Reverse, HELOC, Construction, and Interest-Only Loans (Free Tutorial)

Описание: Welcome to the seventeenth episode of the National Mortgage Exam Tutorials & Practice Tests videos. The series will be following the sequence of topics as presented in the NMLS test content outline at https://bit.ly/NMLSoutline.

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General Mortgage Knowledge – Part 7 Video #17
Loan Products – Part 2

Reverse Mortgage/FHA’s Home Equity Conversion Mortgage (HECM)

Background
• HECM is the most popular reverse mortgage product
• Elderly homeowners with no mortgage or mortgage that can be paid off at closing
• Convert equity into lump-sum payout, monthly payment, line of credit, or a combination
• No maximum payout

Requirements
• Youngest borrower is at least age 62.
• Home is a 1-unit primary residence, including condominiums.
• No existing mortgage on the property or one that can be satisfied with the first reverse mortgage payment.
• Borrower must receive counseling from a HUD-approved home counseling agency.
• Borrower must maintain hazard insurance, pay property taxes, pay monthly mortgage insurance premiums (MIP, added to loan balance).
• Payments can continue for as long as the borrower lives, or the property is vacant for more than 12 consecutive months for health reasons or the borrower violates the terms of the mortgage (hazard insurance, property tax, etc.).
• New FHA appraisal.

Valuation
• Borrower’s age, interest rate, value of the home
• Older the better…more money based on life expectancy tables

Non-Recourse
• If the borrower dies in the property and the heirs decide to sell it, they only owe the sale proceeds. They are not personally responsible for the note (non-recourse). FHA will reimburse lenders for any losses.

Home Equity Line of Credit (HELOC)
• Form of revolving credit in which the home serves as collateral.
• Amount of the available credit line usually depends on the borrower’s equity in the home (appraised value – loan balance = borrower’s equity).
• Funds can be withdrawn for a stated period of time, such as 10 years, after which the repayment period starts (also a stated number of years).
• Lenders can cancel the credit line at any time.

Construction Mortgages
• Usually a short-term temporary loan in which money is advanced in stages as the construction progresses, and the borrower pays the interest on each draw.
• Because there’s usually no structure yet to act as collateral, interest rates, down payments and borrower credit score requirements tend to be higher than residential purchase mortgages.

Interest-Only Mortgages
• Borrowers pay only the monthly interest due during the specified term of the loan.
• When the term is about to expire, borrowers may be given several options:
o Make a lump sum loan payoff.
o Refinance into an amortizing fixed rate or adjustable mortgage.
o Start paying off the balance at a higher interest rate.

Interest-only mortgages are not considered to be Qualified Mortgages, so it might be difficult finding a lender willing to assume the risk.