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Reverse mortgages- FHA
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The concept of a Reverse mortgage
Any home owner above the age of 62 years (since the minimum requirement age is 62 years old) can receive cash flow from the accrued equity on their home (property). The payments are free of tax and does not require repayment. The reverse mortgage is ultimately paid off sometime in the future when the home is sold. There are however, certain conditions which a home owner needs to fulfill to be eligible for a Reverse mortgage loan.
A Reverse mortgage loan requires the following conditions to get approved:
- For a senior Reverse mortgage, a house owner needs to be at least 62 years old
- The home has to be the primary residence of the home owner
- Before or after the completion of the HUD application, counseling by a certified HUD counselor is required. Counseling is mandatory and must be done before the loan is funded.
- The house has to be a single family residence or mobile home built on any permanent foundation which is built after July 1976, condos or 1-4 unit buildings
Some considerations related to obtaining a Reverse mortgage:
- Home ownership remains with the homeowner for the entire life and the remaining equity is passed on to the heirs.
- Proceeds from a senior housing option are tax free.
- No repayments are to be made as long as the home owner is residing in the home.
- The proceeds can be used for almost all purpose like repairs and home improvements, education of grandchildren, paying off credit card debts, medical expenses, paying taxes etc.
There are certain costs for a Reverse mortgage like the mortgage insurance premium (paid to the FHA at loan funding and then accruing monthly), loan origination fee (given to mortgage brokers or mortgage lender) and other traditional closing costs (which generally include the title policy, documentation fee, notary fee etc.).
The FHA (the acronym for Federal Housing Administration) reserve mortgage program is known as the Home Equity Conversion Mortgage (HECM). The FHA HECM provides cash flow to the homeowner based on the equity accumulated on the house. Like all reverse mortgages, the FHA HECM does not ask for any repayment on the mortgage until the home owner dies or decides to move out by selling the property. Today the reserve mortgages are also provided by the commercial lenders using conventional loans.
The current economic turmoil in the financial markets has been worsened by the fact that some retired home owners are also facing the pain of adjustable rate mortgages. Combine this with a job loss or forced retirement and you have a situation where money is tight. Another factor is decreased income from poor performing investments. This situation can lead to a foreclosure. Senior reverse mortgages may provide a sigh of relief. Traditional refinancing with another adjustable rate mortgage (ARM) or a fixed rate mortgage (FRM) may no longer a viable option. The FHA HECM gives them the option of paying off their existing loan and stopping their foreclosure. Qualifying is based only on age and equity in the home-not credit. This can be a viable option that should be explored if the senior wishes to remain in their home and has enough equity to pay off their existing mortgage liens.
Why A Reverse Mortgage?
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When you reach at an age that you can not work that hard to generate sufficient amount of money, you need some way to supplement your income and in such a case reverse mortgage can be thought of as a good option for you.
Reverse mortgage is loan for seniors who own a home. The amount of the loan is based on the equity within the home and the age of the senior. You are allowed to exchange the equity in your home into cash through a reverse mortgage. In comparison to other types of loans offered where you make payments to a mortgage company, reverse mortgage make payments to you. Before you obtain any loan, you need to evaluate the terms and conditions and see if it is right for your situation.
Generally speaking, when you apply for other kinds of loans, your ability to pay back the loan determines whether you qualify or not. For example, you must and confirm your income. Not so with a reverse mortgage. Your current income is not a criteria nor is credit. One reason is that you do not need not to make any monthly payment with a reverse mortgage. You do not have to have any minimum amount of income to be qualified for a reverse mortgage. Since credit and income don’t matter, what are basic requirements? Here they are: you must own a home and be age of 62 or older. That’s it. If you fit those criteria, you are eligible to apply for reverse mortgage.
You have choices how you receive the mortgage proceeds. You can be paid all the money at one time only or you can get a credit line that allows you the flexibility to decide when and what amount of money to be withdrawn.
If you need the money on monthly basis, then you can choose the option with a reverse mortgage where you receive a monthly payment. This gives you the comfort and the benefit of a steady income. All the bills related to your home maintenance, medical and other expanses can be managed with the help of this monthly cash. This allows seniors to stay in their homes longer by accessing their equity to pay for the costs.
The added advantage of reverse mortgage is that you receive a tax-free income. It is worth noting that the sale price of the house is all that is allowed for the lenders to claim when the home is sold. Your other assets and valuables remain as yours-even if the mortgage balance exceeds the home sale value. The lender can never make any claim for the assets of the homeowner.
Reverse mortgages can be paid off at any time. You also have flexible income option-you need to consult your lender or broker and look at the options when selecting your reverse mortgage. If your home has an existing mortgage, your reverse mortgage proceeds can be used to pay it off. The amount you will receive with a reverse mortgage depends on several factors- your home’s value and the equity.
An important point to note in reverse mortgage is that the equity which you own in your home keeps shrinking because the mortgage lender pays you every month. Thus the reverse mortgage is a great way in case you wish to spend down the equity in your home. When you move from the house or plan to sell it or die suddenly, the balance of the reverse mortgage automatically becomes due to the lender. If any of these events happens then either your family can pay off the loan or the lender will have to sell the property to pay off the loans.
Reverse Mortgage And Its Usage
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Reverse mortgage is a loan especially for senior citizens of 62 years old and older. The purpose or reverse mortgage is to release them from the home equity in a big lump sum or in small multiple payments. This allows the home owner to keep the home title. To qualify for the loan you need to be 62 years old or more than 62 years old. There are no minimum income or credit requirements but there are a few other requirements you have to adhere to. Before you proceed with the process, it is best to make sure that you qualify so that you will not waste your time and money on something you are not getting.
This loan is named as reverse mortgage because the payment is “reversed.” Instead of having to pay monthly payments to a lender, a lender makes payments to you. Which is why it is known as a reverse mortgage.
You can use the mortgage for anything but it is important for you to pay off any existing mortgages. To pay off the existing mortgage debt you cannot get a new loan so it is best to get help from family and friends. If you are in a pending bankruptcy, it might slow down the process of getting a reverse mortgage to approval.
You will need to get a third party counseling as a safeguard to make sure that you fully understand the meaning of reverse mortgage and how you can apply for one. You can get counseling from a local HUD approved counseling agency. The counseling may be conducted face to face or through the phone, whichever is more convenient.
The counselor then must review these important things:
- Options, other than a reverse mortgage, perhaps available for the prospective applicant.
- Other home equity conversion options such as property tax deferral programs.
- The financial implications.
- The tax consequences on the applicant.
There are five factors that determine the amount of money the applicants can get:
- The appraised value of the property. It can be any health or safety repairs or any existing liens.
- The interest rate, according to the U.S. Treasury 1 year T-Bill or the LIBOR index.
- The age of the senior. If the senior is older than there will be more money.
- The form of payment whether taken as line of credit, lump sum, or monthly payments.
- The location of the property.
What are the types of homes eligible for a reverse mortgage?
- single-family homes
- 2-4 unit properties
- manufactured homes (built after June 1976)
- condominiums
- townhouses
What happens if I have existing mortgage? This is the most popular question that interested applicant would ask as most of them still have mortgage debt. You might be qualify to have a reverse mortgage if you have an existing mortgage but the reverse mortgage must be in the first lien position so you will have to pay off your mortgage by using the reverse mortgage, your savings or assistance from your family and friends.
Let’s set up an example for better understanding.
You owe about $100,000 on a mortgage and according to your age, home value and current interest rates; you are eligible to get $125,000 if you apply for a reverse mortgage. So, you get $125,000 to repay all your mortgage debt and you still have $25,000 for anything you wish to do. This is a better situation for you, as you have an additional $25,000 to do anything you want. You can either use that for your daily expenses or you can even go on a holiday.
But the problem is when you are only eligible to get $85,000, and then you will have to come up with another $15,000 to repay your existing mortgage debt. Then, you will not be having any monthly mortgage payment. In case where you have no additional fund to cover the debt, you should consult your family and friends and ask them for help because you cannot have new debt such as having a new loan. As such, this is a bad situation as not only you have no additional money to spend but you have to borrow from family and friends to cover up the additional cost.
There are many types of reverse mortgages available so you have to make sure that you choose the right one for yourself. Below is a list of reverse mortgages available:
- Home Equity Conversion Mortgage (HECM)
This is perhaps the most popular reverse mortgage. It is also the oldest reverse mortgage available in the market. This is an FHA product.
- Fannie Mae Home Keeper & Home Keeper for Home Purchase
- Financial Freedom Cash Account
- CHIP Reverse Mortgage for Seniors
This plan is created based on the senior’s point of view.
- There is always something new, check in with us to find out what changes have been made to the above programs and what new programs exist.
To apply for a reverse mortgage, you must learn everything you can about the reverse mortgage. Normally, you will come across some advertisements in the newspaper that get you intrigued into knowing more about reverse mortgage. Then, you might contact a reverse mortgage lender or mortgage broker and make arrangement for a meeting to consult more about reverse mortgage. The next step is to get counseling as it is a requirement to make sure that you fully understand the program. Then you can start applying by filling out the forms. The next thing is the lender will process your application by having an evaluation of your home. Once the lender has finalized the amount to be disbursed, they will go through the underwriting. When the loan is approved, you will be contacted to close the loan and receive the disbursement.
There are some circumstances where you might not want to get a reverse mortgage. You should not get a reverse mortgage if you intend to leave your home within the next two to three years. This is because if you want to leave your home, there might be other less expensive ways to consider obtaining funds. For example, you could consider a home equity loan, no-interest loans or grants that might be available in your location.
Reverse Mortgages - Are There Disadvantages?
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If you are looking for a way that you can make your retirement a bit better, you may want to consider checking into the reverse mortgage options that you have. You will find that there are a variety of companies today that will offer you the opportunities to get a senior reverse mortgage, which can really make a difference in your life. However, when it comes to getting a Minnesota reverse mortgage, you'll find that although there are a variety of advantages to doing so, there are also a few disadvantages as well. Although many times you hear all about the advantages, you may not be aware of all the disadvantages to going with a reverse mortgage. So, let's take a look at some of the disadvantages that there can be when you go with a reverse mortgage as well as some of the considerations you'll need to keep in mind if you are considering this options for your needs as a senior.
Disadvantages to Be Aware Of
First of all, if you are even considering a reverse home mortgage, there are some disadvantages that you need to be aware of. Here are just a few of those disadvantages that you will need to keep in mind.
- Disadvantage #1 - Building Up Debt - First of all, one of the main disadvantages that you'll encounter when it comes to going with a reverse mortgage is that you'll be building up debt over time while you live in your home. Usually with a regular mortgage you work on paying off the debt on your home over 30 years, but when you go with a reverse mortgage, as long as you are living in your home, you are going to find that you are building up debt instead of paying it off.
- Disadvantage #2 - Large Costs Up Front - Not only will you find that building up debt is a disadvantage of going with a home reverse mortgage, but you'll also find that another disadvantage is that there can be some rather large costs you have to pay up front when you go with this option. These costs really go up when you are only wanting to take out part of the money or you only want to live in your home for a couple more years. So, this can be a big disadvantage to be aware of before you make up your mind.
- Disadvantage #3 - Leaving Your Heirs a Smaller Inheritance - Going with Minnesota reverse mortgages also has the disadvantage of leaving your heirs a smaller inheritance as well. Although they are probably not really interested in the money you lave behind, you may be. You'll have less equity in your home if you go with the reverse mortgage, meaning that the home will be worth less, which can affect the heirs that you leave behind.
Considerations You Need to Think About
Now that you understand that there are a variety of disadvantages to keep in mind, there are other considerations that you'll need to think about before you decide whether or not this is going to be the best senior housing option for you and your needs. Here are a few important considerations that you need to keep in mind.
- Your Current Needs Financially - First of all, you need to consider your current needs financially. Take a close look at your budget and figure out which options are going to best help you to deal with the financial needs that you have. Take a look at the bills you have. Do you have too many expenses and are you barely getting by? Perhaps you need to adjust your budget or you need to find a way to get extra money, such as through a reverse mortgage.
- Can You Adjust Your Budget? - Ask yourself whether or not you can cut down on some of your expenditures to adjust your budget. Of course there are some things that you may need to sacrifice; however, some things you cannot live without. Before you decide to go with a reverse mortgage, it's important to figure out how long the equity that you have will be able to help you support yourself on the budget that you have.
- Will You Move to Avoid a Reverse Mortgage - Is moving an option for you if it helps you to avoid going with a reverse mortgage. If you want to move and it will keep you from going through this option, it may be the right choice. However, it's not always the best choice. You may want to stay in your home and often you'll find that a reverse mortgage can help you to do so.
- What Benefits Will a Reverse Home Mortgage Provide? - Last of all, you'll want to consider all the benefits that a reverse home mortgage can provide you with. You will have the advantage of having more cash to deal with and you'll be able to pay off some debt and live a better life. However, it's important that you balance out the benefits with the cons of the option as well. Take the time to figure out if the benefits outweigh the problems, and if they do, then this may be the right choice for you.
Reverse Mortgage Pitfalls to Beware Of
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Today many seniors are looking for a good solution that will help them have more cash as they go through retirement. However, many people are beginning to see that going with a reverse mortgage is not always the best possible option out there. Although there are many companies that do a lot of advertising, encouraging seniors to go ahead and choose this senior housing option, this is not necessarily the choice that you will want to make. Sure, you'll see advertising on television, in magazines, and even in the newspapers; however, just because you see advertising about the option doesn't meant that it is going to be the right idea for you. You'll actually find that there are some reverse mortgage pitfalls out there that you will definitely need to beware of if you are considering this option. So, here is a closer look at some of the common complaints that seniors have when it comes to these loans and a few important things that you must know before you get a reverse mortgage on your home.
Common Complaints of Seniors
Today's seniors have recently had some complaints when it comes to reverse mortgages. Let's take a look at these reverse mortgage pitfalls that they have found when going with this option for a senior housing option.
- They Were Pressured - One complaint and reverse mortgage pitfall that many seniors have reported is that they felt that they were pressured into taking out the loan. There are some reverse mortgage brokers out there that often use some techniques that are a bit heavy handed to try to get seniors to go with this loan option. Sometimes the companies are not the best at providing all the facts, which is why it's so important to find out as much as you can and to even talk to a good financial planner before deciding that this is the right option for you.
- Excessive Fees for the Loan - Another problem or pitfall that some seniors have found when they decided to go with a reverse home mortgage is that there were excessive fees for the loan. Some of the fees that are charged by some companies are quite high and many times there have been fees for a loan of only $100,000 that totaled far more than $10,000, which is definitely quite high for this type of a loan. Also, many have reported that often the finance charges were on the high side as well.
- Home Monitoring - There have been at least a few cases of home monitoring as well. In some cases there have been appraisers show up at homes when one person on the loan ended up in the hospital saying that the home was going to be sold because the owner of the home was close to dying. This is definitely not something that homeowners want to deal with, and although it doesn't happen often, it has happened in the past.
Things to Know Before Getting a Reverse Mortgage
Because of the reverse mortgage pitfalls out there and the complaints that some seniors have had when it comes to getting a reverse mortgage, there are definitely a few things that you'll need to know before you get a reverse mortgage of your own. Let's take a look at some of the most important things to keep in mind when making this decision.
- There are Alternatives - First of all, it's important that you realize that there are some alternatives to going with a reverse mortgage. You don't have to go with this option because there are other options that are available. Make sure that you now about the alternatives and find out what you can about the available options before you make a decision on a reverse mortgage.
- Understand Taxes - It's important that you understand the taxes that come with your home. Even though you take out a reverse mortgage, you'll find that you still have to pay the yearly taxes on your home and these taxes can be extremely high.
- Remember Home Repairs - Home repairs can also be quite costly as well and putting on a roof can cost thousands as can a simple pipe burst in your home. In some cases you'll find that the upkeep of the home and the taxes you have to pay are far more than the money that you make. So, you'll find that the reverse mortgage is not always the best option for you in this case.
Do Your Research Before Making a Decision
So, the bottom line is that it is definitely important that you do your research and find out everything possible before you make a decision on whether or not you should go with a reverse mortgage. After you do your research you'll be better prepared to make a decision. Take the time to do some research and perhaps talk to a financial advisor so you can decide if this is really the right option for your needs.
Selecting a Reverse Mortgage Lender - Key Questions to Ask
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If you take a look at reverse mortgages today, you'll find that there are quite a few new products that are available and different pricing options out there as well, which is why many people are considering whether or not a reverse mortgage is really a great senior housing option for their needs. Of course you'll find that there are both benefits and disadvantages to going with a reverse mortgage, but for many people the benefits outweigh the bad. If this is the case, you are going to want to look for a reverse mortgage lender that will provide you with the great reverse home mortgage that you want and need. However, how can you know that you are going with a great lender for your reverse mortgage? Well, here are a few key questions that you'll want to ask when it comes to selecting a lender for your reverse mortgage.
Question #1 - Can You Offer Me Access to Jumbo Mortgages and HECM's
One of the most important questions that you should ask if you are looking for a good reverse mortgage lender is, can you offer me access to Jumbo mortgages or HECMs. You want to make sure that the lender that you choose offers you the best product options that are available to you today. You'll also want to make sure that the lender that you choose knows about the huge range of HECM options that are available today, which are great choices if you have a HUD product. Also, if you are considering Jumbo loans, then you need to look for the best options that will work for your needs. If they cannot provide you a good selection and great choices, then this may not be the best lender for you and the needs that you have when it comes to getting a reverse mortgage for your home.
Question #2 - Can You Ensure I'm Getting the Best Possible Mortgage
You should also be asking reverse mortgage lenders if they can ensure that you are going to get the best possible mortgage out there for your needs. Lenders that are established actually have processes in place that will help you to make sure that you totally understand the various choices that are available to you and that match your situation as well. In fact, there are some lending companies that actually require that you get independent counseling before you decide that a reverse mortgage is the right option for you, which helps you to make sure that you get the best reverse mortgage option for your needs.
Question #3 - How Long Have You Been Working with Reverse Home Mortgages?
Make sure that you ask the reverse mortgage lender how long they have been working with reverse home mortgages. Today you'll find that there are newer lending companies out there that are very new to dealing with reverse mortgages, which is not always the best option for you. Going with lenders that already have a long history working with reverse home mortgages is a great idea, since they already understand how these mortgages work. So, knowing how long the lender has been working with these types of mortgages is definitely important if you are interested in finding the best lender for your needs.
Question #4 - Can You Show Me the Breakdown of the Fees, Costs, and an Amortization Schedule?
Last of all, when you are considering various reverse mortgage lenders, you'll also need to ask them if they can show you the breakdown of all the fees and costs of the loan, along with providing you with an amortization schedule for the products too. Good lenders will be more than happy to provide you with the breakdown of the fees and costs for the different reverse home mortgage options that they have to offer and they should also be more than willing to explain to you how the reverse mortgage works and how it can help you.
Top Things You Need to Know if You're Considering a Reverse Home Mortgage
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It was HUD that actually created one of the very first reverse home mortgages, and they have become more and more popular since that time. These reverse mortgages definitely provide a way that seniors can have an easier time when they are going through retirement. Many seniors use this senior housing option to help them supplement the money that they get from social security, the improve their home, enjoy traveling, pay off medical debt, or even pay off their current mortgage. There are definitely a variety of different ways that these mortgages can be used today. Although you'll find that there are many benefits that come with going with a reverse home mortgage, it's important that you don't go into one blindly. So, here are some of the top things you need to know if you're considering a reverse home mortgage.
Understanding What a Reverse Home Mortgage Is
First of all, before you ever decide whether or not a reverse mortgage is right for you, it is absolutely essential that you understand what a home reverse mortgage actually is. If you are not sure what it is, you won't want to get involved in it. You'll find that a reverse home mortgage is a very unique home loan that allows you to take at least part of the equity that is in your home and get it back in cash. The equity that is in the home can be paid out to you, either by one lump sum, monthly payments, or as a line of credit. However, you won't be the one making payments on this type of a loan.
What it Takes to Qualify for a HUD Reverse Home Mortgage
Another thing that you need to know if you are considering a reverse home mortgage as a senior housing option is what it is going to take to qualify for a HUD reverse home mortgage. Well, HUD requires that you have to be older than 62 years old and the person who is the borrower must be the one that owns the home. You also have to won your home or you need to have a mortgage balance that is quite low. Also, you actually have to live in the home that you want to get the reverse mortgage on. When going with a HUD reverse home mortgage, you'll find that you are required to go through counseling that is approved by HUD before you are able to get the loan as well.
The Homes that are Eligible
It is also important that you know what homes are eligible for a reverse mortgage as well if you are considering this option. You'll find that most single family homes are going to be eligible. However, 2-4 unit properties may be eligible if you own them and you also occupy it. Some manufactured homes, condo units, and even townhomes may also be eligible for these home reverse mortgage loans as well. If any of these housing options describe your situation, then your home will probably be qualified for one of these loans.
Reverse Mortgage Vs. Bank Home Equity Loan
Many people don't understand that there is a difference between a reverse mortgage and a bank home equity loan. Well, there is actually a big difference and it's important that you are aware of it. You'll find that in order to get the home equity loan, you'll have to have a certain debt to income ratio in order to get the loan that you want. Also, you'll have to make payments on a monthly basis as well. However, you'll find that a reverse mortgage is quite a bit different from this option. You'll find that it is not based on your income, your debt to income ratio, or even your credit. Also, instead of making payments, you'll actually get payments and you'll never have to make a payment until you decide to move or sell the home that you have the loan on.
Will the Lender Be Able to Take My Home?
This is a common question that many people have when they are considering whether or not a reverse home mortgage is the right option for their needs. Well, the answer is, no. The lender is not going to be able to take away your home, even if you actually outlive the loan on the home. As long as you keep the insurance and the taxes on the home current the lender is not going to be able to take away your home.
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