255 Loans, allow seniors ages 62 and over to access equity from their home. Homeowners borrow against the value of their home, which is determined by the inspection of an approved home FHA appraiser and comparative market analysis. HECM loans are made on homes with no mortgage or limited debt. Eligible properties must consist of up to four dwellings and be occupied by their owner. Only experts listed on the FHA HUD list can perform evaluations for HECM.
The same evaluation standards for 203 (b) FHA Insurance – the agency’s most widely used program – apply to the HECM assessment process. Assessment guidelines can be found in HUD Handbook 4150.1, and unique guidelines for qualifying for an FHA loan can be found in Chapter 3 of HUD Handbook 4235.1.
FHA guidelines require that appraisers indicate the deficiencies and repairs needed to meet HUD’s minimum property standards for insurance. HECM mortgages can also be taken on approved FHA condominium units and homes that meet HUD standards manufactured.
The maximum amount of reverse mortgage is based in part on the estimated value of the house, its equity (its value minus the existing liens) and the expected amount on the future sale or refinancing of the house. Evaluators report their findings on a uniform Residential Evaluation Report. They must analyze the site, which includes the neighborhood, and the economic factors that affect the market value of the home as well as the interior and exterior structure of the property. They must designate defects that may affect the health and safety of the occupants or structural strength of the home, such as defective or obsolete electricity, plumbing, mechanical and septic systems and defective paint surfaces.
The repairs reported on the evaluation must be corrected or checked by an expert in the given field. For example, an assessor may report signs of damage to the structure by wood-destroying pests, but request an inspection by a termite specialist for damage analysis. The assessor may then require the repair of the active infestation and the damage suffered.
The appraiser cannot reject a property for HECM insurance. If the necessary repairs amount to more than 30 percent of the maximum demand amount of the house, the Local HUD Assessment Branch must make the final decision of eligibility, says HUD Handbook 4235.1.
Typical closing costs for a streamline FHA
The Federal Housing Authority (FHA) streamline refinancing program offers homeowners FHA mortgages the opportunity to refinance quickly and easily. The process does not require income verification and can move to closure in as little as 10 to 14 days. The costs are minimal, but they exist.
Standard mortgage closures involve a settlement fee. Examples of such fees include title insurance, property search, judgment seeking, credit reports, and registration and survey fees among others. The amount varies depending on the lender company and the title. For example, the settlement fees on a $ 275,000 mortgage can run between $ 7,000 and $ 10,000. However, many lenders pay these closing costs on an FHA streamline refinancing. If your lender requires you to pay these expenses out of pocket, you must look for a lender that will not be.
Shortage of commitment
FHA mortgages have accrual accounts. The bank estimates the costs for taxes, home insurance and private mortgage insurance (PMI) and adds them to your monthly payment. The funds are held in an account, called the escrow account, until it is time to pay the premiums. Since these costs fluctuate from year to year, you may end up with a surplus or a shortage. If a shortage exists, you must cover this amount to refinance. Even lenders who cover the closing costs require you to pay this out of pocket.