income reverse loans

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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Jumbo Reverse Mortgages

If a homeowner lives in a property that is valued above 1MM and they would like to have more funds than the FHA HECM would would provide them, they could consider using a Jumbo Reverse loan as an option.

This is a non-FHA mortgage and thus becomes more affordable in the Closing Costs, because the Lender does not charge any Mortgage Insurance Premium/MIP which the FHA HECM loan does.

Given that the value of a property will be capped at $636,150 for the FHA loan, then it stands to reason if the property has considerably more value above that limit, the homeowner may want to consider using a Jumbo reverse loan instead of the FHA option.

Overall, the fees to complete the transaction are lower and just like the FHA HECM loan, there are no mortgage payments, the borrower remains on the Title   ( And in a Trust if that is applicable) and the property goes to the borrower’s estate when the last borrower passes away.

And there are no prepayment penalties if the borrower decides to repay the loan back, typically through the sale of their home.   This also applies to the FHA HECM reverse mortgage as well.

They must pass the Financial Assessment, just like they would on the FHA loan and continue to pay their on going property taxes, Homeowners insurance and any HOA fees that might be associated with the property.

This is an excellent option for anyone who has a very large amount of equity in their home and may want to retire an existing mortgage and it’s payment, have extra funds for monthly expenses or possibly medical bills and care giving costs and increase their monthly cash flow and limit the amount of “draw downs” on a retirement portfolio.

If anyone like to have the details about this loan, it would be best to contact me in that I can discuss the details with you and how you may ( or may not) benefit from it’s use.

It depends upon on each person’s personal circumstances.

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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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Reverse Mortgage Misconceptions

In my previous post, I discussed the negative image of the Reverse loan and where it came from and how we in the industry, are still plagued by this perception that is no longer true.

In spite of the amount of television ads and the many qualified resources for accurate information about the FHA loan program, there are still many people that continue to believe that they are a terrible option for a senior to use to access their equity.

Not true.

And I have to wonder how many seniors chose not to take advantage of the HECM program when it would clearly benefit them, due to their fear and lack of credible information.

I do not work for a BIG Lender, I am employed by a Broker and I work independently from my home office and I always, always meet potential clients personally in-their-homes.

I do not advertise and neither does my Broker and I conduct my business 100% referral based.   From former clients, Bankers, Trust and Elder Law attorneys and Financial Advisors.  I have built relationships with them over the course of many years and they know that they can trust me to take excellent care of their clients.

That is how I transform mistrust and lack of credibility.  And most importantly, I do not pester them to apply for the loan.  It takes time to make a decision and it has to be the best one for the client.  Not me.

However, an excellent resource for information that is accurate and correct is to chose one of the HUD Counseling agencies and request a telephone appointment for Reverse loan counseling.   They generally charge between $125 to $150 for an hour session, but it’s worth it and will give a person a better grasp of the loan and how it may or may not benefit them.

Here is a link to HUD for a list of approved counseling agencies.

https://www.hud.gov/program_offices/housing/sfh/hecm/hecmlist

So “whatever you have heard”, don’t believe your neighbor, friend, hairdresser, financial advisor or anyone that is not qualified or knowledgeable about Reverse mortgages.

Because they simply do not know anything.

Only “what they have heard”.

 

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