A Home Equity Conversion Mortgage (HECM) is a financial solution that seniors in Pennsylvania 62 and older can use to secure the funds they need to purchase a home. Previously, homeowners wishing to complete a HECM reverse mortgage had to determine if they wanted to maximize their HECM cash draw and pay a penalty insurance premium. HUD has since applied a premium that's 2 percent of the borrower's property value no matter how much a senior prefers to draw.
Even with the rule change, HECMs are still appealing to many seniors since there is no repayment obligation as long as the borrower lives in the residential property they purchased. The only notable disadvantage for seniors is that HECMs will only cover 50-60 percent of a home's price. The specific amount is based on the borrower's age. Most homebuyers get the extra funds from asset liquidation. The home must also be either a single-family home or an FHA-approved manufactured home or condominium.
Seniors exploring HECM reverse mortgages options will have some choices to make. HECMs can have a fixed or adjustable rate. Many homebuyers prefer the option that will allow them to draw more cash from the loan. Borrowers also have to find the lender that's offering the best available terms. The advantage with fixed loans is that interest rates will not change, although there are times when adjustable loans cover more of the home's purchase price.
When a borrower selects a lender and decides on preferred loan arrangements, the final step is working out contract terms with the lender. A real estate attorney might help a senior homebuyer by reviewing all documents involved in the process, ensuring that HECM requirements have been met, and negotiating with a lender, when necessary. A lawyer may also be able to explain what loan arrangements may mean for the borrower's heirs, if this is a concern.