TheReverseMortgageLady.com Your Reverse Mortgage Information Source.
is Hari K. Bird,
The Reverse Mortage Lady.
Moving forward in 'Reverse'.
Now, the Reverse Mortgage is even better.
WHAT IS A REVERSE MORTGAGE?
“A Reverse Mortgage is a home-equity loan
for seniors that requires no monthly payments.”
The basics explained: A mortgage
is a mortgage is a mortgage. Everyone knows what a mortgage is; a
person buys a house, finances it for 30 years, make payments, pay
the property taxes and home-owners insurance. Sell the house at any
time and pay back the lender. As an owner (with a lien, of course),
one can modify the house, paint the walls odd colors, install funky
carpet and maybe even install a swimming pool. A Reverse Mortgage
is no different that the previously described, except one doesn’t
make mortgage payments -- and all borrowers must be age 62 or over.
It’s that simple!
To qualify: Since the lender
(per the Federal Housing Administration - FHA) doesn’t require
any monthly payments, income, assets, and credit score doesn’t
apply with the FHA Reverse Mortgage program. A senior just needs sufficient
equity to qualify. Typically equity needs to be around 50% - depending
on age and interest rates. Older borrowers need less equity.
Interest rates: Currently the
adjustable rate reverse mortgage is charging under 3%. A wholesale
rate – if you will. Since the lender is rarely at risk of a defaulted loan
(i.e. no mortgage payments and FHA insures the loan from various defaults)
the lender can charge lower interest rates than traditional mortgages.
These interest rates are usually based on the LIBOR (an international
Payments: As mentioned before
the senior doesn’t ever have to make mortgage payments to the
lender for life (even if life is 50+ years more, or just 6 months
– whatever “life” is) as long as the senior maintains
the house to federal Department of Housing and Urban Development (HUD)
standards, pays property taxes and home-owners insurance and lives
in the property as their primary residence.
Funds to Client: Since this is a mortgage in reverse, the lender pays the Borrower(s). One can choose to receive all of the funds; fixed monthly payments, leave it all in a line of credit, or a combination of these. The funds that remain in the line of credit will increase. Since the funds are a loan, it is not considered income and thus doesn’t affect Medicare, Medicaid, or Social Security. Any existing liens or mortgage on the property must be paid at the time of closing of the reverse mortgage.
Safety and Security:The Home Equity Conversation Mortgage (HECM,) also known as a reverse mortgage, is currently the only reverse mortgage available in the United States that is fully FHA insured (government-backed). What this means is the FHA will protect the senior in several ways including: 1) If the home’s value at the time of settlement is less than the amount owed the FHA will make-up the difference (some restrictions apply of course); 2) If the lender were to fail under the obligations of the contract, the FHA will step-in as if they were the original lender.
Reverse debt: Unlike traditional
mortgages where the balance owed is always decreasing with every mortgage
payment, the reverse mortgage has an increasing balance. In a normal
economy the home usually increases in value and thus the home’s
equity grows larger. With a reverse mortgage the loan balance increases
but so does the home’s value increase, thus creating additional
home-equity despite the ever-increasing loan balance. The way the
reverse mortgage has been designed by the FHA, the heirs will still
inherit a lot of home equity – in nearly all cases. Remember,
the FHA will only allow about half of the appraised value to be borrowed
– meaning the value of the home should always exceed the loan
Disadvantages to borrowers: There's little to none for seniors age 62+ ... unless you intend to
sell your home during your lifetime. (You can work out a scenario
if this might be a reality.)
Disadvantages to heirs: The
senior is “spending the kid’s inheritance”. But
isn’t the home’s equity like an IRA that one pays into
each year? Now it is time for the home to pay the senior - to enhance
the golden years.
Costs: Most lenders charge
an up-front fee of around $350 -- a “deposit”, if you
will. There is no application fee, no appraisal fee, per se. This
deposit goes toward paying for some of the up front costs to the lender
such as a flood certificate and some toward the cost of the appraisal.
Most other fees are added to the loan balance such as; title search
and examination, title insurance, appraisal, local taxes, etc. –
normal costs for any traditional mortgage. Also HUD charges a 2% MIP
(Monthly Insurance Premium) fee. No where else can one get a no-credit-score,
no-payment home loan and still have such low interest rates.
Reverse Mortgage for home purchase: Effective early 2009 realtors use a reverse mortgage to help seniors
purchase a home with a down payment of just 50% and the client never
has to make a mortgage payment -- for life.
1) Consider increasing
your standard of living by purchasing a nicer home using a reverse
2) The Realtor can assist by selling the current (older)
home and help you move into a more modern home, condo or even a maintenance-free
Realtors are eager to help
as they get two-for-one: 1) The listing; and 2) The sale of the newer
home. Also remember that there is no income or credit requirement
for the client (age 62+) to qualify – just the down payment
of approximately 50% of the purchase price.
The Reverse Mortgage
either aTraditional MortgageorRefinance Loan the Homeowner borrows large amounts of money and makes monthly payments. As payments are made, the loan balance gets smaller and the home's equity grows.
the other hand, with theAARP
endorsedReverse Mortgage, the Homeowner usually borrowssmall
amounts, i.e., monthly or at other intervals, through a line of credit.
Over the course of time, the loan balance gets larger, and the home's
equity gets smaller.
Reverse Mortgage enables senior homeowners (62+) to convert part of
the equity in their homes into tax-free income without having to sell
the home, give up title, or take on a new monthly mortgage payment.
The Reverse Mortgage is aptly named because the payment stream is
“reversed.” Instead of making monthly payments to a lender,
as with a regular mortgage, a lender makes payments to the senior.
of the loan is required only once, at the end of the loan, which in
most cases is when the Homeowner sells the home, or no longer uses
the home as a primary residence for 365 consecutive days, or when
the Homeowner passes.
GET YOUR EQUITY OUT
AND USE IT HOWEVER YOU WISH
When you apply for a Reverse Mortgage, there are no income, employment,
health, or credit qualifying restrictions.
Maximum loan amount is based on the Borrower's age, where you live,
and the value of the home. The current interest rate is around 5%
- 6%. The amount owed can never exceed property value, so a Reverse
Mortgage can never cause you to lose your home.
The funds received during the loan term, plus any accrued interest,
become due when you sell the property or no longer use the home as
a primary residence.
Best of all, you'll have no more monthly mortgage payments
FLEXIBLE ACCESS TO EXTRA INCOME
YOU CAN OBTAIN YOUR LOAN PROCEEDS...
monthly installments to supplement income;
a line of credit to draw on as necessary;
a cash advance in addition to monthly allotments. And Borrowers can
change funds distribution plans as many times as they wish.
GETTING YOUR REVERSE MORTGAGE REQUIRES...
AWARENESS -- Consumer, i.e., senior Homeowner or adult child, learns about Reverse
Mortgages or a particular product from an article, ad, direct mail,
word-of-mouth, Broker, etc.
ACTION -- Consumer seeks more information by contacting a Broker, Lender,
HUD, Fannie Mae,
National Center for Home Equity Conversion, AARP, or Financial Planner.
COUNSELING -- The Consumer is required to participate in a Consumer Education
session with a HUD approved counselor. This can be done by phone or
in person. The purpose of this session is to explain the legal and
financial considerations of obtaining a Reverse Mortgage. This session
ensures that you understand the program and your obligations as stated
in the loan agreement. Upon completion, you will be 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. Get more Counseling details
WHAT IS THE PURPOSE OF COUNSELING? “The purpose of counseling is to explain in detail the important
legal and financial considerations of obtaining a Reverse Mortgage.”
and DISCLOSURE -- Consumer completes the application for Reverse Mortgage
with Lender and selects payment option: fixed monthly payments for
life, fixed monthly payments for term, lump sum payment, line of credit,
or combination of all the options. Consumer provides Lender with required
documents, i.e., photo identification, verification of Social Security
number, copy of deed to home, home owner's insurance declaration page,
information on any existing mortgage(s) on property, and their Counseling
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 options,
packages the loan, and then submits the package to the underwriting
department for underwriting and final approval.
CLOSING -- Following approval, closing (signing) of the 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 the loan. Previous
payments, if any, by Consumer for appraisal may be refunded or used
to reduce the closing costs financed. Lender or title company has
the Consumer sign loan papers. Any existing debt on the home is paid
off. A new lien is placed on the home.
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, the Consumer
gets access to the funds in the form of the payment option they selected,
i.e., monthly checks, etc.
REPAYMENT -- Consumer is not required to make any monthly mortgage payments
to lender during the life of the loan. The Reverse Mortgage becomes
fully repayable upon: a) the passing of the Borrower or last Co-borrower;
b) the sale of the home; c) a permanent move-out 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 for
365 days in a row. The loan may be repaid by the Borrower or Borrower’s
heirs-estate, with or without the sale of the home.
A REVERSE MORTGAGE MEANS...
No More Monthly Mortgage Payments
and Living Better Someday,
YOU'RE JUST SIX STEPS AWAY
FROM GETTING A REVERSE MORTGAGE
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 *The HUD required Consumer Counseling session can occur by phone or
in person with a HUD approved counseling agency. The purpose of counseling
is to explain in detail the important legal and financial considerations
of obtaining a Reverse Mortgage. Counseling ensures that you understand
the program and your obligations as stated in the loan agreement.
Upon its completion you are provided with a signed Certificate of
Counseling, which is given to your Lender as evidence of completion.
This certificate expires 180 days after the session. Contact us here.
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. Request
an application here.
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 25 and 45 days to process a loan.
Loan documents are signed, including the Mortgage or Deed of Trust.
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 initial draw you selected is usually available by
the 5th day. Monthly payments are usually received at the beginning
of the new month after a 3 week set up period.
YOU CAN KEEP YOUR MONTHLY PAYMENTS
REVERSE MORTGAGE ENDS MONTHLY PAYMENTS
GET ANSWERS HERE
I am told the first thing I have to do in order to proceed with a
Reverse Mortgage application is to complete HUD approved independent
counseling. How do I get the required counseling in order to qualify
move forward with my Reverse Mortgage?
A. You've come to the right place. Just have your mortgage representative
contact us here so we can
arrange your counseling session. You can then proceed with you application. See 'COUNSELING' above.
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 the title for you to participate.
Q. Are the cash advances considered income by the IRS?
A. No. The cash advances are actually loan proceeds distributions
and are not considered income. The cash advances are tax free.
Q. Are manufactured homes eligible?
A. Yes. The home must have been built in July, 1976 or after and have
a permanent foundation that is approved by FHA. A structural
inspection is required prior to processing of the Reverse Mortgage.
If the home is on leased land certain additional restrictions can
apply -- please ask for a clear explanation.
Q. Are there restrictions on how I can use the money?
A. No, after all, it's your money!
What about fees and cost?
A. There are four basic types of charges, other than interest, involved
in setting up a Reverse Mortgage...
Sometimes lenders will charge an
origination fee depending on the reverse program being offered.
and monthly Mortgage Insurance Premium, called MIP.
closing costs, such as appraisal, title research, title insurance,
flood certification, etc.
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 the cost of the appraisal.
What about the interest rate?
A. Currently nearly HECM loans are adjustable to the LIBOR, London Inter
Bank Offered 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 it does cause the loan balance to grow at a faster or
slower rate. The home must have only a reasonable remaining mortgage balance such as 50% or be owned free and clear. The Reverse Mortgage may be used to pay off the balance on any existing loans or liens.
What about property taxes? Will I lose my home if I can't pay the
A. You want to make sure that you leave adequate funds in your account
to cover annual property taxes. These funds grow at an annual percentage
rate and this feature can help offset increases in property taxes.
When is loan repayment due?
A. The loan is due and payable when the Borrowers no longer occupy
the property as their principal residence for 365 days in a row, or
if they fail to comply with the loan agreement, i.e., pay property
tax or maintain Homeowner's Insurance. The loan agreement also states
that the Borrowers understand that it is their responsibility to maintain
the property in normal living condition.
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, i.e., the beneficiaries
can get a conventional or "Forward" Mortgage.
What is the affect of the loan proceeds on my 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 a benefit specialist for the Medicaid
or SSI programs as certain rules must be adhered to so as not to be
disqualified for these types of public benefit programs.
Q. What is the eligibility requirement?
a) All Homeowners must be age 62 or older and they must occupy
the property as their principal residence.
b) The home must have or only a reasonable remaining mortgage balance exists such as 50% or be owned free and clear. The Reverse Mortgage may be used to pay off the balance on any existing loans or liens.
c) The property must be a single-family, condo, townhouse, or up to
a four-unit dwelling.
Can I buy a home with a Reverse Mortgage?
A. Yes, as long as the loan is for no more than 50 percent of the
purchase price, and the property is your principal residence.
How much can be borrowed?
A. Maximum amount that can be borrowed is based on these three factors:
age of the youngest Homeowner.
market value of the home.
current interest rate.
Q. What are the Reverse Mortgage loan proceeds options?
A. There are several different ways of receiving the loan proceeds.
Homeowners can choose an option that best fits their needs and goals...
Option: Provides fixed cash advances for a set period of time.
Option: Provides fixed cash advances for as long as the Homeowners
occupy the property as their principal residence.
of Credit Option: Establishes a credit line which the Borrower draws
upon as he or she wishes.
Option: A combination of the above options. --