1 The Guide To A Reverse Mortgage
2 US Mortgage Corporation (NMLS ID#3901). Corporate Office is located at 201 Old Country Road, Suite 140, Melville, NY 11747; or (800) (LOANS15). Licensed Mortgage Banker-NYS Department of Financial Services- AK, AL, AR, CA, CO, CT, DC, DE, FL, GA, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MS, MT, NC, ND, NE, NH, NJ, NM, OH, OK, OR, PA, RI, SC, SD, TN, TX, VA, VT, WA, WI, WV, WY State Banking Departments/Regulators. Rates, fees and program guidelines are subject to change without notice. Some loans arranged through third parties. First mortgages only. Not all products and/or programs are available in all states. Certain restrictions may apply.
3 Table Of Contents Introduction To Reverse Mortgages... Page 01 Costs And Payments... Page 03 Reverse Mortgage Repayment.... Page 05 Types Of Reverse Mortgage Program.... Page 07 Things To Consider Before Going For A Reverse Mortgage.... Page 09 Getting A Reverse Mortgage Loan... Page 11
4 Introduction To Reverse Mortgages 01
5 Reverse mortgage is like a tool that enables you to use the equity locked in your house without selling it or making payments in any other form. The value of a house is generally divided into debt and equity. A higher equity and lesser debt means a greater part of the house is owned by you and vice-versa. In a conventional mortgaging process, the payments you make on your loan decreases the amount of your debt and increases your equity. If you continue to live in your home long enough, you will clear all your debt and own it completely. In a reverse mortgaging procedure, your debt will increase with time because you don t make monthly payments here. Once you pass away, the lender may sell off your home to get back the loan amount with the interest or your heirs will need to pay off the debt if they want to retain your home. Eligibility Requirements for Reverse Mortgage Home Equity Conversion Mortgage or HECM is the most popular type of reverse mortgage program. You could get a HECM from any private lender approved by the Federal Housing Administration (FHA). However, there are certain requirements that need to be met before getting a HECM. Some of them are as follows: 1. The homeowner must at least be of 62 years in age. 2. It is applicable only to primary residences 3. The home must either be clear or have a large amount of equity present in it. 4. A certificate of occupancy is mandatory. 5. The home must meet the Department of Housing and Urban Development s (HUD) minimum standards for property. 6. Counseling from a HUD approved agency is mandatory. 02
6 Costs And Payments Costs Involved In A Reverse Mortgage Reverse mortgage involves costs such as the servicing fee, closing costs, and interest. The servicing fee for HECM loans cannot exceed $35 a month and are generally charged once the loan is closed. Closing fee involves an origination fee that has to be paid for processing of the loan and fees for third party services such as property inspection, survey, and title search. In addition to these, you will also have to pay for mortgage insurance. The insurance ensures that the borrower receives the promised funds and acts as compensation to lenders whenever they receive lesser than the loan amount. Generally, your reverse mortgage plan must be made in such a manner that insurance and any other expenses can be compensated from the income derived from your reverse mortgage plan. 03
7 The costs involved in a standard HECM are higher than the traditional mortgage programs. There is also an economical program, called the HECM Saver, with lower insurance premiums. However, the amount of equity that can be borrowed under HECM Saver is less. But it can act as a cost-saving option to those who are not looking to make use of a larger share of their equity. HECMs usually contain a variable interest rate. A few fixed-rate programs are also available. In a variable interest rate program, you get an opportunity to choose an interest rate that adjusts monthly or yearly. In a monthly adjustable plan, interest rate is generally lower than the interest rate in a yearly adjustable plan Payment Options In A Reverse Mortgage There are several factors that affect the amount of money you can derive from a reverse mortgage such as the age of the person on the property title, the interest rate, the equity in your house, and sometimes even the location matters. If you have an outstanding traditional mortgage, you will have to pay it with your reverse mortgage funds as soon as possible. Any outstanding debt on your home can actually reduce the amount of money you receive in the form of reverse mortgage. You can even have a reverse mortgage plan just to pay off your traditional mortgage. Generally, a reverse mortgage consists of five modes of payment. 1. Term Payment: In this method, you will receive payments every month for a predetermined period of years. The payments decrease as the term increases. 2. Tenure Payment: In this method, you will be receiving payments every month for your life span. The amount that you will be receiving will be lesser than that through a term payment method. 3. Line Of Credit: Line of credit is a financial arrangement that enables you to borrow your loan amount at anytime and as many times as you want till the entire amount has been withdrawn. In a HECM, the principal amount available grows significantly over time depending on your interest rate 4. Modified Term Payment: In this method, you will be receiving payments for a predetermined period of years and also have a line of credit. 5. Modified Tenure Payment: In this method, you will be receiving payments for your life span and also have a line of credit along with it. 04
8 Repayment Of Reverse Mortgage Usually, a reverse mortgage loan will be due only when all the people on the title to the property stop residing there for over a period of 6 months and in cases of medical reasons and death, the period is further extended by 6 months. However, under certain rare circumstances, there are chances of the loan becoming due while you continue to stay in the house. Some of these circumstances are: 1. If you file bankruptcy. 2. If you fail to repair or maintain your home. 3. If you fail to pay the insurance premiums or property taxes. 4. In cases of misrepresentation and mortgage fraud. 5. If you rent your home partially or completely. 6. In cases of abandonment or donation of home. 7. If you take a fresh debt on your home. 8. If you add a new owner to your title. 9. If you change the zoning classifications. You must always make sure to read all the loan documents before getting a reverse mortgage on your home. Also, specifically ask your lender about the circumstances wherein the loan will be made due before your tenure. 05
9 Repayment Of Reverse Mortgage You must also know that reverse mortgage loans are non-resource loans. This means that the lender cannot legally collect anything greater than the current value of the house from your heirs or from you whenever the loan is due for repayment. The lender will have to incur a loss if the house is sold for less than the debt amount. But such a situation seldom arises and can take place only when the property is sold at fair market price or handed over to the lender. 06
10 Reverse Mortgage Programs 07
11 There are mainly four different forms of reverse mortgage program available. HECM: HECM is the most commonly used reverse mortgage program. HECM is a reverse mortgage program that is insured by the Federal Housing Administration (FHA). HECM is aimed at enabling seniors to convert the equity locked in their homes into cash. The loan amount is decided on the value of the home and repayments can be made only after the home is sold or the borrower ceases to stay in the house or passes away. Property tax deferral: These loans are generally provided by some local bodies or state governments to homeowners with moderate or low income. They may also require a minimum borrower age. These loans can only be used by the borrower to pay property taxes. The rate of interest is also generally fixed and a portion of the loan may also be forgiven after a certain period of time. Deferred payment: These are also similar to property tax deferrals. Deferred payment loans are offered by some local bodies and state governments. But in this case, the payment can only be used to undertake repair works that are specified by the program. Proprietary loans: These are reverse mortgage loans that are provided by private financial organizations and are not insured by the FHA. These loans also generally require a minimum age limit as in the case of HECM but the private financial organization may not have plans as flexible as the ones insured by FHA.
12 Things To Consider Before Going For A Reverse Mortgage 09
13 While the advantages of getting a reverse mortgage loan are paramount, it might not be ideal for everybody. There are several things that you must consider before you decide to go for a reverse mortgage program. Moving Out Moving is an excellent way to get the locked equity out of your home without having to take a loan. It is also ideal if you are facing any difficulties in maintaining your present home. It is a good option to consider before going for a reverse mortgage. But you must always remember that moving is only profitable if you buy or rent a cheaper home. Reverse Mortgage And Its Affect On Heirs Reverse mortgage can sometimes complicate the situation for your heirs. Your heirs will have to pay back the reverse mortgage to stay in your home. If they decide to sell your home, the amount that will be left with your heirs will also be very small after paying the reverse mortgage. However, it is also possible to pay off the reverse mortgage by refinancing it with a traditional mortgage. Reverse Mortgage For Financing Purchases Financing purchases with a reverse mortgage is a very expensive idea. Always take time to consider if you really need the cash before going for a reverse mortgage program. Also, reverse mortgage provides only a limited amount of money. You might need this money later in your life. So make sure that you really need the money at the moment when you re opting for a reverse mortgage loan. 10
14 Getting A Reverse Mortgage Loan 11
15 After weighing all your options adequately and deciding that you need a reverse mortgage, it is time to find a suitable lender. FHA approved lenders can be easily approached through HUD s website. Before settling for a lender, make sure that you have consulted at least a dozen of them. While choosing a lender, it is important to go for one who offers the lowest closing cost and rate of interest. Also, take care not to choose a lender whom you are not comfortable with; instead choose one who explains all the technicalities clearly and answers all your doubts confidently. Counseling It is mandatory for anyone looking for a reverse mortgage loan to complete a counseling procedure from any of the HUD-approved agencies. You can find the details about these agencies on HUD s website. The counseling session is aimed at helping borrowers understand several aspects of the reverse mortgage procedure such as the amount of equity that is left in your home and also about what other options are available other than a reverse mortgage. You can also clear any queries or doubts that you have regarding reverse mortgage with the counselor. You will also be given a cancellation form when your reverse mortgage is closed, and you will have three working days to change your mind. Reverse mortgage is taken out by many for different reasons. But you must remember that it may not always be the right choice. So, take ample time to examine your current situation and make a sound decision. 12
16 Corporate Office 201 Old Country Road, Suite 140 Melville, NY On US: 800-Loans