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April 1st, 2012 by Michael Seals
Information about the reverse mortgage industry
and the products available have improved significantly over the past few years. With this evolution, though, comes some additional complexity. Saver or Standard? Fixed or Adjustable? It’s important to learn about the options now available and consider what implications they may have on your particular situation. Reverse.org is a great website with useful content. Please take a few minutes and explore the site. Ask questions if you haven’t found an answer.
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April 17th, 2012 by Michael Seals
Using a Reverse Mortgage to Purchase a New Home
While a reverse mortgage has traditionally been used as a way to remain in your home, borrowers can also use it to purchase a new primary residence under the Federal Housing Administration’s (FHA) Home Equity Conversion Mortgage (HECM) program.
Released in 2009, the HECM for Purchase Program allows the borrower to use the proceeds of a reverse mortgage to buy a new primary home in a single transaction.
Borrowers often consider this option if they are looking to downsize or relocate to a different part of the country so that they can age in place closer to family, or in a residence that is more suitable for retirement living.
How it works
In the example of a 67-year-old couple who wishes to buy a new primary residence valued at $300,000, a HECM for purchase could be a good option. The loan amount and proceeds will look something like this:
- Loan amount: $194,400
- Total settlement costs: $13,973
- Loan proceeds: $180,427
- Cash required to close: $119,573
- Interest Rate: 4.5%
The borrower can meet the down payment requirement through the sale of a previous home or personal funds, and the rest of the home price will be financed through the HECM for purchase.
This example is based on the age of the youngest borrower, a fixed rate of 4.50%, an appraised value of $300,000, origination charges of $5,000, a mortgage insurance premium of $6,000 other settlement cost of $2,973, a mortgage payoff of $300,000, amortized over 204 months, with total finance charges of $332,856 and an annual percentage rate of 6.12%. Interest rates may vary.
The borrower is not required to make any monthly mortgage payments. However, they must continue to meet the obligations of the loan, such as remaining in the home as the primary residence, paying required property taxes and homeowners insurance, and maintaining the home according to FHA requirements.
Eligibility requirements of a HECM for Purchase
As with all reverse mortgage products, the borrower must be at least 62 years old. The purchased home must be a primary residence occupied within 60 days of the loan closing.
There are several other eligibility requirements:
• Property must be a single family home, 2-4 unit dwelling or an FHA approved condo
• The difference between the purchase price of the new home and the HECM loan proceeds must be paid in cash from qualifying sources such as the sale of prior residence, home buyer’s other assets or savings
• The borrower must complete a HUD-approved counseling session
Newly constructed homes are eligible as long as the property is habitable and a certificate of occupancy has been issued.
Is the HECM Purchase a good fit for me?
Whether you’re looking to move into a new home in a warmer climate or live closer to your family, the HECM for Purchase Program allows you a safe way to age in place in a home that is suited for your retirement needs.
The cost of purchasing a home in some retirement hot spots has dropped dramatically over the last few years. In states such as Florida, Arizona and California, home values are down an average of 48% according to the CoreLogic home price index.
These may be places to look for a new property that will allow for you to relocate through a reverse mortgage for purchase.
FHA-insured reverse mortgages are non-recourse loans, so if the loan exceeds your home’s value, you or your heirs will never be required to pay more than what the home is worth when the loan is repaid.
Have additional questions about whether the HECM for Purchase Program is right for you? Contact us today by calling us at (800) 976-6211 or sending us a message via our Contact page.
Tags: hecm, HECM for purchase, hecm for purchase program
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April 12th, 2012 by Michael Seals
The Internet is a great resource for finding out more about reverse mortgages, and using a calculator to see how the loan might best fit your situation is a good place to start.
Why Should I Use a Reverse Mortgage Calculator?
If you’re thinking about getting a reverse mortgage, a calculator can show if you’re eligible and how much you may qualify for.
There are plenty of reverse mortgage calculators available on the web, including the one on our website. This calculator will ask for:
- Your age
- Estimated home value
- Amount you owe on your home
- Your address (including zip code)
- Your telephone number
- Your name
Once you’ve entered this information, our calculator generates a table breaking down how much you might be eligible to receive through the different products available. Most lenders will offer a range of loan options that include both a fixed-rate or adjustable-rate reverse mortgage.
While fixed-rate reverse mortgage loans offer less flexibility, only allowing borrowers to receive their loan proceeds in one lump sum, they do offer a stable, locked-in interest rate, and the calculator can show how much you could expect to receive.
Adjustable-rate loans are more flexible and allow borrowers to get their reverse mortgage loan proceeds in a lump sum, monthly payments, or through a line of credit. Some lenders also offer a fairly new reverse mortgage product, the HECM Saver, for homeowners who want to borrow a smaller amount.
Introduced in October 2010, the Department of Housing and Urban Development created the HECM Saver to “provide seniors with a reverse mortgage option that significantly lowers costs by almost eliminating the upfront Mortgage Insurance Premium that is required under the standard HECM option,” said David Stevens, the former Federal Housing Administration Commissioner at the time.
Why Didn’t I Qualify?
In order to obtain a reverse mortgage, both you and your spouse must be at least 62 years of age. If one of you is not 62, the reverse mortgage calculator will likely say you do not qualify for the loan.
Borrowers with a large remaining mortgage balance may find that they also do not qualify. In order to obtain a reverse mortgage, borrowers must pay off any remaining mortgage balance using the proceeds from the loan.
Reverse Mortgage Calculators and You
When considering any financial product, it’s important to conduct research using reputable sources, and to consult trusted advisors.
Reverse.org’s reverse mortgage calculator allows you to check your eligibility and is a quick way to get an idea of what this type of loan could look like for you.
If you find yourself with additional questions about your eligibility for a reverse mortgage or how much money you could borrow, please contact us for more information or give one of our trusted advisors a call at (800) 976-6211 for a free, no obligation consultation.
Tags: calculator, costs, eligibility
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March 27th, 2012 by Mathew Berg
A reverse mortgage can be an extremely beneficial retirement tool for people who are 62 and older and want to tap into a portion of the equity in their home as a way to achieve financial security.
As long as you have enough equity in your home, it is not difficult to qualify for a reverse mortgage loan. However, there are several potential reverse mortgage disadvantages to consider.
Through a reverse mortgage, a borrower has the ability to access a portion of the equity they’ve built in their home. A borrower can receive the reverse mortgage proceeds as a lump sum, in monthly installments, as a line of credit, or a combination.
The borrower can spend the proceeds however he or she wishes, such as completing home repairs, or for any other use. The loan then becomes due and payable when you, the borrower, leave the home or pass away.
Impact on Heirs
Your heirs are responsible for repaying the reverse mortgage loan. If they choose to repay the loan by selling the home, your heirs are protected from ever owing more on the loan than the home is worth. This is a benefit of the mandatory reverse mortgage insurance premium. However, if your heirs wish to keep the home rather than sell it, the loan balance must be paid in full regardless of the property value.
Costs
A reverse mortgage is not without its costs, including upfront fees and mortgage insurance.
Upfront fees are similar to a traditional “forward” mortgage, and will include origination fees paid to your lender, appraisal fee and closing costs. Additionally, there is a mandatory upfront mortgage insurance premium and an annual mortgage insurance fee paid to the Federal Housing Administration (FHA), the agency that insures the loan.
Paying for the required reverse mortgage insurance can be expensive, as it calculated based on your age, current interest rates and your appraised home value (up to a maximum lending limit of $625,500), but it ensures that you and your heirs will never owe more than your home is worth, regardless of property value changes over time.
FHA also guarantees the reverse mortgage payments on the loan, so the borrower can rest assured that payments will come on time as scheduled in the amount agreed upon.
As in any mortgage, the borrower is responsible for paying property taxes and homeowners’ insurance and must keep the home in good repair.
Medicaid Eligibility
Because Medicaid eligibility depends on a beneficiary’s income and assets, it’s important to consider how a reverse mortgage could impact your financial situation. A reverse mortgage loan usually does not affect Medicaid eligibility, but you should consult your financial advisor and appropriate government agencies for any effect on your benefits.
Tags: disadvantages, pros and cons
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March 23rd, 2012 by Mathew Berg
If you’re wondering how does a reverse mortgage work, you’ve come to the right place.
Reverse.org provides all the reverse mortgage information you need to make an informed decision about whether it’s the right option for you or a loved one. In order to qualify for a Home Equity Conversion Mortgage (HECM), there are certain eligibility requirements that borrowers must meet. For example, borrowers must be at least 62 years or older and have a significant amount of equity in their home.
The size of the loan depends on the homeowner’s age, current interest rates and the lesser of the appraised value of your home, the sales price or the maximum lending limit. This money is tax-free * and can be received in a variety of ways including, a lump sum, line of credit, fixed monthly payments for a set period of months, or fixed monthly payments for as long as the borrower lives in the home. If a borrower chooses an adjustable rate reverse mortgage with a line of credit, the unused portion of the line of the credit grows, increasing access to borrowing power. See our section about how a reverse mortgage works for more information.
Like all mortgages, borrowers are charged an interest rate, which can impact the amount of money you receive from the loan. If you’re interested in how much you can receive, check out our reverse mortgage calculator for a free quote.
In addition to the interest rate, borrowers are subject to reverse mortgage fees. These include origination fees, traditional title fees and other closing costs. which are typical with any type of mortgage product. Additionally, if you obtain a HECM — which is insured by the Federal Housing Administration — the borrower must pay mortgage insurance premiums. See this section of our website for more information about reverse mortgages fees.
We fully understand that a reverse mortgage may not be the best option for everyone. In fact, we’ve compiled a list of pros and cons for our readers to help explain when it may or may not be a good choice.
Before you obtain a reverse mortgage and go through the application process, you must receive counseling from an agency that is approved by the Department of Housing and Urban Development.
Depending on your situation, this session could be provided free of charge, and most agencies offer the option of participating in the session in person or by phone. Learn more about the counseling process here.
Have more questions? Feel free to contact us or check out our frequently asked questions section for additional information.
*Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.
Tags: costs, defined, definition, fees, info
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December 10th, 2011 by Mathew Berg
In the current economic climate if you are an older homeowner having problems paying bills you may think your choices are limited. However there are a number of options available which can provide financial relief and peace of mind. Of course there is the reverse mortgage option which is what this site specializes in discussing and you should educate yourself on the pros and cons of a reverse mortgage, but there are also other reverse mortgage options:
Relocating and Downsizing
One reverse mortgage option is to downsize to a smaller property. Relocating comes with its own headaches and costs. It is an option to consider if the homeowner feels up to the challenge of putting the house on the market, dealing with a moving company, packing and finding a new residence. The homeowner could save money in a house sale by utilizing a flat fee multiple listing service (mls). A flat fee mls will enable the seller to circumvent paying a seller’s agent commission which is around 2.5% of whatever the house sells for. The home seller will still, typically, have to pay the commission for the home buyer’s agent.
Selling and Renting
This option still entails the stress of moving however a lot of the stressors associated with homeownership disappear. Some benefits of renting includes the fact that someone else does the repairs, you can be flexible and switch locations easily if need be, and you’ll be avoiding: mortgage payments, property tax, insurance fees, maintenance, and upgrades. Also keep in mind that there are buildings and communities that cater to renters 55 and up.
Mortgage Refinancing
Refinancing your existing mortgage may lower your monthly payments. It may allow you to pay off your mortgage faster and receive cash out of the equity in your property.
Home Equity Loan or Line of Credit
These products borrow against the value of your home. A loan is distributed and you will receive a lump sum or a line of credit to be drawn upon as needed.
Personal Loan
Personal loans typically have higher interest rates than other types of financing options. They also may be unsecured, meaning no collateral is required.
Tags: counseling, finance options, pros and cons
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August 29th, 2011 by Mathew Berg
According to a recent AARP study 31.6 percent of seniors have experienced a substantial decline in home values in the past three years, and a fourth have exhausted their personal savings. Overall, more than half of those surveyed age 50+ were not too or not at all confident that they will have enough money to live comfortably throughout their retirement years. One-third of respondents also mentioned that delaying retirement was an option they were considering while two out of five decided that they would likely work part-time during their retirement years. It’s unfortunate that many individuals in these situations consider working or exhausting their personal savings because they are either unaware that a reverse mortgage could help them or they think that the fees are too high to truly consider it an option. However if individuals considering a reverse mortgage compare reverse mortgage fees to costs associated with the alternatives they may find that it’s all relative. Rather than depleting personal savings or retirement accounts they could have tapped into the equity in their home receiving tax-free funds to cover their expenses.
The two most significant closing costs can be:
1. FHA mortgage insurance premium (MIP)
Cost: The initial insurance premium is 2% of the home’s value for the HECM Standard option, and just .01% for the HECM Saver option. Both have an annual MIP that is 1.25% of the mortgage balance.
What is it?: It provides two guarantees: the estate will not be personally liable if the payoff balance exceeds the home’s value (“upside-down”), the FHA will pay out loan proceeds if the lender cannot.
2. Origination Fee
Cost: Maximum of $6,000. The maximum fee set by law is 2% of the first $200,000 of property value and 1% of $200,000 to $400,000 of value up to the max available fee.
What is it?: The origination fee is the lender’s fee.
Tags: costs, fees
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August 9th, 2011 by Mathew Berg
There is a vast amount of information available on reverse mortgages. When making a decision as big as this one, it is no wonder that many people do their homework. Researching reverse mortgages is good preparation for a required HECM counseling appointment. FHA funds housing counseling agencies nationwide to provide borrowers with information on reverse mortgages through face-to-face or telephone sessions.
HECM counseling covers a range of topics that could affect your decision on whether or not a reverse mortgage is for you. Counseling sessions include discussions on how a reverse mortgage can impact your eligibility for federal and state programs, income tax consequences, impacts on your estate, what types of payments you will be making to other parties and most notably; the other options available to you.
The most important thing that a HUD approved counselor can provide you with is unbiased information on whether or not a reverse mortgage is the right decision for you. The whole purpose of counseling is to educate and empower you in making the correct decision for your financial situation. To find a HECM counselor near you, visit the FHA HECM Roster or call (800) 569-4287.
The response above is not intended to be anything other than the educated opinion of the author. It should not be relied upon as financial advice.
Tags: counseling, eligibility, pros and cons
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July 29th, 2011 by Mathew Berg
There is often confusion about what property types qualify for a Reverse Mortgage. A home equity conversion mortgage (HECM ) is a Reverse Mortgage. If you are considering a Reverse Mortgage, the first step would be to determine whether or not your property is eligible. Property types that qualify for an FHA insured Reverse Mortgage include single family residences, 1 to 4 unit homes, approved condominiums or townhomes, and double or triple wide manufactured homes that were built after 1976 and sit permanently affixed to an FHA approved foundation.
Another very important aspect to understand when considering whether a property qualifies for a Reverse Mortgage is that it must be owner occupied. Second homes, vacations homes, and rental homes are all ineligible. The only instance in which a rental home would be suitable for a Reverse Mortgage is in the case of a multi unit home, with the owner occupying one of the units.
Why does the property type matter so much? Well, these guidelines are set by the Federal Housing Administration (FHA), which insures Home Equity Conversion Mortgage (HECM). This means that all property types must meet FHA property standards and flood requirements in order to be eligible.
The response above is not intended to be anything other than the educated opinion of the author. It should not be relied upon as financial advice.
Tags: eligibility
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July 1st, 2011 by Mathew Berg
Within less than a year both Bank of America and now Wells Fargo have exited reverse mortgage market. The reasons for the departures may have more to do with infrastructure set-ups, being able to achieve profitability, and getting in compliance with changing regulations from the Department of Housing and Urban Development (HUD) than with the product itself. In the past reverse mortgages received heavy criticism for high fees and aggressive sales tactics which may have pushed some seniors into opting for a reverse mortgage when they otherwise may not have. The aura surrounding reverse mortgages has changed quite a bit as heavy regulation has been introduced along with the fact that social security, private pensions, and 401K’s are not sitting as strong as they have in the past. The bottom line is reverse mortgages are still a good option for seniors to consider in order to achieve continued solvency.
The response above is not intended to be anything other than the educated opinion of the author. It should not be relied upon as financial advice.
Tags: disadvantages, pros and cons
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