Reverse Mortgage Loan Advisors has been designed to educate the public about the FHA insured Home Equity Conversion Mortgage, AKA, a
reverse mortgage in layman’s terms. The intent is to provide unbiased information on the subject…………..The good, the bad, and the ugly.
What is a Reverse Mortgage?
It is an extremely safe, federally insured loan program specifically designed for homeowners that are aged 62 or older. It’s meant to allow you to tap into a portion of the equity in your home and convert it to tax free cash (always check with your tax professional).
However, as of 2018 there is a reverse mortgage program for people aged 60 plus. It’s only available in a few states though. Now, back to the FHA reverse mortgage info.
The beauty of this program is that there is no required monthly payment due to the bank for as long as you live OR for as long as you choose to live in your home.
To clarify, we stated that there is “no monthly payment to the bank required”. Here is why; the loan proceeds that you use don’t get paid back until you pass away or until you leave your home permanently.
However, when you do this type of loan, it’s just a loan on your home. You still own your home and the bank does not go on title. Since you still own your home, you will have to pay your property taxes and insurance just like you probably already do.
More questions, contact Reverse Mortgage Loan Advisors. Info@ReverseMortgageLoanAdvisors.com
How Does A Reverse Mortgage Loan Differ From A Traditional Mortgage?
There are three primary differences:
As previously mentioned, there is an age requirement. For traditional loans, you just have to be old enough to enter into a legally binding contract (i.e. age 18). Other than that, there is no age limit for a regular mortgage.
In the reverse world, you have to be aged 62 or older (or age 60 for some programs, but they are limited to a few states only). If you are married, just one spouse needs to be old enough. Your spouse can be any age and you both can live in your home fo
r the rest of your lives. Note; your younger spouse just needs to be at least age 18.
The second difference is that there is an equity requirement. You can borrower anywhere from 52.4% of the value of your home to 75% (up to the HECM max claim amount / loan limit of $636,150.00). Keep in mind that as of October 2, 2017, this changes weekly depending on the movement of certain key interest rates. If you are age 62 you get 40% and it moves on a sliding scale up until age 97 where you get 70%. If you are married to an individual that is younger than age 62, you won’t be able to borrow quite as much.
The 3rd difference was already mentioned and it’s the best part. There is no monthly payment required for as long as you live or for as long as you reside in your home. However, you can make a monthly payment if you so choose.
There are other differences, but these are the main 3 that set it apart. For example, one might wonder what the Reverse Mortgage Credit Requirments are. This we’ll cover in detail on separate posts or you can simply contact Reverse Mortgage Loan Advisors. Info@ReverseMortgageLoanAdvisors.com
Key Considerations Pertaining to Reverse Mortgages:
Here are a few things you should ask yourself if you are thinking of doing this type of loan:
You should ask yourself what “you are hoping a reverse mortgage will do for you”. Or, Good Reverse Mortgage Loan Advisors should be asking you this. Since there are quite a few ways to structure this program, It’s important know what you’re hoping to accomplish with a reverse mortgage. For example, are you just looking to eliminate your monthly payment? Are you looking to pay off credit cards or an auto loan? Are you looking at just simply putting a standby Line of Credit in place that grows over time so that when you need the money, you can quickly access it easily? There’s plenty you can do, and the aforementioned are just a few of the things you can do with a HECM.
Different Ways to Receive Reverse Mortgage Funds:
There are several ways to receive the reverse mortgage funds. Here are the options:
- You can receive it in a lump sum. However, in some cases, you can only access up to 60% of your total loan amount at closing (or in the first year). The remaining 40% can be accessed at the beginning of the second year. If you do have a loan on your property when you apply for the reverse mortgage, that will have to be the first thing to be paid off with your reverse mortgage proceeds.
- Once your existing mortgage is paid off, you can opt to leave the rest of the funds in a Line of Credit for future use.
- You can get monthly payments that last for your lifetime. This option is called “Tenure”.
- If the tenure payment is not enough, you can opt for a term payment. This is basically a way to use your proceeds to receive a monthly payment for a set amount of time.
- You can also use any combination of the aforementioned options.
Who Gets My Home When I Do A Reverse Mortgage?
Are you concerned with the legacy you leave for your kids? Basically, if you do a HECM you will have less to leave your kids than if you own a free and clear home.
When you do this type of loan, you can still leave your home to whomever you wish.
What is my plan In terms of how long I’d like to remain in my home?
If you’re planning to move out in the short term (like 6-18 months), perhaps this isn’t the best option (although it could be). Is your plan to live in your home until the day you die? Maybe this could be a good financial tool for you to utilize.
Is There More Month Than Money?
In other words, do you typically deplete all your earnings every month OR are you taking money from other assets such as savings?
Do You Get Any Sort of Financial Assistance?
Do you get any government assistance (besides Social Security income and Medicare)? The loan proceeds you receive do NOT impact Social Security and Medicare. However, it could potentially impact other forms of assistance such as SNAP / Food Stamps, Cash Aid, etc..
Obviously, if you’re considering a Reverse Loan, you probably have some sort of goal in mind. What other strategies can you employ that would also allow you to accomplish your goal? For example, you can get a traditional loan. Perhaps you can go back to work. You can move. You can downsize your home. Weigh out what your best option is.
When I Do Pass Away, What Happens to My Home?
This is a Good question, and that’s really determined by you. Hopefully, you’ve already prepared a Last Will & Testament or Life Estate, etc.. This tells the courts and surviving family members what you want to happen to your home after your death.
Typically, reverse loan borrowers will leave their home to their children. When their child inherits the home, it’s the heir’s responsibility to contact the loan servicer within 30 days of the event. The intent of this initial contact is to just let them know that the home is yours now. At that point, they’ll have anywhere from 6-12 months to handle the loan (up to 6-12 months).
Normally, the heirs will sell the home and pay the loan off with the proceeds of the sale and then the heir gets 100% of the remaining equity, less any closing costs associated with the sale (like Real Estate Agent commissions). Sometimes, the heirs will want to keep the home live in or use as a rental. In that case, they’d simply need to refinance the loan into their name (or pay it off with the cash you have, but not everyone has large chunks of cash available to do this).
Admittedly, this type of financing is not for everyone. Reverse Mortgage Loan Advisors is dedicated to providing the public with unbiased Reverse Loan Info (not just the pros or reverse mortgage, but also any reverse mortgage cons associated with it).
What Other Options Are There Besides a Reverse Mortgage?
If you’re in need of more money or if you want more cash flow during retirement, you should look at all the options. Here are a few options:
- You can use a reverse mortgage to supplement retirement income.
- Borrow money the with a traditional mortgage. You’ll have to qualify. More importantly, if you do qualify, you’ll have to decide if the payment will work for you for the rest of your life.
- If you need extra money, perhaps you can get help from family.
- You can sell your home. Perhaps a smaller home will suit you better.
- You can always go back to work (or take a second job if you’re still working).
The big question is, what will suit your needs, wants, and financial goals best?
If I Have A High End Home, Are there Other Options?
Some homeowners might owe more than the total amount their eligible to get with the FHA reverse mortgage. If their home is worth more than the Max Claim Amount (currently at $679,650), a Jumbo Reverse Mortgage might suit you better. With the jumbo reverse mortgage, appraisals as high as $10,000,000 are considered (homes valued at $1,500,000 or more will need two appraisal and the lower value is the one used). With Jumbo Reverse Mortgages, you can borrow as much as $4,000,000 (assuming you meet the age and equity requirements).
Are There Credit Score Requirements?
There are no credit score requirements when you do a reverse mortgage. However, your credit will be analized. Basically, your housing and installment payments (installment refers to loans like a car with an established loan amount and set term) will be analized for the last 2 years. You’re allowed to have two 30 day late payments in the last two years. If you’re late for 29 days, you’re considered to still be on time.
Also, your revolving pay history will be analized for the last one year. Revolving credit refers to things like a credit card where the balance can fluctuate upward or downward depending on your purchase and repayment habits. You’re actually allow unlimited 30 days late payment in the last year with this type of loan. You’re allowed two 60 day lates.
There is more to it than this, but these are the basic rules. If you don’t pass the financial assessment (credit review and income review), it doesn’t mean you can’t get a reverse mortgage. However, It could mean that. If you’re credit isn’t perfect, your loan officer can help you determine if you qualify for a reverse mortgage.
What Type of Properties Qualify For A Reverse Mortgages?
The following properties may be eligible to get a reverse mortgage loan:
- A single family home (SFR)(a typical stick built or brick built home).
- Condominiums (restrictions apply).
- Manufactured homes (not every lender will lend on this type of property).
- Modular homes.
- 2-4 unit properties (you must live in one of the units).
- Mix Use (restrictions apply).
Hopefully we have answered many of your questions, but keep in mind every situation is different. Be sure to reach out to us for further clarification or to inquire about a reverse mortgage.
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