Principal Limit
The Principal Limit is calculated on the age of the youngest borrower, the appraised value of the subject property or the FHA limit (whichever is less) and the current expected interest rate. The current limit for FHA HECM loans is $417,00 nation wide.

For the adjustable rate, the principal limit can be locked in at time of application. The principal limit lock is valid for 120 days from the date the FHA Case Number is assigned. It allows the borrower to receive the principal limit at the time of application or the principal limit at closing, whichever is greater. Fixed rate loans are not locked in until closing.

Eligible Vesting
All properties must be vested in one of the following ways:
Fee Simple
Life Estate
Leasehold
Trust
Land Trust

Eligible Property
The following property types are eligible for a HECM reverse mortgage:
Single family
2-4 units, as long as one unit is the borrower’s primary residence
Condominiums
Planned Unit Developments (PUD)
Manufactured Homes

Non-Eligible Properties
The following property types are not eligible for a reverse mortgage:
Investment properties
Vacation homes
Second homes
Properties with illegal accessories units or mixed use properties where more than 25% is used for non-residential purposes
Manufactured homes which are legally recorded as a condominium (this will change in 2009) or if property is not taxed as real estate
Two parcels on one deed (if home sits on both)

Residence Eligibility
The subject property must be the borrower’s principal residence. A person can have only one principal residence at any one time. The property cannot be considered the principal residence if the borrower does not occupy the property or in the case of a purchase, have the intent to occupy, as a primary residence.

In the case of co-borrowers, at least one borrower must occupy and use the property as their primary residence after the closing of the reverse mortgage and until the loan is due and payable. If a borrower fails to maintain the subject property as their principal residence it is considered a maturity event under the terms of the security instrument and may result in a demand for repayment of the reverse mortgage loan.

All rules that apply to forward mortgages regarding eligibility are the same for reverse mortgages. If you have questions regarding reverse mortgages please send them to info@alliedhomenet.com.

HUD recently announced the approval of a purchase product using the reverse mortgage. It opens up a whole new target for marketing the HECM loan. Realtors can now sell homes and finance them with the HECM product. Many seniors may choose to sell their current home and relocate to downsize or to move closer to family.

The calculation software is the same for purchase as it is for a refinance. Instead of receiving cash at closing or each month, they put down a large down payment that varies according to their ages and then never have to make another payment. Not a bad idea for seniors on fixed income. And because there is no qualifying as far as credit, income or assets, other than the down payment, they are relatively assured they can get the loan if they are over age 62 and have enough ready cash to pay down.

If you are interested in more details, review ML 2008-33 at: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-33ml.doc

If you want to know more about reverse mortgages, email me at info@alliedhomenet.com