Conventional Loans

    What is a conventional loan?
    A Conventional Loan is a loan that isn’t guaranteed by the government, as with FHA, USDA or VA loans. This type of loan follows the guidelines of Government Sponsored Enterprises such as Freddie Mac or Fannie Mae. These entities are the largest purchasers of loans and represent the most common mortgages available. The underwriting guidelines and loan amount limits are set forth very clearly by the GSE’s. Conforming is sometimes used interchangeably with Conventional, but Conforming relates to the maximum size of the loan that the GSE’s allow. A non-conforming loan is a loan that is above the maximum loan limit (i.e. Jumbo), or does not follow their precise guidelines (i.e. bank portfolio loan).
    What are conventional loan requirements?
    Credit scores will likely be the first, and most important, qualification item a borrower will encounter. Many lenders require a minimum of 620 FICO score in order to move forward with a loan application. Secondly, debt-to-income ratios are important. A borrower must have adequate monthly income to support the housing expenses – mortgage payment, real estate taxes, homeowner’s insurance, and association dues, if applicable. Generally, this amount should be approximately 28% of the monthly gross income. There is another ratio that is calculated by taking the housing expense and adding all other monthly debts, such as auto, student, and credit card debt. Generally, the total overall debt shouldn’t exceed 36% of the monthly gross income.
    What are the typical interest rates for conventional loans?
    In general, interest rates are determined by the value of mortgage backed securities (MBS), which determine the interest rates that lenders offer on a given day. Interest rates change every day – sometimes more frequently, if there are market indicators calling for changes up or down. Borrowers should contact their lenders for the most current and accurate rates.

    Some elements that can affect an interest rate quote for a borrower are:

    • Credit scores
    • Loan type
    • Property type
    • Occupancy (owner occupied, investment, second home)
    • Down payment amount
    • Purpose of loan (purchase, refinance, cash-out refinance)
    What types of properties are eligible for conventional loans?

    Conventional Loans can be used to finance:

    • condos
    • modular homes
    • 1-4 family residences
    • manufactured homes
    • planned unit developments
    • primary residences
    • investment property
    • second homes
    What is the maximum amount I can borrow with a conventional loan?
    This number varies by county, but can range anywhere from $417,000 to $729,000, and also depends on the property type. For example, Multi-unit properties allow for higher loan amounts, as do certain counties that are designated high-cost areas. The vast majority of properties fall into the maximum loan amount of $417,000.
    Are conventional loans assumable?
    For the most part, conventional loans aren’t assumable.
    What are the typical closing costs associated with a conventional loan and how are they paid?

    These costs vary anywhere from 3 – 9%. Closing costs are generally comprised of lender fees, title services, loan discount fees, and misc. fees such as appraisal, credit report, attorney, or other services required for the loan which can vary by state. Closing costs are charged to and paid by the borrower, but in certain circumstances, assistance in paying these costs can be obtained in some of the following ways:

    • A Seller of a home may agree to give the buyer a credit, which can be used to pay for all or part of the cost.
    • A lender may agree to pay for all or part.
    • In the case of a refinance, there are circumstances where the closing costs may be rolled into the new loan.
    • Some states and local municipalities offer closing cost assistance on purchase transactions.
    Do conventional loans require an escrow?
    If a borrower puts less than 20% down, an escrow is required. Taxes and insurance are collected and placed into the escrow accounts each month. When these items come due, the lender will make the payment. Borrowers with a down payment of 20% or more can choose whether or not they wish to escrow.
    What is an ARM/Adjustable Rate Mortgage?
    Adjustable rate mortgages (ARMs) differ from fixed rate mortgages (the more traditional mortgage) in that the rate of the loan changes over the life of the loan. What does this mean to you? That means that the rate of interest you are paying when you start (let’s say 4.25%) doesn’t remain the same for the life of the loan. It could go up (to 4.50%, for example) or down (to 4.00%). That means that your monthly payments may also go up or down.
    Is an ARM more risky than a traditional fixed rate loan?

    Yes, but like all risk, there are benefits paid for taking this risk. For one, the starting interest rate will be lower when you first take the loan. This can be a saving grace if you’re already stretched thin (financially speaking) when making a new home purchase. If a rate adjustment does occur, it can happen after you’ve had time to absorb all of the new home expenses (furniture, moving costs, landscaping, repair, etc.)

    Also, for the last 5 years, people with ARMs have won financially over those with fixed rate loans. Since the rates have stayed low, the ARMs have either stayed the same or adjusted downwards, so those with ARMs have paid less interest than their fixed-rate peers.

    On the negative side, the rate will adjust, so if interest rates climb, you may end up paying more interest than if you had locked in the rate with a fixed mortgage.

    Does that mean with an ARM, my rate can go through the roof?

    Probably not. Most ARMs have two different types of rate caps: a yearly cap and a lifetime cap. The yearly cap limits the amount that the rate can increase in a given year. The lifetime cap limits the amount the rate can increase across the full lifetime of the loan.

    So, if you have a rate of 4.25% with a yearly cap of 2% and a lifetime cap of 9%, even if the rates skyrocket into the double digits (unlikely), the maximum rate you will have for the 1st year will be 6.25%. Over the lifetime of the loan, your rate will max out at 9%. While this may seem high, realize that it’s a worst case scenario. It’s more likely that your rate will go up one or two percentage points in the next decade.

    A lender told me I could get a rate of 1.125%. How can they offer a rate this low?
    This rate is known as a “teaser” rate and is generally only in effect for the first 6 months of the loan. Then the rate progressively jumps to the real ARM rate of the specified loan. Some people have told me, “I’ve seen my loan documentation and it shows this low rate and nothing higher.” That’s because the low rate WILL be your start rate and that is the only known rate at the time you sign your loan docs. The real rate that the loan will adjust to is calculated from a loan index plus the loan margin.
    Loan index? Margin? What are those?

    The rates of all adjustable rate mortgages are determined by using a mortgage index. In the stock market, the Dow Jones Average provides a stock index that gives a general overview of how the market is performing. In the mortgage industry, there are several indexes that average mortgage interest rates. These indexes are used by lenders to determine the rates of adjustable mortgages. Popular indexes include the index of U.S. Treasury Bills, LIBOR, COFI, and COSI. Indexes are not controlled by the lender.

    A margin (also called a spread) is the percentage over the index that will determine your rate. For example, if your loan has a margin of 1% and the current LIBOR is 3.95%, then when your loan adjusts, it will adjust to 4.95%. The lower your margin, the lower your overall rate. Margins are generally in the 2-4% range.

    So are those low interest rate (1%, 1.125%, 1.5%, etc.) loans a good deal?

    For most situations, they aren’t. When your mortgage adjusts, usually within 6 months to a year, your monthly payment can jump quite a bit (because the rate will adjust to sometimes 2-4% higher than the start). The margins on these loans tend to be higher since the lender has to make up the money lost in the beginning of the loan when the money was lent at below market rates.

    However, there are situations when these low starter rate programs can be good. Some lenders offer attractive margins and suitable rate caps that for certain types of situations they can be useful (where the absolute minimum monthly payment is needed in the beginning). For most situations, though, these loans are more expensive then traditional ARMs.

    Jumbo Loans

    What is a “jumbo” mortgage?
    Another term for jumbo mortgage is ‘non-conventional’. Quite simply, conventional mortgages are underwritten to federal government guidelines whereas non-conventional loans are underwritten to individual bank guidelines. Investors can be assured of the quality of a conventional loan based on standardized qualifications and the underlying paper is easily sold. However, non-conventional loans typically are serviced and held by the bank that originally underwrote the loan as there is no set of standardized qualifications across all lenders.
    Is there a loan size cut-off?
    In Texas, a single-family residence has a loan cut-off of $417,000. FNMA & FHLMC set these limits each December for the coming year. It is determined by state and sometimes metropolitan ares (MSA). Be careful, that is not the house price, but the loan amount. We’ll talk about strategies down the page.
    Is there rate differences between jumbo and conventional?
    Typically, jumbo rates are higher than conventional rates. I’ve seen them 1% apart and I’ve seen them exactly the same. On average, expect 0.5% higher in rate.
    How do underwriting qualifications differ between jumbo and non-jumbo?
    For many investors, the underwriting qualifications are stiffer for jumbo loans. The reason is this: the bank is stuck with the loan for as long as the borrower has it. The bank needs to be assured of the quality as examiners review their books on a continual basis.
    Any other reason why underwriting is typically more difficult?
    Borrowers who buy higher priced homes are often more ‘complicated’ than conventional borrowers. At a high level, their tax returns are more involved. Many are self-employed, in sales or own (even partially own) various entities. Therefore, careful review of tax returns from all areas of the borrower’s file is needed. Additionally, since the properties are more expensive, there is more exposure to the bank, so the appraisals are carefully reviewed to ensure the collateral is solid.
    Speaking of taxes, what do they want? Why?
    Lenders require the last two years of tax returns. If you filed a tax extension, they will take the extension and the previous two years to have two full years to review. If you own a company or own/partners in >25% of a company, they will require a full set of business returns. For C Corps, LLCs and LLPs, they will determine the % owned by the K1 filed. The lender is looking for consistent income as that is used to predict the future income.
    My CPA does a great job of limiting my tax liability. I can easily report more income, but I want to use all the deductions that the IRS allows. That’s legal.
    A lender can’t tell a CPA what to do or not to do. At a 50,000 foot view, the rule is this: whatever you tell the government you earn is what you are telling the bank you earn. Lenders will add back certain items to help income (e.g. depreciation, mileage expenses), but generally, if your AGI is $100,000 on your taxes, that is what the bank uses.
    Are there any differences for loans > $1million?
    Generally, the lender will require two appraisals to verify the value of the property. Rates are also a tad higher for loans over $1mm. Thirdly, debt-to-income ratios are typically lower and credit scores need to be higher. Finally, the amount of required reserves increases.
    Reserves? What are those?
    In a nutshell, funds in your various financial asset accounts. Lenders require a certain # of months to be in the account to ensure the borrower has enough to pay the loan in lean times. Lenders require anywhere from four months to 18 months depending on who the lender is and the loan amount, credit scores, etc. Important note: business account funds cannot be counted unless your CPA is willing to write a letter stating the liquidation of funds in the business account will not affect the business in any negative manner.
    How long does it take to close on a typical jumbo loan?
    No real differences if the borrower is prompt in returning all paperwork when requested. I see most real estate contracts with 30 – 45 day closings.

    FHA Loans

    What is an FHA loan?
    An FHA loan is a real estate mortgage. The mortgage is insured by FHA. Since the FHA insures these mortgages, lenders can work with borrowers even when they’ve had credit problems, accounts forwarded to collections, past bankruptcy filings, or debt-to-income ratios that are higher than normally allowed.
    Can I get an FHA Mortgage?
    Many more people qualify for FHA mortgages than for traditional mortgages. To find out if you qualify, speak with our Loan Specialists. They’ll be able to provide a definite answer, quickly.
    What if I have “bad credit”?
    “Bad credit” is a very misleading term. We’ve worked with many people who have described themselves as having “bad credit” but who are now homeowners. The truth is, most people do not even know their middle credit score. If you’d like to find out yours, click here. To find out your middle score, write down all three of your credit scores from lowest to highest, the one in the middle (not the lowest and not the highest) is your “middle score”.
    Which houses/properties qualify?
    Single family houses, duplexes, triplexes, 1-4 unit primary residences, Planned Urban Developments (PUDs), approved condominiums, double-wide manufactured homes, and modular or pre-cut housing are all eligible.
    Isn’t it harder for houses to qualify for an FHA mortgage than a traditional mortgage?
    As of January of 2006, FHA has eliminated most of the barriers to a property qualifying. Generally, if a home is in good enough condition to qualify for a traditional mortgage, it will also qualify for an FHA mortgage.
    How about manufactured housing and mobile homes?
    Yes, FHA has financing for mobile homes and factory-built housing. We have two loan products – one for those who own the land that the home is on and another for mobile homes that are – or will be – located in mobile home parks.
    How long does the process take?
    During the initial phone call, our mortgage specialist will spend as long as you need to have all of your questions answered to your satisfaction. Once you’ve found a home, you can complete an application in as little as 20 minutes. It takes an average of 30 days from the day your application is submitted to close your mortgage.
    What is the FHA loan limit?
    FHA loan limits vary throughout the country. FHA Maximum Loan Amounts are set by HUD for every county in the United States. Maximum loan amounts vary from one county to another. Because these maximums are linked to the conforming loan limit and average area home prices, FHA loan limits are periodically subject to change.
    Are FHA loans assumable?
    Yes. You can assume an existing FHA-insured loan, or, if you are the one deciding to sell, allow a buyer to assume yours. Assuming a loan can be very beneficial, since the process is stream- lined and less expensive compared to that for a new loan. Also, assuming a loan can often result in a lower interest rate. The application process consists basically of a credit check and no property appraisal is required. And you must demonstrate that you have enough income to support the mortgage loan. In this way, qualifying to assume a loan is similar to the qualification requirements for a new one.
    How long after a bankruptcy can I purchase a home using FHA financing?
    You may purchase a home using FHA financing two years after the date of discharge for a bankruptcy, assuming that you have maintained excellent credit since the discharge.

    VA Loans

    Why get a VA loan over other types?
    Simply put, a VA Home loan allows qualified buyers the opportunity to purchase a home with no down payment. Also, there are no monthly mortgage insurance premiums to pay, limitations on buyer’s closing costs, and an appraisal that informs the buyer of the property value. For most loans on new houses, construction is inspected at appropriate stages and a one year warranty is required from the builder. VA also performs personal loan servicing and offers financial counseling to help veterans having temporary financial difficulties.
    What is a funding fee? Do I have to pay for this?
    VA funding fee is a fee added to your loan that goes to the Veterans Administration. For your first time use of a VA loan, your funding fee is 2.15% of your loan amount. For each subsequent use it is 3.3%. You will be required to pay it unless you have a service related disability of 10% or greater in which case the funding fee is waived.
    Does it matter what your credit score is with the VA?
    The VA doesn’t put an extraordinary amount of weight on credit scores, but does look for a clear 12 month history.
    What is a statement of service?
    A statement of service is a letter from your commanding officer stating how long you have been in the service and what your status is. It is often required for underwriting purposes for active duty applicants.
    Reservists are eligible for VA Loans, too. Who qualifies?
    Eligibility extends to members who have completed a total of 6 years in the Selected Reserves or National Guard (member of an active unit, attended required weekend drills and 2-week active duty for training) and received an honorable discharge; continue to serve in the Selected Reserves. Individuals who completed less than 6 years may be eligible if discharged for a service-connected disability. In addition, reservists and National Guard members who were activated on or after August 2, 1990, served at least 90 days and were discharged honorably are eligible.
    What if I’ve used a VA Home Loan Before?
    You can have previously-used entitlement “restored” one time only in order to purchase another home with a VA loan if the borrower has paid off the prior loan but still owns the property, and wants to use his entitlement to purchase a second home. This often occurs with active duty borrowers who PCS to a new station but want to keep their existing home for retirement. However, if the prior loan has been paid off and the property is no longer owned, they can have their entitlement restored as many times as they want. They can re-use their VA eligibility for every home purchase from the first to the last.

    Also, veterans who have used a VA loan before may still have remaining entitlement (see chart) to use for another VA loan. A veteran’s maximum entitlement is $89,912, and lenders will generally loan up to four times your available entitlement without a down payment, provided your income and credit qualifications are fine, and the property appraises for the asking price. Lenders may require that a combination of the guaranty entitlement and any cash down payment must equal at least 25 percent of the reasonable value or sales price of the property, whichever is less.

    What service is not eligible for a VA Home Loan?
    You are not eligible for VA financing solely based upon Active Duty for Training in the Reserves or National Guard.

    Note: Guard and Reservists are eligible if they were “activated” under the authority of title 10 U.S. Code as was the case for the Iraq/Afghanistan.

    I am a Veteran who purchased a home with my spouse utilizing my VA eligibility. I am now divorced and my spouse was awarded the home. How do I get my eligibility back?
    When the property is awarded to the Veteran’s spouse as a result of the divorce, entitlement cannot be restored unless the spouse refinances the property and / or pays off the VA loan in full or the ex-spouse is a veteran who substitutes their entitlement.
    I heard the VA has an inventory of foreclosed homes. How can I find out more about this?
    The Department of Veterans Affairs (VA) acquires properties as a result of foreclosures on VA guaranteed loans. These acquired properties are marketed through a property management services contract with Ocwen Federal Bank FSB, West Palm Beach, Florida. Local listing agents through local Multi Listing Systems (MLS) list the properties.
    My spouse and I are both eligible for a VA Loan, how does that affect us?
    There will be very little effect. You can choose to use your Certificate of Eligibility or your spouse’s or a portion of both of them and it will have no impact on the details of the loan. One benefit of having an eligible partner is that you can avoid the increased funding fee for subsequent VA Loans. For your next home purchase you could use your spouse’s eligibility and not have to pay the increased fee.
    I just got divorced, can I obtain another VA Loan for a new house?
    You will still be eligible, but you must have remaining entitlement to take out a new VA Home LoanA VA Loan Specialist can help you run the math to determine if you have any first tier or second tier entitlement remaining and if so how much. From there he can give you a price range to stay within to avoid having to make a down payment.

    Renovation Loans

    What kind of loans are available under the 203(k)?
    • The Standard 203(k) is intended for more complicated projects that involve structural changes, such as room additions, exterior grading and landscaping, or renovation that would prohibit the owner from occupying the residence. A Standard 203(k) is also used if the project requires engineering or architectural drawings and inspections.
    • The streamlined 203(k) is designed for less extensive improvements and for projects that will not exceed a total of $35,000 in renovation and related expenses. This version does not require the use of a consultant, architect, and engineer or as many inspections as the Standard 203(k). As a result, when applicable, the Streamlined 203(k) generally becomes the simpler, less costly option.
    What improvements are eligible under the Streamlined 203(k)?
    The Streamlined 203(k) program is intended to facilitate uncomplicated rehabilitation and/or improvements to a home for which plans, consultants, engineers and/or architects are not required. This program allows discretionary improvements and/or repairs shown below:

    • Repair/Replacement of roofs, gutters and downspouts
    • Repair/Replacement/upgrade of existing HVAC systems
    • Repair/Replacement/upgrade of plumbing and electrical systems
    • Repair/Replacement of flooring
    • Minor remodeling, such as kitchens, which does not involve structural repairs
    • Painting, both exterior and interior
    • Weatherization, including storm windows and doors, insulation, weather stripping, etc.
    • Purchase and installation of appliances, including free-standing ranges, refrigerators, washers/dryers, dishwashers and microwave ovens
    • Accessibility improvements for persons with disabilities
    • Lead-based paint stabilization or abatement of lead-based paint hazards
    • Repair/replace/add exterior decks, patios, porches
    • Basement finishing and remodeling, which does not involve structural repairs
    • Basement waterproofing
    • Window and door replacements and exterior wall re-siding
    • Septic system and/or well repair or replacement
    What items are ineligible for the Streamlined 203(k)?
    Properties that require the following work items are not eligible for financing under the Streamlined 203(k):

    • Major rehabilitation or major remodeling, such as the relocation of a load-bearing wall
    • New construction (including room additions)
    • Repair of structural damage
    • Repairs requiring detailed drawings or architectural exhibits
    • Landscaping or similar site amenity improvements
    • Any repair or improvement requiring a work schedule longer than six (6) months or
    • Rehabilitation activities that require more than two (2) payments per specialized contractor.

    Mortgagors may not use the Streamlined 203(k) program to finance any required repairs arising from the appraisal that do not appear on the list of Streamlined 203(k) eligible work items or that would:

    • Necessitate a “consultant” to develop a “Specification of Repairs/Work Write-Up”
    • Require plans or architectural exhibits
    • Require a plan reviewer
    • Require more than six months to complete
    • Result in work not starting within 30 days after loan closing; or cause the homeowner to be displaced from the property for more than 30 days during the time the rehabilitation work is being conducted. (FHA anticipates that, in a typical case, the homeowner would be able to occupy the property after mortgage loan closing).
    Can the 203(k) program be only used on single-family homes?
    The 203(k) loan program is eligible for use on single family homes as well as on 1- to 4-unit buildings; including the conversion of a building from a larger number of units down to 4 or less. Following specific guidelines, the 203(k) mortgage can also be used on a condominium unit for improvement of the interior only. The program also allows for financing mixed-use building projects that combine retail or commercial space with residential space. In these cases, the 203(k) loan can only be used for renovation of the residential portion of the building.
    How is the home appraised?
    The appraiser is given a copy of the contractor’s bid documents to identify the repairs and remodeling to be done along with the respective costs. The appraiser then determines the value of the home after completion, “subject to” the improvements to be made. In some cases up to 110% of this after-improved value may be used for loan approval purposes.
    Can a 203(k) be used to purchase a HUD-owned property?
    A 203(k) loan can be used to purchase a HUD-owned property that is determined by HUD to be eligible for the program. If other funds are used for the purchase, a 203(k) loan can be made up to six months following the purchase, allowing cash back to the owner.
    Is the 203(k) program allowed for use by investors?
    A 203(k) loan can be used only by owner occupants, local governments or eligible non-profits. However, an owner occupant can use a 203k loan to purchase and renovate up to a 4-unit building as well as multi-use building in conformance with certain guidelines.
    Can an Energy Efficient Mortgage (EEM) be used in conjunction with the 203(k)?
    Yes, the FHA allows the use of an EEM, which provides funds beyond the FHA loan limits and the buyer’s approved loan amount for improvements that increase the energy efficiency and lower the utility costs of the home. An energy audit must be conducted by an approved home energy rater to assure that the energy savings over the useful life of the improvements will exceed their costs. The total amount of an EEM mortgage can be up to 5% of the value of the property.
    How are loan funds disbursed for the purchase and renovation?
    At the loan closes, funds are disbursed for the home purchase and, based on previously submitted and accepted contractor bids, renovation funds are placed by the lender in an escrow account. These renovation funds are then drawn from that account to pay the contractors as the work proceeds, with final payments following inspection at completion. The actual disbursement schedule, inspections and paperwork required are determined by the lender for each project and in conformance with FHA guidelines.
    Is a borrower allowed to do the rehabilitation work?
    Where a buyer can demonstrate professional expertise in a given activity, it is allowable. However, the borrower cannot be paid for labor, only materials used. Prior to loan approval, the cost estimate must reflect the cost for a contractor to do the work in the event the borrower is unable.
    What if there are extra funds after renovation?
    Any funds left over following completion of the renovation can be used to make additional allowable improvements to the property. If not used for this purpose, left over funds will be applied to pay down the principal balance of the mortgage.
    Is there a time limit for the renovation?
    The renovation must begin within 30 days of the closing of the loan and must be completed within the time frame established in the loan agreement. The total time for renovation must not exceed six months.
    What if the home is not habitable during renovation?
    The Standard 203(k) loan does allow for up to six mortgage payments to be included in the renovation funds to cover the period when the home is uninhabitable during renovation. A streamlined 203(k), however, cannot be used if the home will not be habitable at any time during the renovation.

    Reverse Mortgages

    What is a reverse mortgage?
    A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you. However, unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage. You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.
    Can I qualify for FHA’s HECM reverse mortgage?
    To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, have the financial resources to pay ongoing property charges including taxes and insurance, and you must live in the home. You are also required to receive consumer information free or at very low cost from a HECM counselor prior to obtaining the loan. You can find a HECM counselor online or by phoning (800) 569-4287.
    Can I apply for a HECM even if I did not buy my present house with FHA mortgage insurance?
    Yes. You may apply for a HECM regardless of whether or not you purchased your home with an FHA-insured mortgage.
    What types of homes are eligible?
    To be eligible for the FHA HECM, your home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.
    What are the differences between a reverse mortgage and a home equity loan?
    With a second mortgage, or a home equity line of credit, borrowers must make monthly payments on the principal and interest. A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments. With a reverse mortgage, you are required to pay real estate taxes, utilities, and hazard and flood insurance premiums.
    Will we have an estate that we can leave to heirs?
    When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid. All proceeds beyond the amount owed belong to your spouse or estate. This means any remaining equity can be transferred to heirs. No debt is passed along to the estate or heirs.
    How much money can I get from my home?
    The amount varies by borrower and depends on:

    • Age of the youngest borrower or eligible non-borrowing spouse
    • Current interest rate and
    • Lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price

    If there is more than one borrower and no eligible non-borrowing spouse, the age of the youngest borrower is used to determine the amount you can borrow.

    Should I use an estate planning service to find a reverse mortgage lender?
    FHA does NOT recommend using any service that charges a fee for referring a borrower to an FHA-approved lender. You can locate a FHA-approved lender by searching online at www.hud.gov or by contacting a HECM counselor for a listing. Services rendered by HECM counselors are free or at a low cost. To locate a HECM counselor Search online or call (800) 569-4287 toll-free, for the name and location of a HUD-approved housing counseling agency near you.
    How do I receive my payments?
    For adjustable interest rate mortgages, you can select one of the following payment plans:

    • Tenure- equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
    • Term- equal monthly payments for a fixed period of months selected.
    • Line of Credit- unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.
    • Modified Tenure- combination of line of credit and scheduled monthly payments for as long as you remain in the home.
    • Modified Term- combination of line of credit plus monthly payments for a fixed period of months selected by the borrower. For fixed interest rate mortgages, you will receive the Single Disbursement Lump Sum payment plan.
    • Single Disbursement Lump Sum – a single lump sum disbursement at mortgage closing.
    What if I change my mind and no longer want the loan after I go to closing? How do I do this?
    By law, you have three calendar days to change your mind and cancel the loan. This is called a three day right of rescission. The process of canceling the loan should be explained at loan closing. Be sure to ask the lender for instructions on this process. Mortgage lenders differ in the process of canceling a loan. You should ask for the names of the appropriate people, phone numbers, fax numbers, addresses, or written instructions on whatever process the company has in place. In most cases, the right of rescission will not be applicable to HECM for purchase transactions.