Everything You Needed To Know About Reverse Mortgages

Dated: 12/02/2014

Views: 2098

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.
  • The borrowers must be 62 years of age
  • The owner must have 50% equity in the house.
  • It has to be your primary residence
  • With one to four family members in the house.
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 at closing. 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 homeowner retains the title to the house.
  • The equity line grows regardless of the house value.
  • A mandatory third-party counseling prior to getting the application approved.
  • The homeowners may stay in their home permanently.
  • 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 HUD, and
  • 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 you. 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 may include:
  • 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 that:
  • You can take a personal loan rider that will pay off the house, or
  • Your heirs have one calendar year to pay off the loan.
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 discharge,
  • An existing FHA mortgage in your name,
  • Property tax arrearages in past 24 months, and
  • 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. 
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Kendall West

Real Estate Sales Associate At Realty Central....

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