What You Must Know
Join me on this brief journey of discovery, as I show you how you can truly make of your lives happier and stress free by removing the financial worries that typically cause the “golden years” to turn into those “olden years”. A reverse mortgage can reduce and eliminate the emotional and financial pain a senior lives with every day.
The best news is that approval is not based upon a showing of specific income, liquid assets, nor a showing of credit worthiness. The only credit caveat is that judgments and liens must be paid at or before closing and any bankruptcy must be discharged. If a senior has to go through the typical underwriting process, many couldn’t qualify for a forward mortgage. But you can qualify for a reverse mortgage!!!
A reverse mortgage has the pliability and flexibility to meet many needs of the senior borrower. For example, one reverse mortgage program permits title in a trust or a retained life estate (subject to review). The tax-free proceeds can provide enough money to purchase a long term care policy, or other insurance. The funds can act as an emergency investment vehicle, estate planning device, or a retirement facilitator.
Thousands of our senior homeowners have a small mortgage balance remaining or no mortgage on their home. They may receive a pension and social security payments. Yet they still have dreams. Those dreams are unrealized because they struggle financially each month. Many seniors depend upon their children for financial help. The problem is that the children also have children of their own. Between trying to provide for their own retirement and attempting to put money away for their kids’ college education, they are caught in a financial wedge. It is clear to see that a reverse mortgage can become a lifesaver for both families.
Part ll: Reverse Mortgage Requirements
A reverse mortgage is unique because the loan does not have to be repaid until the home is sold, the senior dies or permanently leaves the residence. No monthly payments are ever made by the senior borrower. At the time the loan becomes due and payable the heirs can either choose to repay the loan and keep the house or sell the home and keep the balance of the remaining equity. The choice is always theirs.
The amount a borrower can receive depends upon the age of the youngest borrower, the value of the home and the current interest rate. The minimum age requirement to obtain a reverse mortgage is 62. The age of the youngest borrower is used when there are two borrowers. It is important to remember, that the older the borrower is, the more money can be obtained.
The proceeds from a reverse mortgage can be received in a variety of ways. The borrower can choose a lump sum, or monthly payments for as long as they live in the home or monthly payments for a term of years, or a line of credit. They can even switch between payment options. Again, let me reiterate, that a reverse mortgage is very flexible. The borrower can use the money for whatever purpose they choose.
A senior that obtains a reverse mortgage remains responsible for paying the property taxes, the homeowners insurance and must keep the house in good repair. The home must also be used as the primary residence.
Although the qualification process is easy, a reverse mortgage applicant must attend or receive reverse mortgage counseling from an approved HUD/FANNIE MAE counseling agency before the process can go forward. This is a good thing as it provides the seniors with additional information as well as possible alternatives to their situation. More importantly, it insures that the seniors are doing the right thing. I personally believe in getting family members together to discuss the situation. It is important that the entire family understand the benefits of this wonderful program.
There are several distinct types of reverse mortgage loans. The most popular is FHA’s HECM loan. This loan type comes in 2 varieties. The monthly adjustable and the yearly adjustable. The other loan type is Fannie Mae’s Homkeeper loan. Generally this program is more conservative than the HECM. The third type of program is the “jumbo” reverse mortgage program. Under this program a senior can realize more from the equity. It generally works when the home has an appraised value of $500,000 or more and the senior is in their mid to late seventies.
Reverse mortgage loans are adjustable rate loans. Each type has different margins & caps. Only a small amount of institutions offer the jumbo program. Fast Track Funding also offers this program. Under the jumbo program, borrowers with high value homes can accomplish even more complex financial goals.
A reverse mortgage loan can only be made against a principal residence. However, single family lending limits are used in 2-4 unit properties. A reverse mortgage can be made on units in a condominium or PUD. A Reverse Mortgage can now be made on coop units as well.
Sometimes, repairs are required to be made on the home. Small repairs of $500 or less must be made prior to closing. Repairs greater than $500 but not exceeding 15% of the home value can be made can be made within six months of closing. Structural termite repair must be made prior to closing, while non structural repair should be completed within 90 days of closing.
I believe that reverse mortgage financing offers senior citizens flexibility to make the best out of their remaining years. This type of loan is safe. It has government support. It allows our seniors to use the equity in their home to realize their dreams and possibly finance long term care, in such a manner which allows them to remain in the home. Seniors are beginning to understand that age does in fact have its privileges. Imagine getting a loan without a requirement that you pay the bank each month. Further imagine that you never have to make a payment for as long as you live. All of a sudden, many more people wish they were at least 62, because they too, do not want the stress of making those monthly mortgage payments.
The next installment of this article will address the misconceptions that often stop seniors from considering reverse mortgages.
2002 Dennis Haber
