Available Reverse Mortgage Program
Henry Ford said about the Model T, “You can have any color you want, as long as it’s black!” The equivalent in lending is the representative who works for a single lender. Their limited product selection may be what they have to sell but it may not be the best solution for you.
Operating as both a direct lender and a mortgage broker, Thrive Financial – Shawn Sidhu is approved with every major reverse mortgage lender giving you access to more than fifty different product options. Unlike loan officers who can only offer a single lender option, C2 Reverse Mortgage Professionals will recommend the lender and the products that best suit your highly individual needs.
Home Equity Conversion Mortgage (HECM)
HECM is the commonly used acronym for a Home Equity Conversion Mortgage, which is a reverse mortgage insured by and regulated by the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development (HUD).
The maximum amount of loan proceeds you may access during the first 12 months after closing is equal to 60 percent of the full loan amount. For example, if you are eligible for a $100,000 loan, you may only access $60,000. After the initial year has expired, you may use as much or as little of the loan proceeds as you wish. There are exceptions. You can withdraw a bit more if you have an existing mortgage, or other liens on the property, that exceed the 60 percent limit. You must pay off these “mandatory obligations” as the government calls them, before qualifying for the reverse mortgage. You can withdraw enough to pay off these obligations, plus another 10 percent of the maximum allowable amount — in which case that’s an extra $10,000, or 10 percent of $100,000.
FHA collects a Mortgage Insurance Premium (MIP) at closing based on the amount of funds withdrawn during the initial year. As long as you don’t take more than 60 percent of the available funds in the first year, you will be charged an upfront MIP of 0.50 percent of the appraised value of the home. If, however, you take more than 60 percent, the upfront MIP will be 2.50 percent.
A HECM is not a government loan. It is a loan issued by a private lender that is insured by the FHA. The borrower pays an insurance fee upfront at loan origination, and each year the borrower is charged an annual insurance fee of 1.25% of the outstanding loan balance. Your loan balance thus increases by the amount of this fee. The insurance purchased by this fee protects the borrower (1) if and when the lender is not able to make a payment; and (2) if the value of the home upon selling is not enough to cover the loan balance. In the latter case, the FHA will pay off the remaining balance. Currently, HECMs make up the vast majority of reverse mortgages offered in America. HECMs come with rules and regulations that include a requirement that the borrower receive third-party counseling.
- HECM Single Disbursement Payment Option. Historically, HECM borrowers had to take all of the loan proceeds available to them. HUD has created a HECM “mini” option that allows you to take less money at closing. If you are eligible for a $100,000 loan, for example, but don’t want that much money, you can choose a single disbursement equal to 60 percent or less of that sum. Unfortunately, if you wanted more money at a later time, you would not be able to access any additional funds. However, this is a great option for someone who wants to preserve the equity in his home by utilizing a smaller amount of funds.
- HECM for Purchase. While retirees typically use a HECM to cover living expenses, supplement income, eliminate debts, or pay for healthcare, a growing segment of the senior population is using HECMs to purchase new homes that better suit their needs. The advantage of using a HECM for Purchase is that the new home is purchased outright, using funds from the sale of the old home, which are then combined with the reverse mortgage proceeds. This homebuying process leaves you with no monthly mortgage payments. While study after study reveals that an overwhelming percentage of seniors want to continue living in their current home for as long as possible, for some people that isn’t the best, or safest, option. HECM for Purchase offers a solution for downsizing into a place that’s more easily navigable, possibly more energy efficient, maintenance costs, or which is closer to friends and family.
Proprietary Reverse Mortgages
Right now, very few proprietary reverse mortgages exist. However, it’s important to mention them, because market conditions may change in the foreseeable future when property values stabilize.
Proprietary reverse mortgages are non-FHA insured reverse mortgages offered by banks and mortgage companies. They are not subject to all of the same regulations as HECMs. In some states, no counseling is required, although it is always recommended and required by some lenders.
Proprietary reverse mortgages are sometimes called “jumbo” reverse mortgages, because they are taken on higher-valued homes, generally $750,000 or more.
Non Mortgage Products
One new available option is not a mortgage at all but a program that allows homeowners to share some of their future property appreciation through a program that provides cash today. Thrive Financial is approved with the company that offers this option and in certain circumstances, it may be a better choice if you own higher-value homes.
Your C2 Reverse Mortgage professional can explain the program and its benefits to you when reviewing your equity management options.