FHA will be making major changes to the reverse mortgage (HECM) beginning October 2nd, 2017. To avoid being affected by these changes, California applicants need to complete counseling and application, prior to September 22nd, 2017.
Your time is valuable so I will give you a brief overview of the good, the bad, and the ugly changes, in reverse:
The Ugly
1) The FHA will be reducing lending limits by as much as 20% across the board.
This means that your client will qualify for less borrowing. This would negatively affect your clients with large mortgage balances and many new applicants may not qualify or would be required to bring in additional funds for closings.
Here is an example:
Currently: A 62-year-old homeowner would qualify for a loan up to 52.4% of their current appraised value (FHA value limit $636,150). A home value of $600,000 would allow a 62-year-old homeowner to qualify for a HECM loan amount of $314,400.
After October 2nd: The same 62-year-old homeowner will qualify for only 41.7%, or $250,200. That is over $64,000, or 20% less than currently.
2) Upfront mortgage insurance premium (UFMIP) will be 2% of the appraised value (FHA value limit is $636,150) regardless of mandatory obligations (mortgage and other liens).
Currently: If the homeowner’s mandatory obligation is less than 60% of the approved loan amount, the UFMIP is one-half percent (.50%) of the appraised value.
After October 2nd: Regardless of the borrowers’ mandatory obligations, their closing costs would increase to 2% or four-fold. This would have a negative effect on applicants that own their home free & clear
The Bad
The annual credit line growth rate will be reduced by .75%. Currently, the unused portion of the borrower’s HECM equity credit line increases monthly at an annual rate between 5.232% and 7.203%, based on the option chosen by the borrower.
Currently: A borrower with $300,000 available on their HECM credit line, would see an increase in borrowing power to $316,077 in the first year, based on a credit line growth rate of 5.232%.
In 10 years, the same $300,000 would have increased to $505,650 of borrowing power.
After October 2nd: $300,000 would increase to $313,725 in the first year, based on a credit line growth rate of 4.482% (.75% less than 5.232% in the currently scenario).
In 10 years, the same $300,000 scenario would increase to $469,255. That is $36,394 less than currently.
The Good
After October 2nd, the ongoing annual mortgage insurance premium will be reduced from one and a quarter percent (1.25%) of the outstanding balance, to one-half percent (.50%) of the outstanding balance.
This will mean the outstanding balance borrowed on a HECM will increase .75% slower than currently.
The Better:
Homeowners can avoid these drastic changes as long as they complete their application and the counseling session prior to September 22nd, 2017.
Please feel free to call Pete Tentler (858) 999.1776, with any questions you might have and to learn how to begin the reverse mortgage process before the changes.
The Financial Locksmith® 