Federal Housing Administration
FHA increased their Lending Limits effective as of January 2nd. 2017 for all of the loan programs that they offer. This includes Reverse Loans otherwise referred to sometimes as HECM/Home Equity Conversion Mortgage.
The increase wasn’t huge but it certainly could make a difference for some seniors who wish to pay off an existing loan that has a high balance and take advantage of more of their property’s value to achieve this, because the new limits will bump them up for the Principal Limit ( the amount of money they are entitled to receive).
The new Lending Limit is $636,150 over the previous one of $625,500.
What this means to a potential borrower is the possibility of a bit more funds at the close of escrow, especially if they were short to pay off an existing large mortgage.
The other area of change, is how seniors are using the funds from a Reverse loan.
I have found that more of my clients are putting a Reverse Loan Line of Credit in place to avoid drawing down on any investment portfolio that they may have and by doing so, extend the longevity of their investments and avoid any tax consequences.
And many seniors are quite concerned about the possibility of out living their money and how to pay unforeseen medical expenses as they age. By having a Line of Credit in place, it gives them another option to be used for unplanned expenses such as “care-giving” and other expenses associated with aging.
And it’s important to understand the following:
- The property remains in the estate and transfers to the heirs when the last borrower passes away
- The Title remains in the name of the borrowers or their Trust
- There are no mortgage payments, but property taxes and Homeowners insurance must continued to be paid by the borrower(s)
- There are “No Costs” Reverse Mortgages available
- Sell current property and buy down to a smaller property using a Purchase Reverse loan.
In my previous post I discussed the serious issue of the number of seniors in the United States who still have a mortgage on their home and may have difficulties paying for it.
If they are still employed, the may not be able to afford to retire because of their mortgage payment that they are obligated to pay each month.
Certainly a Reverse loan is the better option, since the homeowner is not required to make any payments and it will allow them to manage their retirement savings to last longer if they are not drawing down on their funds.
Here is the second part of the article that summarizes a report that was published recently by HUD’s Office of Policy Development and Research.
Written by Jason Oliva
“The implications of carrying housing debt into retirement years are severe. Not only may these homeowners have to postpone retirement or make difficult decisions regarding lifestyle spending on food, medical care and other expenses, but carrying debt also weakens their ability to draw on home equity to supplement their income as they age.
Refinancing options and reverse mortgages, HUD writes, may be appropriate for some older homeowners with mortgage debt, and financial counseling and assistance programs can provide help to those facing financial hardship.
“Older homeowners might draw on their home’s equity to fund modifications that allow them to age in place, help pay for their children’s or grandchildren’s education, or pay medical expenses—and as long as they have the resources to make loan payments, they can reasonably carry mortgage debt,” HUD writes.”
I will share the reminder of the article in my next Post.