A 62-year-old California homeowner is evaluating a Home Equity Conversion Mortgage (HECM) on their primary residence. HUD regulations require borrowers to complete approved counseling before obtaining a HECM. Which factor does NOT determine the amount of proceeds available to the borrower under a HECM?
Correct Answer
D) The borrower's income level and monthly debt obligations
HECM proceeds are determined by three factors: the borrower's age (older borrowers qualify for more), current interest rates (lower rates increase available proceeds), and the lesser of the appraised property value or the FHA lending limit. Unlike conventional loans, HECMs do not use the borrower's income or debt obligations to calculate loan proceeds. While HUD's 2015 financial assessment rules require lenders to review income and credit history to determine if a Life Expectancy Set-Aside (LESA) is needed for taxes and insurance, this assessment does not affect the principal limit calculation. California borrowers must complete HUD-approved counseling under 24 CFR §206.41 before proceeding.
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Related Topics & Key Terms
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Related Concepts
The debt-to-income ratio (DTI) compares a borrower's monthly debt obligations to their gross monthly income. It is used by lenders to determine how much mortgage a borrower can afford.
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Discount points are upfront fees paid to a lender at closing to reduce (buy down) the interest rate on a mortgage loan. One point equals 1% of the loan amount and typically reduces the rate by approximately 0.25%.
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