Is the H4P mortgage interest rate fixed or variable?
You can choose either fixed or variable.
How is the down payment determined?
Down payment is determined by three factors: age of youngest borrower, purchase price of home, and current interest rate.
What are the closing costs?
The closing costs are similar to a regular FHA mortgage. 2.5% of appraised value of the home is paid at closing to satisfy the up-front mortgage insurance premium payment. This premium is financed into mortgage and not paid out-of-pocket. There are also standard third party fees like title, appraisal, and recording of the lien. These costs DO NOT get added to the down payment number shown on the Matrix. The only money you will bring to closing is what is shown on the Matrix.
Does my existing home have anything to do with the H4P transaction?
No, you are allowed to be on title to both homes. You can rent your existing home for cash flow or sell it after you move into your new home. The only disqualifying issue would be if your current home has a FHA mortgage balance. This would require you to refinance into a non-FHA mortgage or sell your home before using the H4P Program. If you own other real estate then your income will need to support the PITI (principal, interest, taxes and insurance) on existing real estate as well as the property taxes, insurance and/or condo dues on your new HECM property. After all real estate expenses, installment, and revolving debt is subtracted from income, there must be residual income remaining. This is based on area you live in and if you are single/married. All items will be verified.
Is there anything I need to know about the purchase contract when using the H4P Program?
The most important thing you need to know is that the purchase contract cannot contain any language about seller concessions or seller paid closing costs, including owner’s title, and home and gas warranties. In addition, there cannot be any exchange of personal property or builder incentives. IMPORTANT: if you’re working with a builder and they are providing incentives, then a simple purchase price addendum can be created. A reputable lender will know what form you will need.
If I’m building a new home instead of purchasing an existing home, what should I know?
All new construction may require a Certificate of Occupancy (CO) once the home has been inspected and it’s determined to be move-in ready. FHA requires lenders to wait until the CO is issued before a loan application can be taken. The first step is to get a Pre-Approval letter (H4P Golden Ticket) from us prior to going into contract with the builder. Please make sure to get us in touch with the builder so we can verify everything needed in the contract.
Isn’t the H4P Program just another way the Federal Government will get itself into trouble?
No, this is not a tax-payer funded program. Every person that secures a FHA insured mortgage contributes to the Mutual Mortgage Insurance fund. In the case of regular (non H4P) FHA mortgage insured loans, the borrower contributes part of their monthly payment to the fund. With the H4P Program, the lender pays FHA 1.25% of the loan balance per year (accrues onto loan balance) which creates a continuous stream of dollars into the insurance fund. The benefit of the HECM is that it is FHA-insured which means you or your heirs are NEVER Personally Liable for this debt.
How does the bank/lender make their money?
On a traditional mortgage the bank receives interest as part of the monthly payment. The H4P interest accrues in the background which causes the balance to increase over time. The bank makes their money on the total interest accrued at the time the house is sold.
Isn’t the H4P Program designed primarily for people who don’t have a lot of money?
The H4P Program is being used by middle income earners as well as millionaires. It allows financially savvy people to use their money for other things rather than tying up a large portion of it inside their home. The Financial Assessment rules make this program a perfect fit for those with good credit and assets. This program unfortunately is not for those with bad credit and no assets.
What if I already live in my dream home…can I still use the HECM Program?
Yes, you can use the HECM Refinance option to pay off your existing mortgage, create a monthly income, or set up a line of credit for emergencies.