Reverse Mortgage is a type of mortgage whereas senior citizens, who are 62 or over owning a home free and clear or with a low mortgage balance can cash out on their equity. The benefits of a reverse mortgage are that the homeowner who is over 62 can get the benefit of their home equity by withdrawing money over time to pay for the living expenses, pay off a credit card debt and ensure a certain income stream in addition to the social security payments.
Lenders issuing reverse mortgage have to go through a certain qualification process with the Government, as this program is a Government backed mortgage program. With reverse mortgages, a homeowner instead of paying the mortgage is expected to assign the dead of trust to the lending institution, which lending institution (the lender or the bank in this case) will make payments to the homeowner according to the agreed upon and assigned schedule, either monthly or in one lump payment. The requirements for the reverse mortgage is that the real property be owned free and clear or have a high percentage of equity in the home.
The downside of a reverse mortgage is that the homeowner does not get nearly as much money from their home as they would get from the sale of the home. Lenders issuing reverse mortgages will give you from what I know up to sixty percent of the appraised home value, and there is a long drawn out process to qualify for the reverse mortgage. With the falling home values all over the country, and affecting some areas of the country more so than the others, qualifications for the reverse mortgage have become even more strict. Additionally, the homeowner is required to go through reverse mortgage counseling prior to receiving the reverse mortgage. A reverse mortgage counseling consists of multiple sessions with the purpose to identify if the person receiving reverse mortgage fully understands how reverse mortgages work and is in the right mind to do so.
A reverse mortgage is perfect for senior citizens who have no heirs and have no one to give the home to. A reverse mortgage will take into consideration the age of the homeowner and the life expectancy. A reverse mortgage is a tricky program and I personally would suggest considering other options before you decide to put an application for the reverse mortgage with a lender. Consider different lenders, compare lenders and get a second, or third opinion when you decide that reverse mortgage is something that interests you. A cash out refinance may be a more suitable option if you are in the position to apply for a reverse mortgage.
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Friday, September 26, 2008
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Hi.
ReplyDeleteYou said "With reverse mortgages, a homeowner instead of paying the mortgage is expected to assign the dead of trust to the lending institution, which lending institution (the lender or the bank in this case) will make payments to the homeowner according to the agreed upon and assigned schedule, either monthly or in one lump payment."
This is true to a point: First, almost all loans have a "deed of trust". A deed of trust assigns a type of legal ownership of the property to a trustee, whose job it is to see that all the loan conditions, including the payment, if any, are met. If the lender(bank, friend, savings and loan, etc.) has a complaint (say in this case payments are late), they file a notice with the trustee, who will then handle a foreclosure.
All loans have a note which says what you owe and what the terms are, and a partner deed of trust.
Often people get deed of trust mixed up with just "deed", and think that if you sign a deed you are assigning ownership to the bank (especially, they think this with a reverse mortgage)
But in a reverse mortgage, the property owner ALWAYS KEEPS OWNERSHIP - OR WHAT WE CALL CLEAR TITLE TO PROPERTY OWNERSHIP. The bank/lender never owns a bit of the property.
Further, the qualifications to getting a reverse mortgage from FHA are 1) you must be 62+, 2) you must own a house free and clear, or with a pretty small mortgage and 3) it must be your personal residence.
You get the money in a "lump sum", monthly payments (tenured payments) for the rest of your life
or term payments for a specific period of time, or you can leave the extra money in a credit line where the unused portion grows at a rate that is 1% higher than the interest rate you are charged. You may choose to combine these different ways of getting paid.
It is true you may get more money by selling your home - but normal selling costs of a home are 6% realtor fee and 1% miscelleaneous fees. Plus moving costs, plus buying costs (or rent)
The reason for the reverse mortgage program is that polls, surveys, show that over 86% of seniors want to stay in their homes and neighborhoods.
The loan amount is derived by the age of the borrower, the value of the home (or FHA loan limit cap - if less than value of home), and the current interest rate. For some people in their late 80's or early 90's I've done loans of up to 82-89% loan to value.
Actually, the restrictions for a reverse mortgage have not changed since the loan inceptions. Those restrictions include that the home be in "FHA good shape" (or use some of the reverse mortgage money to do the repairs), the owners be 62+, live in the house, and own it (with or without a current mortgage)
There are NO credit qualiications, NO income requirements, and NO asset requirements.
In addition, the lender CANNOT foreclose because of lack of payments. They can only foreclose if the house goes into disrepair and the owner won't fix the problem, or if the property taxes and insurance are not paid. And the borrower must reside in the house at least 1-2 weeks a year (although - except for vacations or sometimes hospital or convalesent home stays, people do live in their homes.)
Counseling consists of exactly one counseling session which usually lasts about an hour...and seniors are advised to someone with them
like a family member, attorney, etc. And the counseling may be done by phone or in person.
Heirs don't make much difference to whether someone gets a reverse mortgage. Often (about 50%) it's the heirs that bring their parents in to do a reverse mortgage. They like their parents to live as comfortably as possible, and to remain independent. Heirs, too, often don't have money to care for their parents, pay their own bills, raise their children, or be a caretaker (so the hire a paid caretaker using reverse mortgage money). There are some selfish heirs who think they have a right to their parents property...and perhaps they do if they helped pay for the house or maintain it, or take constant care of their parents. Everyone's story is different.
IMHO, reverse mortgages may seem odd, since they are backwards of other mortgages...but we attempt to make every aspect of them totally transparent, and encourage the seniors to bring in trusted advisors to help them.
As to lenders, it is VERY important to go with someone who is knowledgeable, will come to your home, will work with you closely and openly, answer all your questions, and who has a good reputation, and doesn't try to sell you insurance or annuities or other investments.
All lenders doing the FHA reverse mortgage have to be approved by FHA, work under the same rules and regulations, and all their fees and interest rates have to be in accordance with FHA rules.
When shopping for the FHA reverse mortgage (which accounts for 95% of reverse mortgages) what you are really looking for is an excellent lender and loan officer. The program is the same.
Other choices, than a reverse mortgage, are available...like selling the house and moving, getting a home equity loan. But there are drawbacks here. As mentioned before, there are costs to moving...and in spite of the current downtrend in home prices, many seniors can't get enough equity out of their house to buy even a smaller, newer place in the same area - perhaps near family, friends and neighborhood.
To get a home equity loan, the qualifications, since this mortgage mess, have become much stricter in terms of loan to value, credit, assets and income; and many seniors don't qualify. Also, if you have an equity loan and you miss payments it can hurt your credit rating...and, don't forget, the bank CAN foreclose on you. Also, the interest rate is higher than a FHA reverse mortgage, and in the end between points, closing cost and higher interest they may cost more than the reverse mortgage.
So, if people are considering a reverse mortgage, or if they need money, they should talk to a good reverse mortgage lender who will help them determine what makes the best financial sense for them. Not all reverse mortgage lenders and loan officers are schmucks; the reverse mortgage lending culture is very different than regular lending; most of the people care about the elderly and the good they can do, and get great personal satisfaction from seeing happy clients, and seeing how good they feel after getting the reverse mortgage and feeling financially safe and secure.
I once did a loan for a woman with lots of home equity - but she was legally blind, very ill, was totalled out on credit cards, behind in medical bills, and both her 1st and 2nd were in foreclosure. Her son came to us; we immediately qualifed the woman, called the lenders and stopped the foreclosures - when we closed her loan we paid off her 1st and 2nd, all her medical and credit card bills, plus there was enough left over that she got lifetime payments of over $650 a month to add to her $2500 a month income.
If being able to do that for someone isn't rewarding enough for you...you shouldn't ever be a reverse mortgage specialist.
Thanks for letting me make such a long long comment.
On my website I have a section called "Basics of a Reverse Mortgage", which a lot of people find helpful.
Thank you,
Gloria
http://reversemortgagesnow.blogspot.com
Hi.
ReplyDeleteYou said "With reverse mortgages, a homeowner instead of paying the mortgage is expected to assign the dead of trust to the lending institution, which lending institution (the lender or the bank in this case) will make payments to the homeowner according to the agreed upon and assigned schedule, either monthly or in one lump payment."
This is true to a point: First, almost all loans have a "deed of trust". A deed of trust assigns a type of legal ownership of the property to a trustee, whose job it is to see that all the loan conditions, including the payment, if any, are met. If the lender(bank, friend, savings and loan, etc.) has a complaint (say in this case payments are late), they file a notice with the trustee, who will then handle a foreclosure.
All loans have a note which says what you owe and what the terms are, and a partner deed of trust.
Often people get deed of trust mixed up with just "deed", and think that if you sign a deed you are assigning ownership to the bank (especially, they think this with a reverse mortgage)
But in a reverse mortgage, the property owner ALWAYS KEEPS OWNERSHIP - OR WHAT WE CALL CLEAR TITLE TO PROPERTY OWNERSHIP. The bank/lender never owns a bit of the property.
Further, the qualifications to getting a reverse mortgage from FHA are 1) you must be 62+, 2) you must own a house free and clear, or with a pretty small mortgage and 3) it must be your personal residence.
You get the money in a "lump sum", monthly payments (tenured payments) for the rest of your life
or term payments for a specific period of time, or you can leave the extra money in a credit line where the unused portion grows at a rate that is 1% higher than the interest rate you are charged. You may choose to combine these different ways of getting paid.
It is true you may get more money by selling your home - but normal selling costs of a home are 6% realtor fee and 1% miscelleaneous fees. Plus moving costs, plus buying costs (or rent)
The reason for the reverse mortgage program is that polls, surveys, show that over 86% of seniors want to stay in their homes and neighborhoods.
The loan amount is derived by the age of the borrower, the value of the home (or FHA loan limit cap - if less than value of home), and the current interest rate. For some people in their late 80's or early 90's I've done loans of up to 82-89% loan to value.
Actually, the restrictions for a reverse mortgage have not changed since the loan inceptions. Those restrictions include that the home be in "FHA good shape" (or use some of the reverse mortgage money to do the repairs), the owners be 62+, live in the house, and own it (with or without a current mortgage)
There are NO credit qualiications, NO income requirements, and NO asset requirements.
In addition, the lender CANNOT foreclose because of lack of payments. They can only foreclose if the house goes into disrepair and the owner won't fix the problem, or if the property taxes and insurance are not paid. And the borrower must reside in the house at least 1-2 weeks a year (although - except for vacations or sometimes hospital or convalesent home stays, people do live in their homes.)
Counseling consists of exactly one counseling session which usually lasts about an hour...and seniors are advised to someone with them
like a family member, attorney, etc. And the counseling may be done by phone or in person.
Heirs don't make much difference to whether someone gets a reverse mortgage. Often (about 50%) it's the heirs that bring their parents in to do a reverse mortgage. They like their parents to live as comfortably as possible, and to remain independent. Heirs, too, often don't have money to care for their parents, pay their own bills, raise their children, or be a caretaker (so the hire a paid caretaker using reverse mortgage money). There are some selfish heirs who think they have a right to their parents property...and perhaps they do if they helped pay for the house or maintain it, or take constant care of their parents. Everyone's story is different.
IMHO, reverse mortgages may seem odd, since they are backwards of other mortgages...but we attempt to make every aspect of them totally transparent, and encourage the seniors to bring in trusted advisors to help them.
As to lenders, it is VERY important to go with someone who is knowledgeable, will come to your home, will work with you closely and openly, answer all your questions, and who has a good reputation, and doesn't try to sell you insurance or annuities or other investments.
All lenders doing the FHA reverse mortgage have to be approved by FHA, work under the same rules and regulations, and all their fees and interest rates have to be in accordance with FHA rules.
When shopping for the FHA reverse mortgage (which accounts for 95% of reverse mortgages) what you are really looking for is an excellent lender and loan officer. The program is the same.
Other choices, than a reverse mortgage, are available...like selling the house and moving, getting a home equity loan. But there are drawbacks here. As mentioned before, there are costs to moving...and in spite of the current downtrend in home prices, many seniors can't get enough equity out of their house to buy even a smaller, newer place in the same area - perhaps near family, friends and neighborhood.
To get a home equity loan, the qualifications, since this mortgage mess, have become much stricter in terms of loan to value, credit, assets and income; and many seniors don't qualify. Also, if you have an equity loan and you miss payments it can hurt your credit rating...and, don't forget, the bank CAN foreclose on you. Also, the interest rate is higher than a FHA reverse mortgage, and in the end between points, closing cost and higher interest they may cost more than the reverse mortgage.
So, if people are considering a reverse mortgage, or if they need money, they should talk to a good reverse mortgage lender who will help them determine what makes the best financial sense for them. Not all reverse mortgage lenders and loan officers are schmucks; the reverse mortgage lending culture is very different than regular lending; most of the people care about the elderly and the good they can do, and get great personal satisfaction from seeing happy clients, and seeing how good they feel after getting the reverse mortgage and feeling financially safe and secure.
I once did a loan for a woman with lots of home equity - but she was legally blind, very ill, was totalled out on credit cards, behind in medical bills, and both her 1st and 2nd were in foreclosure. Her son came to us; we immediately qualifed the woman, called the lenders and stopped the foreclosures - when we closed her loan we paid off her 1st and 2nd, all her medical and credit card bills, plus there was enough left over that she got lifetime payments of over $650 a month to add to her $2500 a month income.
If being able to do that for someone isn't rewarding enough for you...you shouldn't ever be a reverse mortgage specialist.
Thanks for letting me make such a long long comment.
On my website I have a section called "Basics of a Reverse Mortgage", which a lot of people find helpful.
Thank you,
Gloria
http://reversemortgagesnow.blogspot.com
Thank you for the comments. Excellent clarification for the subject matter. Very well stated. I could not have put that better myself.
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