HECM

Use a Reverse Loan or Sell Your Home?

The first time I ever speak with anyone who’s seeking information about Reverse loans, I always ask them why they are looking into one and how it would improve or change their life.

Most of the common reasons are the following ones:

  • Eliminate an existing mortgage and stop having to make mortgage payments each month.
  • Increase “cash” flow.
  • Home improvements
  • Money for unexpected expenses, especially for care-giving and medical bills.
  • Avoiding withdrawals on savings and investments.
  • Traveling
  • Downsizing and buying a new residence.

If the reason to use a reverse loan is for cost of living expenses and increased cash flow, the funds from it can certainly make a difference in the quality of life for a senior, but what is the other option or options?

Sell their home?  Or possibly rent out a bedroom or two, to family members or strangers?

Most people don’t want their privacy compromised by having strangers living in their home and having to tolerate someone else’s habits and behaviors that may not be compatible to their way of doing things.

Plus, it can be dangerous or at the least a bad experience.

This leaves the other option of simply selling their home, taking whatever money they net after paying Broker fees, home inspection costs and paying off an existing mortgage.

Hopefully they will net enough money to afford rent payments and continue to live on their own until they run out of their funds from the sale of their home.

Let’s discuss this last option in my next post.   Does it make sense?   Is it a good idea?

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Paperwork Needed for a Reverse Loan

I actually discussed this in a previous post, but to change it up a bit and make it more interesting, I created a short video with terrific music that makes it pretty simple to understand what kind of documents are needed from a borrower.

Of course, depending on their personal situation other items might be needed, especially if the borrower is still working, then pay check stubs and W2’s would be needed and any phone numbers for management companies if the borrower lives in a Condo.

Which is always a good idea, but for whatever it’s worth here is the video.

And please….do call me if you have any questions.

 

 

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Reverse Loans for Million Dollar Properties

There are actually two totally different reverse mortgages that are available for seniors to use when they are considering using a Reverse Mortgage to pay off an existing mortgage or simply want additional funds.

Not too many consumers know about the optional “Jumbo” reverse loan that will enable them to receive more of their equity than they would if they used the FHA HECM program, plus it’s less expensive as well.

The FHA Home Equity Conversion Mortgage has a ceiling on the appraised value of a property and it is referred to as the HUD Lending Limit.   Originally this Limit was calculated on a national basis per county, so it varied in the amount of allowable appraised value of a property, county by county with the west coast having the highest limits.

Several years ago HUD eliminated these unfair limits and issued one single amount for the entire country which at this time is $636,150 but I can recall when it was only $362,790 and lower.

It’s considerably higher now, but keep in mind that the actual amount of the reverse loan will use a smaller percentage of the appraised value of the property or the HUD Lending Limit,  ( Whichever is less) than a Conventional loan would use and most often ( Depending upon the age of the borrower) they might receive between 40-70% of the appraised value/Hud Lending Limit.

But if their property is worth 1.1 MM plus, the value will be capped at the HUD Lending Limit and they will not have any of the remaining equity in their property accessible for their use.

This is where the Jumbo Reverse Loan becomes another option, unlocking the rest of the equity in the property to the borrower and enabling them to draw out more money from their home then they could receive under the HECM FHA loan.

I will give the details about this loan in my next post.

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Is a Reverse Mortgage a Scam?

For many years the Reverse loan had a image problem and prior to them being placed under the auspices of HUD and FHA, they were quite terrible.   Generally the client had to buy an annuity with the funds they received and also share their equity with the “lender” and thus the terrible reputation of the loan was created.

But that is no longer true and hasn’t been the case for many years, however the image continues to linger and quite often there is a credibility problem that professionals such as myself, have to address with a potential client in regards to “what they have heard” about Reverse loans.

None of us like to be “sold” anything and we certainly need to feel comfortable with our decision when it involves something as serious as a mortgage.  And due to the confusing aspects of the loan it makes it quite challenging to explain it to someone that is considering using the option, because they may need additional funds for cost of living expenses, home improvement or leveraging a retirement saving   ( and did I say?), unplanned medical expenses.

And there is high percentage of seniors that are carrying a mortgage burden and making mortgage payments each month on what may now be a “fixed income” and are no longer employed and might be drawing down on their retirement fund  each month to pay this ongoing obligation.

The question for those of us in the industry, is how to best address the fears and concerns about the loan and also to transcend the mistrust and doubt as to whether or not they are some sort of scam.   A scam to take over the borrower’s home and then “kick them out”.

This conversation will continue in a following post.

Stayed “tuned”.

 

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Procrastination and Reverse Loans

In the last several days I have received quite a few panicky phone calls from people who are disparate to complete the counseling that is required by HUD prior to applying for a Reverse mortgage.  And the counseling agencies are slammed with requests for appointments and will not be able to provide everyone an appointment immediately when they request one.

And the reason for the panic is due to the pending changes to the HECM program offered through FHA that will take effect on October 2nd.

The changes will be a reduction in the amount of funds to a borrower (Referred to as the Principal Limit) and will fall between 20% to 11% depending upon on the age of the youngest borrower.

And the Mortgage Insurance Premium (MIP) that is paid to FHA to insurance the loan will increase from .50% if the client is utilizing 60% or less of the money from the Reverse loan, to 2.00%

The reason behind these changes is to make sure that the Reverse loan HECM will continue to be an viable option for seniors and to be certain that the MIP pool of insurance will be well funded to cover any  loans in the future in the event there is no equity left in the property at the time the loan becomes “due” at the death of the borrower(s).

The Mortgage Insurance Premium Fund will cover the “short” fall and it will not be the responsibility of the Estate to pay the entire balance in full if the property does not have enough equity to do so.  And that is the main benefit of paying the MIP.

As of this writing and if you live in California, the latest you can complete your telephone counseling appointment would be tomorrow September 20th. because California requires a 7 day “cooling off” period before you can start the loan process.

I can take your application during this time, but I cannot start the loan process.   We have to wait and then we would order a HUD Case # for the borrower and hopefully get it into the system no later than September 30th.

The calls that I have been getting are from people who procrastinated about whether or not to do a Reverse loan and they had months to think about it and now it’s frankly too late to start one.

I will have the new calculations for the pending changes, most likely by the end of the month if anyone wants to contact me about how much money they could receive after October 2nd. 2017.

Like “death and taxes” are a certainty and no one can avoid, you can be certain the HUD will always be “tweaking” the Reverse loan program and this will not be the last time that they will do it.

Just don’t procrastinate.

 

 

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