“Shopping” for a Reverse loan is not anything like “shopping” for a traditional mortgage due to the complexity of the pricing and how the amount is initially calculated.
People are accustomed to shop for a mortgage based upon the interest rates and Points and making many phone calls asking about rates and fees from Lenders or Brokers and spending countless hours on the Internet “looking” for the best deal.
(But you can’t apply this technique as you would if you were looking for a new television, because you would probably buy it the day it is advertised at whatever the price is at that time.)
The problem with using this approach for researching Reverse loans or traditional mortgages, is that it simply isn’t a reliable technique and using this method will only end up making the search confusing and overwhelming.
Plus, unless you are actually signing a set of loan documents (AND THIS IS CRUCIAL) on the same day someone gives you a “dubious” quote (And I have to say that, because they are trying to lure you in, telling you what you want to hear), it doesn’t matter.
Because my article is a bit long, I won’t post all of it here but instead share it in subsequent posts.
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.