Good news for seniors living in Sun City who want to use a Reverse Mortgage. FHA has lifted its two-year old ban against doing forward mortgages and reverse mortgage (referred to as Home Equity Conversion Mortgages or ‘HECMs’) in their West Valley retirement community.
“Asset Preservation Fees” Lead to Ban in 2016
Even more important than FHA forward mortgages being affected, Reverse mortgages such as HECMs have become very popular recently among seniors looking to supplement their income with the equity in their homes, but for the last two years they have been unavailable in many retirement communities like Sun City and Sun City West. The reason for this is that many retirement communities, charge new homeowners an “asset preservation fee” to pay for capital improvements and amenities such as golf courses, recreation centers, and swimming pools. This fee applies equally to all new homeowners–including people who inherit a home and banks that foreclose on one.
Because FHA loans are federally-insured, the U.S. government would technically be on the hook for this fee in the event of a foreclosure. In 2016, the Department of Housing and Urban Development (HUD) decided that these asset preservation fees violated a rarely-enforced “free assumability” clause in the Code of Federal Regulations, which was meant to protect the government from being responsible for potential costs in the event of a foreclosure.
HUD Reversal on FHA loans (including Reverse Mortgages) in Sun City
As of October 5, 2018 the ban prohibiting FHA loans in Sun City was lifted after HUD issued a letter agreeing with Sun City’s argument that their asset preservation fee met the criteria for the Federal Housing Finance Agency’s “Excepted Transfer Fee Covenant.” The letter states that this type of fee is “acceptable when it requires payment of the Fee to a covered association and limits the use of the Fee exclusively to purposes that provide a direct benefit to the real property encumbered by the Fee covenants.”
How to Get a FHA loan Reverse Mortgage (HECM)
RECMs are only available through a FHA-approved lender like AZ Mortgage Brothers. If you are a homeowner age 62 or older and have paid off (or significantly paid down) your mortgage, and are currently living in the home, call us for help getting an HECM.
We can even help you use a HECM to purchase a primary residence if you have enough cash to pay the difference between the HECM proceeds and the sales price and the closing costs for the property you are purchasing. Don’t hesitate, contact AZ Mortagage Brothers today!
To learn more about reverse mortgages, click here. To learn specifically about FHA’s HECM program, visit: https://www.hud.gov/program_offices/housing/sfh/hecm/hecmabou