How To Get Reverse Mortgage (HECM)
Is not a replacement for long term care insurance.
A Reverse Mortgage is a residential loan program for seniors 62 years or
older that allows them to borrow a portion of their equity without having
to make repayment as long as they occupy their home as a primary residence.
The reverse mortgage can provide seniors with cash for financial freedom and financial security to fully enjoy their senior years. The money can be used for just about anything; vacations, paying off debts, home improvement, even for long term home care.
The reverse mortgage is different than a traditional second mortgage in that it pays you and no repayment is required because the loan is not due as long as the house is your principal residence.
The amount you can borrow depends on your age, the current interest rate, other loan fees, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. The more valuable the home, the older you are, the lower the interest, the more you can borrow.
You still are required to pay your real estate taxes, utilities, and other normal homeowner bills, but with a reverse mortgage you cannot be foreclosed or forced to vacate your house because you missed your mortgage payment.
It is called a reverse mortgage because it is a loan with increasing debt and decreasing equity as opposed to a traditional or "forward" mortgage which has decreasing debt and increasing equity.
The most popular type of reverse mortgage is the FHA program called a HECM (Homeowner Equity Conversion Mortgage) which accounts for well of 90% of all reverse mortgages.
The big lenders for reverse mortgages are Wells Fargo, Bank of America, and others
(reverse
mortgage sources).
1. Educate Yourself Learn as much as you can about the loan. A good resource
would be someone you know that has a reverse mortgage. Information is also
available on the internet or at your local bookstore or library.
* Reverse mortgages are not easy to understand. It takes takes time
to absorb so don't worry if you get confused.
* Try to use more than one resource, different explanations can shed
light on certain aspects better than others.
2. Shop Around All HECM lenders fees are mandated by the federal
government so the costs are virtually the same no matter where you go. The
major difference between lenders will be the level of service.
* Lenders cannot charge more than what is provisioned by HUD (the
agency that administers the loan) but they are allowed to discount their
fees by lowering their commission. If a lender offers a discount it is not
necessarily better. New and inexperienced lenders may undercut competition
in order to get business.
3. Obtain Counseling Before a lender can begin processing your loan
you must obtain a certificate from a third party independent counselor who
will explain what the loan is and identify any alternatives.
* The counselor must be certified by HUD and cannot charge you a
fee for the session.
* You must go through counseling in order to start the process, even
if you have already made up your mind.
* Watch out for counselors that suggest any particular lender; they
may be getting kickbacks which is highly unethical and violates HUD regulations.
4. Get The Ball Rolling Once you select a lender and schedule and
application make sure you know what documentation and information you will
need to provide.
* Be open about anything that is attached to your property from the
beginning (i.e. existing mortgages, liens, etc,..) It will make the process
smoother and can circumvent a rejected loan which may cost you money.
* There are no credit, asset, or income qualifications required for
the loan so do not overstate or withhold financial information from your
lender. They need the information merely for verification and data reporting
purposes.
5. Be Patient Reverse mortgages take longer than most loans to close
because of the complexities involved for FHA endorsement.
* If any issues arise that may prolong or jeopardize your loan, make
sure your lender keeps you in the loop. Now is the time where a good selection
in lender service will pay off.
6. Close the Deal At the time of signing of the closing documents
you have to decide how you would like to receive the funds. You can choose
from (1) monthly payments for as long as you live in your home (2) monthly
payments for a fixed amount of time (3) line of credit (4) lump sum disbursement
(5) any combination of these options.
* You are legally allowed three days to cancel the loan after closing.
If you have any doubts after signing the mortgage make sure you resolve
them quickly.
* If your property is held in a trust. Only borrowers can be the beneficiary
(i.e. you and your spouse) Instead of simply removing your children from
the trust consider a "life estate".
* The cost of the loan is very expensive. Weigh the amount of cash
you qualify for against the total cost of doing the loan.
* If you are considering investing your funds, it may be best to
keep it in a line of credit. Funds remaining in the line of credit do not
accrue interest and grow according to a high interest rate. Gains on investment
probably would be wiped out on the interest rate charged against the mortgage.
* It is a non-recourse loan. The balance of the loan can never exceed
the appraised value of the home. In other words, your children will never
be left with a debt from the money given to you from the loan.
* You can never be asked to move out of your home.
* The tax-free loan does not affect the borrower's Social Security
or Medicare. As an alternative to Medicaid, the money can be used to fund
home care when there is limited income.
Reverse Mortgage - A Quick Overview
