OVERVIEW
FOR SENIORS
The Reverse Mortgage ... In Depth
Reverse
Mortgage vs. Traditional Refinance Loans
Traditional refinance loans mean that the homeowner borrows a large amount of money and makes monthly payments. As payments are made, the loan balance gets smaller and the equity grows.
With a Reverse Mortgage, the homeowner borrows small amounts, i.e., monthly or at other intervals through a line of credit. Over the course of time, the loan balance gets larger, and equity gets smaller. Payment is required only once, at the end of the loan, which in most cases is when the homeowner dies, sells, or no longer uses the home as a primary residence.
Flexible
Access To Extra Income
Reverse Mortgage
Borrowers May Obtain Loan Proceeds ...
In a lump sum to cover large
expenses.
In monthly installments to supplement
income.
As a line of credit to draw
on as necessary.
There is even a choice for an immediate cash advance in addition to monthly allotments. And borrowers can change funds distribution plans as many times as they wish.
Stay in Your Home with Peace of Mind
There are no income, employment
or credit qualifying restrictions.
Maximum loan amount is based
on age, where borrower lives and the value of the home.
The amount owed can never exceed property value, so
a Reverse Mortgage can never cause you to lose your home.
The funds received during loan
term, plus any accrued interest, become due when borrower
sells or no longer uses the home as a primary residence.
The
Process of Getting a Reverse Mortgage
AWARENESS Consumer, i.e., senior homeowner or adult child learns about
Reverse Mortgages or particular product from article, ad, direct mail,
word-of-mouth, Broker, etc.
ACTION Consumer seeks more information, by contacting a Broker, Lender,
HUD, Fannie Mae, AARP, National Center for Home Equity Conversion, or
Financial Planner.
COUNSELING Consumer is urged to participate in a free consumer education
session with a HUD approved counselor. This can be done by phone. The
purpose of the session is to explain the legal and financial consequences
of obtaining a Reverse Mortgage. This session ensures that you understand
the program and your obligations as stated in the loan agreement. For
HECM loans and Fannie Mae Home Keeper loans, consumer education from a
HUD approved housing agency, a nonprofit counseling agency, is mandatory.
Upon completion, you are provided with a Certificate of Counseling which
is then given to your Lender as evidence of completion. The certificate
expires 180 days after the session.
APPLICATION - DISCLOSURE Consumer fills out application for Reverse Mortgage
with Lender and selects payment option: fixed monthly payments for life,
fixed monthly payments for finite period, lump sum payment, line of credit,
or combination of monthly payments and line of credit. Consumer decides,
if option is available, whether to purchase deferred annuity as part of
transaction. Lender discloses to consumer the estimated total cost of
the loan as required by Federal Truth in Lending Act. Lender collects
money for credit report, if applicable, and home appraisal. Consumer provides
Lender with required documents, i.e., photo identification, verification
of Social Security number, copy of deed to home, information on any existing
mortgage(s) on property, and their Counseling Certificate, if required.
PROCESSING Appraiser prepares appraisal report. If structural problems
are noticed or suspected, physical inspection of home is ordered.
UNDERWRITING After receiving all pertinent information and data, the Lender
finalizes the loan parameters with consumer, i.e., payment option, annuity
or not, frequency of loan interest rate adjustments, packages loan, and
submits package to underwriting department for underwriting and final
approval.
CLOSING Following approval, closing (signing) of loan is scheduled. Initial
and expected interest rates are set. These affect the amount of funds
available to consumer, along with the age of borrower(s) and value of
the home. Closing papers and final figures are prepared. Closing costs
are normally financed as part of loan. Previous payments by consumer for
appraisal and credit reports may be refunded or used to reduce the closing
costs financed. Lender or title company has consumer sign loan papers,
checks, etc. Any existing debt on the home is paid off. A new lien is
placed on the home. The borrower may use the loan proceeds for any purpose.
The interest rate charged on the loan generally is adjusted periodically,
i.e. monthly or yearly. During the life of loan, servicing agent disburses
monthly payments to the borrower, if this option is chosen, advances line
of credit funds to the borrower upon request, collects any repayments
by the borrower on the line of credit and sends periodic statements to
the borrower.
RIGHT OF RESCISSION Consumer has three business days after signing papers
in which to cancel the loan, the "three-day Right of Rescission".
Upon expiration of this period, the loan is disbursed, consumer gets access
to the funds in the form of the payment option selected, i.e., monthly
checks, etc. Any existing debt on the home is paid off. A new lien is
placed on the home. The borrower may use the loan proceeds for any purpose.
REPAYMENT Consumer does not make any monthly mortgage payments to lender
during the life of the loan. The Reverse Mortgage becomes fully repayable
upon: a) the death of the borrower or last co-borrower; b) the sale of
the home by the borrower; c) a permanent move from the home by the borrower,
i.e., to a nursing home, or another event, after which the home is no
longer the borrower’s principal residence. The loan may be repaid
by the borrower or borrower’s heirs-estate, with or without a sale
of the home.
Getting
Your Reverse Mortgage Involves Several Actions
You Are Six
Steps Away
Education
This is the where you are, right now. You are taking the time to learn
about the Reverse Mortgage program to determine if it is appropriate for
your situation.
Counseling
A counseling session can be done by phone. The purpose of counseling is
to explain the legal and financial consequences of obtaining a Reverse
Mortgage. Counseling ensures that you understand the program and your
obligations as stated in the loan agreement. Upon completion you are provided
with a Certificate of Borrower Counseling which is given to your Lender
as evidence of completion. The certificate expires 180 days after the
session.
Application
You sit down with the Lender and sign the loan application. The Lender
will disclose the estimated total cost of the loan, as required by the
Federal Truth in Lending Act.
Processing
The Lender will order an appraisal of your home, do a title search and
get a payoff value for any outstanding mortgages. Typically, it takes
between 45 and 60 days to process a loan.
Closing
You sign the loan documents, including the mortgage or Deed of Trust,
and pay the closing costs.
Cash
Disbursement
You have three business days after closing in which to cancel the loan,
the three day Right of Rescission period. Upon expiration of this period,
the cash is available to you in the form of the payment option you selected.
Answers To
Frequently Asked Questions
Q. Am
I qualified for a Reverse Mortgage if I currently have an existing loan
on my home?
A. Yes, but the existing loan must be paid off prior to, or at the settlement
of the Reverse Mortgage. Quite often the Reverse Mortgage is used to refinance
an existing loan.
Q. My property is held in a Living Trust. Do I qualify?
A. Yes, but you must be the primary Trustee and qualified by age.
Q. To avoid probate, my children and I own the property in joint
tenancy. Do we qualify?
A. Yes, if the children are age 62 and older and live on the property.
Otherwise, they would need to be taken off title for you to participate.
Q. Are the cash advances considered income by the IRS?
A. No. The cash advances are actually loan distributions and are not considered
income. The cash advances are tax free.
Q. Are mobile homes eligible?
A. Yes. The home must have been built in 1977 or later and have a permanent
foundation that is approved by FHA.
Q. Are there restrictions on how I can use the money?
A. No. Of course not, after all, it's your money!
Q. What
about fees and cost?
A. There are four basic types of charges, other than interest, involved
in setting up a Reverse Mortgage ...
An origination fee.
Initial and monthly mortgage
insurance premiums.
Other closing costs.
A monthly servicing fee.
Q. Are these fees payable at closing or added monthly to the loan
balance?
A. Typically, the only out of pocket expense for participation
in the Reverse Mortgage program is $300 towards the cost of a home appraisal.
Q. What
about the interest rate?
A. Only adjustable interest rate loans are currently available. The borrower
does have the option of either a monthly adjusting rate or an annually
adjusting rate. Rates are linked to the one year U.S. Treasury Security
Rate. The change in the interest rate has no effect on the amount or the
number of loan advances that the borrower can receive, but causes the
loan balance to grow at a faster or slower rate.
Q. When
is loan repayment due?
A. The loan is due and payable when the borrowers no longer occupy the
property as their principal residence, or if they fail to comply with
the loan agreement. The loan agreement states that the borrowers understand
it is their responsibility to maintain the property and to pay the real
estate taxes and hazard insurance premiums.
The loan must be repaid in one payment, either from the sale of the home or through other resources. There is no requirement that the property be sold, only that the loan is repaid.
Q. What
is the effect on public benefits?
A. Loan proceeds are not considered income and will not affect
Social Security or Medicare because these programs are not based on need.
You'll need to check with the benefit specialist for that program.
Q. What is the eligibility requirement?
A. All homeowners must be age 62 or older and occupy the property as their
principal residence
The home must be owned free and clear or only a small remaining balance
exists. The Reverse Mortgage may be used to pay off the balance on an
existing loan.
The property must be a single-family or up to a four-unit dwelling.
Condominiums and Town Homes are eligible.
Q. How
much can be borrowed?
A. The maximum amount that can be borrowed is based on these three factors
...
The age of the youngest homeowner.
The market value of the home.
The current interest rate.
Q. What are Reverse Mortgage Payment Plan options?
A. There are different ways of receiving the loan proceeds. Homeowners
can choose an option that best fits their goals ...
Term: Provides fixed cash advances
for a set period of time.
Tenure: Provides fixed cash
advances for as long as the homeowners occupy the property as their principal
residence.
Line of Credit: Establishes
a credit line which the borrower draws upon as he or she wishes.
Combination: A combination of
the above options.
