Top 10 things to know about Reverse Mortgages

Reblogger
Industry Observer with No Longer Processing Mortgages. MLO #293441 expired

Curtis has laid out a very good presentation about Reverse Mortgages, which usually doesn't come through in the sales pitches on television. 

If you need any further information on them, and reside in Washington, I will be happy to answer your questions, hopefully in as clear a manner as Curtis has presented his data.

Original content by Curtis Van Carter DRE # 00770113

Reverse Mortgages

Anyone who watches TV has seen at least ad for reverse mortgages. Many of us who do would probably way too many times.

Whether it Fred Thompson, Henry Winkler or Robert Wagner there sure advertise these products a great but when you ask the average homeowner, there is still a great deal not understood. Thus, I have written this post in an effort to provide you with some answers and some useful links for more information.

One of the best site is HUD.gov, the United States Housing and Urban Development Department and their site dedicated to this called  Home Equity Conversion Mortgages for Seniors.

You can receive additional free information about reverse mortgages in general by contacting the National Council on Aging at (800) 510-0301 or downloading their free booklet, "Use Your Home to Stay at Home," a guide for older homeowners who need help now. It is smart to know more about reverse mortgages, and decide if one is right for you!

1. What is a reverse mortgage?

A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you.  However, unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage.  You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.

2. Can I qualify for FHA's HECM reverse mortgage?

To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, and you must live in the home. You are also required to receive consumer information free or at very low cost from a HECM counselor prior to obtaining the loan. You can find a HECM counselor online or by phoning (800) 569-4287.

3. Can I apply for a HECM even if I did not buy my present house with FHA mortgage insurance?

Yes.  You may apply for a HECM regardless of whether or not you purchased your home with an FHA-insured mortgage.

4. What types of homes are eligible?

To be eligible for the FHA HECM, your home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.

5. What are the differences between a reverse mortgage and a home equity loan?

With a second mortgage, or a home equity line of credit, borrowers must have adequate   income to qualify for the loan, and they make monthly payments on the principal and interest.  A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments.  With a reverse mortgage, you are required to pay real estate taxes, utilities, and hazard and flood insurance premiums.

6. Will we have an estate that we can leave to heirs?

When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid.  All proceeds beyond the amount owed belong to your spouse or estate.  This means any remaining equity can be transferred to heirs.  No debt is passed along to the estate or heirs.

7. How much money can I get from my home?

The amount you may borrower will depend on:

  • Age of the youngest borrower
  • Current interest rate
  • Lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price; and
  • Initial Mortgage Insurance Premium--your choices are HECM Standard or HECM SAVER

In addition, the more valuable your home is, the older you are, and the lower the interest rate, the more you can borrow.  If there is more than one borrower, the age of the youngest borrower is used to determine the amount you can borrow.  For an estimate of HECM cash benefits, select the online calculator from the HECM Home Page. Many online reverse mortgage calculators can provide you with an estimate of the amount of funds you can borrow.

8. Should I use an estate planning service to find a reverse mortgage lender?

FHA does NOT recommend using any service that charges a fee for referring a borrower to an FHA-approved lender.  You can locate a FHA-approved lender by searching online at www.hud.gov or by contacting a HECM counselor for a listing.   Services rendered by HECM counselors are free or at a low cost.  To locate a HECM counselor Search online or call (800) 569-4287 toll-free, for the name and location of a HUD-approved housing counseling agency near you

9. How do I receive my payments?

You can select from five payment plans:

  • Tenure- equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
  • Term- equal monthly payments for a fixed period of months selected.
  • Line of Credit- unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.
  • Modified Tenure- combination of line of credit and scheduled monthly payments for as long as you remain in the home.
  • Modified Term- combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.

10. What if I change my mind and no longer want the loan after I go to closing?  How do I do this?

By law, you have three calendar days to change your mind and cancel the loan.  This is called a three day right of rescission.  The process of canceling the loan should be explained at loan closing.  Be sure to ask the lender for instructions on this process.  Mortgage lenders differ in the process of canceling a loan.  You should ask for the names of the appropriate people, phone numbers, fax numbers, addresses, or written instructions on whatever process the company has in place.  In most cases, the right of rescission will not be applicable to HECM for purchase transactions.

If I can help you find the perfect Napa Valley property, please contact me

Your Napa Valley Broker Extraordinaire, selling Real Estate here from its heart, Yountville

My website & blog: www.NapaValleyAddress.com

Posted by

 

Steven CookSteven T Cook
Loan Officer, MLO-293441      

Cascade Pacific Home Loans  NMLS ID 76988
720 S 333rd St  Federal Way  WA  98003
Office 253-874-1111 | Cell 253-677-1064
Toll Free 1-800-874-8760 | fax 253-295-3901
scook@cphloans.com | www.bayeq.com

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Comments (6)

Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

Good choice for a re-blog. He shares some very good information which is really appreciated. We have been doing these mortgages for many years.

Make it a great weekend!

Jun 07, 2013 09:44 PM
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Joe -- Thanks for stopping by.  Though we have the capability to do them, we have not really done that many yet.  I think that the "reverse purchase" is likely to be a big player in the next few years.

Jun 08, 2013 01:13 AM
Curtis Van Carter
Better Homes & Gardens Wine Country Group - Yountville, CA
Your Napa Valley Broker Extraordinaire

Steven

Thanks for the repost, cheers cvc

Jun 08, 2013 01:14 AM
Rebecca Gaujot, Realtor®
Lewisburg, WV
Lewisburg WV, the go to agent for all real estate

Hi Steven, great reblog and very informative information on reverse mortgages.

Jun 08, 2013 02:11 PM
Hella Mitschke Rothwell
(831) 626-4000 - Honolulu, HI
Hawaii & California Real Estate Broker

Steven: Thank you for reblogging Curtis Van Carter's information on reverse mortgages. A question just came up about it that was answered here.

Jun 09, 2013 02:56 AM
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Curtis -- you are welcome.  BTW I will be down in your area next week.

Rebecca -- glad you found it meaningful.

Helle -- glad we could get you the information you needed in timely manner.

HOPE You all have a fantastic week!!

Jun 10, 2013 03:02 AM