Learn the Facts about Reverse Mortgages Danny Glover - Human Rights Activist
Single-purpose Reverse Mortgages Single-purpose reverse mortgages are the least expensive option. They re offered by some state and local government agencies, as well as non-profit organizations, but they re not available everywhere. These loans may be used for only one purpose, which the lender specifies. For example, the lender might say the loan may be used only to pay for home repairs, improvements, or property taxes. Most homeowners with low or moderate income can qualify for these loans. Proprietary Reverse Mortgages Proprietary reverse mortgages are private loans that are backed by the companies that develop them. If you own a higher-valued home, you may get a bigger loan advance from a proprietary reverse mortgage. So if your home has a higher appraised value and you have a small mortgage, you might qualify for more funds. Home Equity Conversion Mortgages (HECMs) HECMs are federally-insured reverse mortgages and are backed by the U. S. Department of Housing and Urban Development (HUD). Types of Reverse Mortgages As you consider whether a reverse mortgage is right for you, also consider which of the three types of reverse mortgage might best suit your needs. Single-purpose Reverse Mortgages Proprietary Reverse Mortgages Home Equity Conversion Mortgages (HECMs) HECMs generally give you bigger loan advances at a lower total cost than proprietary loans do. In the HECM program, a borrower generally can live in a nursing home or other medical facility for up to 12 consecutive months before the loan must be repaid. Taxes and insurance still must be paid on the loan, and your home must be maintained. With HECMs, there is a limit on how much you can take out the first year. Your lender will calculate how much you can borrow, based on your age, the interest rate, the value of your home, and your financial assessment. This amount is called your initial principal limit.
Reverse Mortgage Facts Reverse Mortgages Have Different Payout Options Reverse mortgages offer a variety of different options for you to tap your home equity. The Federal Housing Administration offers reverse mortgages with five different payment plans. One option involves taking equal monthly payments that run as long as one borrower remains alive and lives in the home as a principal residence. You can also choose a fixed term of years, after which time you ll stop receiving monthly payments even if you re still living in the home. A flexible line of credit is also available, giving you the option of choosing how much and when to take money out, up to the maximum amount of the line. In addition to those three options, you can combine lines of credit with the first two monthly-payment options. These two hybrid options allow you to use a portion of the available funding for a line of credit and receiving the rest through either of the two monthly-payment options. You Can Lose Your Home With a Reverse Mortgage Many aggressive reverse-mortgage lenders falsely state that retirees can t lose their homes with a reverse mortgage. While reverse mortgages do offer some protection to homeowners, they still require you to keep up your end of the bargain, and there are dire consequences if you don t. Reverse Mortgages Offer a Portion of Your Home Equity With a reverse mortgage, you don t have access to all the equity you have in your home. The FHA calculates the maximum mortgage amount based on the age of the youngest borrower, current interest rates, and the appraised value of your home. You also have to pay the costs of a reverse mortgage, including mortgage insurance premiums, third-party lender charges, and origination and servicing fees. Many lenders will work those costs into the loan amount they make available to you, reducing your net proceeds even further. There are Disreputable Lenders Out There Weak property values and increasing complaints about reverse mortgages have led to many lenders choosing to stop making the loans available. Bank of America, Wells Fargo, and MetLife have all exited the market in recent years, and smaller mortgage brokers and lenders have taken their place. While some of those smaller lenders are reputable, others can push you into loans that make it difficult for the borrower to even afford the maintenance and other costs they re required to pay under a reverse mortgage. Among the responsibilities of reverse-mortgage borrowers include paying for utilities, homeowners insurance, flood insurance, and real-estate taxes. Most lenders will keep a close eye on whether you keep up with those responsibilities, and if you don t, the lender can take action on the loan, with options that include foreclosure. The FHA has seen up to 70 percent of borrowers take out large lump sums in recent years rather than using the monthly payment option. Those retirees can quickly use up the money, and find themselves unable to handle the costs of keeping up their home.
Reverse Mortgage Rules and Requirements To qualify for a reverse mortgage loan, the youngest homeowner must be at least 62 years old, live in the home as their primary residence and have sufficient home equity. Borrowers must also meet financial eligibility criteria as established by HUD. Eligibility assessments use a Federal Housing Administration (FHA) calculation that considers among others, the following factors: Age of the youngest homeowner Current value of the property Balance on existing mortgage loans Interest rates Borrower Requirements Be 62 years of age or older Own the property outright or paid-down a considerable amount Occupy the property as your principal residence Not be delinquent on any federal debt Have financial resources to continue to make timely payment of ongoing property charges such as property taxes, insurance and Homeowner Association fees, etc. Participate in a consumer information session given by a HUD- approved HECM counselor Property Requirements The following eligible property types must meet all FHA property standards and flood requirements: Single family home or 2-4 unit home with one unit occupied by the borrower HUD-approved condominium project Manufactured home that meets FHA requirements Financial Requirements Income, assets, monthly living expenses, and credit history will be verified. Timely payment of real estate taxes, hazard and flood insurance premiums will be verified For adjustable interest rate mortgages, you can select one of the following 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.
Pros & Cons of a Reverse Mortgage Advantages They re a source of cash. Borrowers can select that the amount of the loan be payable in a lump sum or regular payments. Proceeds are generally tax-free. Final tax treatment may rely on a variety of personal factors, so check with a tax professional. Generally, they don t impact Social Security or Medicare payments. Again, important to check personal circumstances. You won t owe more than the home is worth. Most reverse mortgages have a nonrecourse clause, which prevents you or your estate from owing more than the value of your home when the loan becomes due and the home is sold. Reverse mortgages may be a smarter borrowing option for some downsizing seniors.with proper advice, some borrowers use them to buy new homes. Disadvantages You may outlive your equity. Reverse mortgages are viewed as a last-resort loan option and certainly not a singular solution to spending problems. You and your heirs won t get to keep your house unless you repay the loan. If your children hope to inherit your home outright, try to find some other funding solution (family loans, other conventional loan products) first. Fees can be more expensive than conventional loans. Reverse mortgage lenders typically charge an origination fee and higher closing costs than conventional loans. This adds up to several percentage points of your home s value. Many reverse mortgages are adjustable rate products. Adjustable rates affect the cost of the loan over time. If you have to move out for any reason, your loan becomes due. If you have to suddenly move into a nursing home or assisted-living facility, the loan becomes due after you ve left your home for a continuous year.
Common Questions How does a reverse mortgage work? When does the reverse mortgage loan become due? Reverse mortgages allow a home owner to borrow equity. Instead of making payments to the lender, the lender makes payments to the borrower. How will the reverse mortgage loan eventually be repaid? Lenders get repaid when the owner either moves or dies, and the home is sold. HECMs are insured by the Federal Housing Administration, so if the sale price of the home falls short of the loan amount when this occurs, FHA pays the lender the difference. What are my payment obligations with a reverse mortgage? You will not have a mortgage payment. However you must continue to pay your: Property taxes Home insurance Basic home maintenance Are there any limitation on my funds? No, there are NO limitations. Your reverse mortgage funds can be used for anything. Most common are: Paying off existing mortgage Paying for medical bills Paying other debts, credit cards, and bills Home repair and improvement expenses Paying off property taxes and home insurance Supplementing your retirement portfolio Deferring Social Security to increase benefit Traveling Will I still own my home with a reverse mortgage? Yes. As long as you maintain your property taxes and home owner s insurance and otherwise comply with the terms of your loan, you will retain ownership of your home and may live there for as long as you wish. Your reverse mortgage becomes due when the last borrower: Sells or transfers the home Passes away Does not pay the home s property taxes or insurance Abandons the home permanently or for more than 12 consecutive months No longer occupies the home as the primary and principle residence Defaults under the terms of the reverse mortgage What happens if my home gains value? If you home gains property value, your equity will increase. If your home is sold and the reverse mortgage is paid back, the left over funds go back to your or your heirs. You also have the option to refinance and pull out the additional gained equity in your home. What happens if I pass away during my reverse mortgage loan before I receive the full amount of my loan? If you pass away during your loan, any part of your loan that has not already been sent to you, remains as equity in your home and therefore part of your estate. A reverse mortgage becomes immediately due after death. You heirs are given about twelve (12) months to sell the home. They also have the option to keep the home by paying off the reverse mortgage balance. Otherwise, when the home is sold the proceeds pay off the reverse mortgage first and the rest goes to your heirs. Will a reverse mortgage affect my Social Security, Medicare, or pension benefits? A reverse mortgage is considered loan proceeds and NOT income. However, Medicaid and SSI could possibly be affected.
Speak with a reverse mortgage adviser today. Get All Your Questions Answered Danny Glover - Human Rights Activist