It has taken a few years for the Federal Housing Administration (FHA), which insures Home Equity Conversion Mortgages (HECMs), to sort through the consequences of the worst real estate crisis in living memory and the entry of Boomers into the 62+ market. The result has been more changes recently than in the previous life of the program.
One of the most significant changes effects married couples with a non-borrowing spouse (a partner under 62 the minimum age for a HECM). Under the new rules, the non-borrowing spouse can remain in the home even after the borrower dies.
Costs to set up a HECM have become much more competitive. New options can make the closing costs even lower than those for traditional mortgages.
HECM for Purchase is also becoming more popular. This is a way to use a HECM to buy a home. It’s a large down payment, no monthly payment mortgage. This can double a homebuyer’s purchasing power over cash alone and can also help to preserve money for a nest egg.
There are now limits on how much of the available funds a borrower can access during the first year of a HECM. For those needing 60% or less of available funds, the cost for the Initial Mortgage Insurance Premium is substantially reduced.
Perhaps the most talked-about change is Financial Assessment. This is due to be rolled out April 27th and will impact all new applications as of that date. Financial Assessment requires lenders to consider borrowers’ willingness and capacity to meet their housing and other obligations.
For borrowers with good credit and adequate income, Financial Assessment will only mean more paperwork. The impact will be greater for those who have struggled with their obligations. Past credit problems and not having residual income equal to expenses will have to be taken into account. Financial Assessment could mean the need to escrow HECM funds for future property taxes and insurance costs.
While a tough pill for some to swallow, the goal of Financial Assessment is to maintain the viability of the HECM program for the long term. It is also to aid those homeowners who might not actually be able to afford their housing expenses, to understand that borrowing more against the property might not be their best long-term solution.
Aging in Place, it doesn’t happen by accident and it seems to mean encountering change constantly.