Today in this blog, the conversation will be about
reverse mortgages. I recently, had a client wanting information about reverse
mortgages and I had no clue. So, after doing some research and this is what I
learned and I hope it answer any questions you might have.
First, this is a FHA insured loan, an FHA loan is a
mortgage insured by the Federal Housing Administration, a government agency
within the U.S. Department of Housing and Urban Development. Borrowers with FHA
loans pay for mortgage insurance, which protects the lender from a loss if the
borrower defaults on the loan. Because of that insurance, lenders can
-- and do -- offer FHA loans at attractive interest rates and with less
stringent and more flexible qualification requirements. You will also need FHA
Mortgage Insurance Premium (MIP), which Mortgage insurance is an insurance
policy that a lender requires to minimize the risk that comes with a borrower
who has little equity in his home. The less a homeowner has invested in cash or
equity in his home, the more likely he is to walk away from his home and
foreclose when things get rough. Since a homeowner loses any money or equity he
has in the home during foreclosure, a homeowner with a lot of money invested
tends to do whatever is necessary to keep the home and maintain his investment.
This makes him a lower risk of foreclosure and a better risk for mortgage
repayment. Lenders place the cutoff line for what entails enough cash or equity
to qualify for reduced risk at 20 percent.
Now for most people they have a problem with 50% equity part of the mortgage. For
example, it’s pretty simple let’s say you own a house or condo worth $150,000
and you want to down size to something smaller. Once, you sell your house after
taxes, rebates, realtor fees and the original loan let’s say you have $75,000
left over. With a reverse mortgage you would only have to put $50,000 down on a
$100,000 house or condo. There are some of the fees that you would have pay
such as closing costs and the upfront mortgage insurance premium which are paid
There are other benefits to doing a reverse mortgage the
money is tax-free and generally does not affect Social Security or Medicare.
You can pay for home repairs and remodeling, pay off credit cards. You can
also, eliminate your house payment and have a line of credit for future
expenses. Additionally, these loans can close within three to four weeks.
There are safeguards for consumers,
- The borrowers must be 62 years of age
- The owner must have 50% equity in the
- It has to be your primary residence
- With one to four family members in the house.
- The homeowner retains the title to the house.
- The equity line grows regardless of the house
- A mandatory third-party counseling prior to
getting the application approved.
- The homeowners may stay in their home
- The homeowner and/or the estate are entitled
to the remaining equity in the house.
- You will have a growing equity line that
cannot be cancelled, frozen or reduced
- The Home Equity Conversion Mortgage (HECM),
are a non-recourse which means – No deficiency judgments may be taken against
the borrower or estate.
- The loan is origination fee is regulated by
- There is a no prepayment penalty on paying
the loan off.
- So, if you decide to sell your home, you will
receive all the remaining proceeds after repayment of your reverse mortgage.
If you think this may work for you here are the qualifications:
the homeowner must be 62 years or older, it must be your primary residence and
the money to close must come from asset accounts or gift. Also, your age, home
value and current interest rate are used to calculate the amount available to
There are several factors on how much money you can
receive the max of the loan is $625,500. The amount of money you may receive is
dependent upon several factors:
- Your age,
- The value of your home,
- The current interest rates, and
- Finally the plan that you choose.
Once, your approved the way that you receive your money
- A monthly supplement,
- All at once,
- A line of credit, or
- A combination of the above.
Now, if you’re worried about your estate and your airs if
something happens to you, there are some steps that you can take to remedy
- You can take a personal loan rider that will
pay off the house, or
- Your heirs have one calendar year to pay off
Here are some things that can disqualify you for this
loan and they are:
- Unresolved federal liens (tax or other),
- Chapter 7 bankruptcy less than 24 months from
- An existing FHA mortgage in your name,
- Property tax arrearages in past 24 months,
- A foreclosure (or pending), short sale or
deed-in-lieu within the last three years.
As the homeowner, you will be responsible for property
taxes, homeowners insurance and homeowner’s condo dues and general upkeep/maintenance
of the home.
If you have any questions or comments you can reach me at
937-974-0616 or Kendall@realtydayton.com.