HECM Loan - Credit Report Check

A big change in the new HECM loan rules is that the lender must check your credit and financial situation. Although reverse mortgages don't require monthly payments, you need to make sure that you have enough money to cover essential housing payments as well as money to live on.

HECM Loans - Borrower Requirements

Editor's Note: In September 2013 the FHA announced huge changes in their Home Equity Conversion Mortgage (HECM) reverse mortgage rules.  The changes are designed to shore up the FHA's losses and protect borrowers from taking reverse mortgages that endanger their financial situation. In order to help you understand the changes, read the two-part series about HECM loan changes in 2013, as follows:

1. The first article deals with changes in the amount of money available in the HECM loan program, including the overall loan size and the amount you can draw down during the first 12 months of the loan. These changes go into effect September 30, 2013. 
2. This  article deals with new requirements that the lender must make regarding checking the borrower’s credit and capability to maintain essential payments regarding the property. These changes will go into effect January 13, 2014.

1. You don't need to make monthly payments on your HECM loan. In fact, if used properly, a reverse mortgage loan can be a valuable source of income. However, if you are not careful a reverse mortgage can be dangerous.

Since many borrowers misused the HECM loan, the FHA issued big changes in the reverse mortgage rules. Besides limiting the amount of loan you can borrow, the new rules also require stricter lending requirements.
Here are the major changes in the HECM loan that will go into effect for loans assigned on or after January 13, 2014:

1. Credit Report Check
2. Financial Assessment
3. Setting Aside Funds for Property Charges

Change #1 to HECM Loan - Credit Report Check

Remember, if you don’t keep up on your property taxes, homeowner insurance, or proper maintenance of your home, then the lender may require you to pay back your HECM loan.
We are all used to lenders checking our credit reports and credit scores. However, for many years a credit check for a HECM loan was not an issue. After all, you don’t have to make monthly payments - HECM loans are based on your age, the interest rate and your property’s value.
Well, get ready for changes, as the FHA now requires lenders to check your credit reports. These are some of the basics of the HECM loan credit check:

• Who to check?:

Lenders must check all borrowers and non-borrowing spouses if they reside in community property states.

• Why make the check?:  In a regular mortgage loan the lender checks your debts in order to determine if you have enough income to pay your debts as well as your mortgage. The new HECM rules now require the lender to check your credit and see if you have enough income to pay your debts and property related charges.
• How to check?: 

Lenders must know review your credit history from the three major Credit Reporting Agencies. Depending on your situation lenders will require various documentation to verify your payment history

• What to look for?:

The new HECM loan rules now make the lender check your debts and monthly payments in order to:

• Look for delinquent or unpaid debts including federal debts, liens against the property and unsatisfactory/late payments on your mortgage and other credit.
• Specifically look for timely payments on any payments related to your property including property tax and insurance.

Tip

Make your payments on time: If you are having trouble paying your bills, then check out American Consumer Credit Center Debt Coach for a personalized debt relief solution.