Reverse Mortgages for Seniors

A Financially Secure Future

Reverse mortgages are a great way to take advantage of the equity in your home without having to sell or take out a loan with large monthly payments.

With a reverse mortgage, you don’t make a payment to a bank every month. Instead, the reverse mortgage makes the payment for you and in some cases to you. A reverse mortgage is a negative-amortization loan, which means that instead of lowering your mortgage’s balance, every payment adds to the balance. This works very well if you have equity in your home.

A reverse mortgage lets you withdraw some of the equity in your home. This is a safe resource that can remove the burden of monthly mortgage payments, supplement social security, replace lost income, make home improvements, and provide medical care.

Definitions

HECM	Home equity conversion mortgage, the technical term for a reverse mortgage
FHA	The Federal Housing Administration insures mortgages throughout the USA. Since its inception in 1934, the FHA has insured more than 34 million properties.
HUD	The Department of Housing and Urban Development, the federal government’s ???
Non-recourse loan	Means the lenders recovery is limited to the property and not your estate.

What are the basic eligibility requirements for a reverse mortgage?

·        You must be at least 62 years old

·        Your home must be your primary residence

·        Your home must meet HUD’s minimum standards for a single-family residence, qualified condo, townhome, 2-4 unit owner-occupied property, or eligible manufactured home

·        You must attend a HUD-approved counseling session

·        You must have adequate equity, but your home does not need to be paid off

·        You need no minimum credit score and generally no income verification

What are the benefits of a reverse mortgage?

·        Eliminates monthly mortgage payments

·        Increases monthly cash flow

·        Replaces lost income for those recently widowed

·        Prevents foreclosure

·        You can use the payments for home repairs or travel

·        You keep the title to your home, just like in a forward mortgage

·        If your home appreciates during the reverse mortgage, you or your heirs keep any remaining equity after repaying the reverse mortgage.

·        It’s FHA-insured and regulated

·        Closing costs and fees can be included in the loan so you don’t have to pay anything up front

What are your options with a reserve mortgage?

You can use a reverse mortgage to purchase or to refinance. Fixed and variable rates are available for both.

Reverse Purchase:

Purchasing a home with a reverse mortgage is like putting a down payment on a regular (forward) mortgage, with one big difference. Once you make the down payment, you don’t any monthly mortgage payments as long as you live in the home as your primary residence, regardless of the home’s value.

The minimum down payment is typically around 40% of the purchase price. This percentage may vary, depending on your age, interest rates, and the value or purchase price of the home.

All other aspects of the reverse purchase are the same as a conventional purchase. You will still have title, escrow, home inspections, and appraisal fees. The one difference is the HUD-required counseling.

Refinance

When you refinance into a reverse mortgage, you pay off your current mortgage and never make mortgage payments again as long as you live in the home. If you don’t have a mortgage to pay off, you can still refinance and take the equity out and use it for any reason you prefer.

How much money can you receive with a reverse mortgage?

How much money you will receive is based on a calculation of your age, current interest rates, equity in your home, and value of your home. You won’t know exactly how much money you will receive until your home is appraised, but a good guess is that you can receive up to 65% of the value of your home. For example:

Your closing costs are deducted from the available principal limit of, in this case, $130,000, and then your mortgage is paid off (if you have one), and you can receive the rest.

How can you receive this money?

1.    Lump sum: All available funds are received in one lump sum.

2.    Term: Equal monthly payments are made to you over a set period of time; for example, $2000/month for the next three years. This would be good for someone who has major medical needs or is in home care.

3.    Tenure: You receive equal monthly payments for the rest of your time in the home as long as you occupy it as your primary residence. This is good if you own your home free and clear and you want to use the extra money every month for expenses, dinning out, traveling, etc.

4.    Line of Credit: You convert the equity in your home into a line of credit that you can use as often or as little as you need it.

Why is counseling required and how long does it take?

HUD requires counseling before you can get a reverse mortgage. This is to make sure you know about all the financial implications, alternatives, obligations, and costs associated with the loan and repayment conditions. Counseling typically consists of a 20 minute phone conversation with a non-profit counselor.

What are the costs of a reverse mortgage?

Most often, the costs associated with a reverse mortgage are rolled into the loan, so you typically won’t have any out-of-pocket expenses. Closing costs include:

·        Loan origination fee

·        FHA Mortgage Insurance Premium

·        Appraisal, inspection, title insurance, and other third-party fees

·        Interest

What are your obligations after a reverse mortgage closes?

·        Occupy the home as your principal residence at least 6 months a year

·        Pay property taxes, homeowner’s insurance, and any homeowner’s association dues

·        Maintain the property in condition equal to when the loan closed

What are the benefits of a reverse mortgae loans?

Because the FHA insures reverse mortgages, they have built-in safeguards in that you don’t find with other mortgages:

·       Counseling: This ensures that you understand the reverse mortgage and are able to make an educated decision.

·       Fee limits: The FHA limits the fees associated with this loan.

·       Non-foreclosure: You will not have a mortgage payment or be foreclosed on as long as you live in the home and maintain it as your primary residence.

·       Non-recourse loan: Your heirs will not have to make up the difference if you owe more on your home than its value when your heirs obtain the property.

Are there any drawbacks to a reverse mortgage?

Because a reverse mortgage is a negative-amortization loan, if you take out a reverse loan today, you may find that in 15 years or more, the equity in your home may be diminished. This will not be a burden on your estate or heirs. Your heirs will have many choices:

·       They can sell the property and take any equity that is left in the home.

·       They can refinance the loan into a forward mortgage.

·       They can do nothing and let the home go to the bank. They might do this if more was owed than the home was worth. The key point is this: Your heirs will not have to make up the difference. That is why you pay FHA mortgage insurance.

Why do people take out reverse mortgages?

Reverse mortgages have increased in popularity in the United States over the last five years. They provide a way for you to use the equity in your home and stay and live in your home. Here’s what a reverse mortgage can do for you:

1.   Maintain your lifestyle and financial independence

2.   Make home repairs

3.   Supplement income

4.   Regain lost income from the passing of a spouse

5.   Pay medical bill or in home care

6.   Pay off debts

7.   Help with expenses

8.   Take a vacation

9.   Remove the burden of a monthly mortgage payment

10. Prevent foreclosure.

For more information or to request an application, please call or email me.

Arthur Buhrer

Phone: 360-477-1011

Also see the following links for more information about this very resourceful mortgage.

AARP

http://www.aarp.org/money/credit-loans-debt/reverse_mortgages/

FHA

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/hecmabou