lines of credit

Why use a Reverse Mortgage?

In my previous posts I have been sharing and discussing various mortgage options for seniors to use if they want to borrow equity from their home.

There are advantages to each of them, but overall they will require a mortgage payment each month and depending on the borrower’s finances, that may become difficult in the future, which leaves the last option, the only one for seniors and has the greatest flexibility.

And that is the FHA HECM/Home Equity Conversion Mortgage, otherwise known as a reverse mortgage and it’s only available to seniors.

“Yes”, the Closing Costs are more expensive than the other loans, but the borrower will generally receive more money and not have a mortgage payment each month and that is “priceless”.

The amount is calculated on the age of the youngest borrower and the value of the property or the HUD Lending Limit whichever is less.

The Line of Credit will never be potentially “frozen” as could happen with a traditional HELOC, plus any unused funds that are in it, will increase over time, allowing more of the borrower’s equity to be available to them without re qualifying.

There is a “Fixed” rate reverse mortgage option for those who feel more comfortable knowing that the interest rate cannot change at any time.

The loan is insured by FHA and has no prepayment penalties on it and if a borrower wishes to buy it down or pay it off any time, they can without any restrictions.

And if they wish more funds than the FHA loan provides, a Jumbo Fixed rate mortgage can be had for properties that are valued  1 MM or more.

The borrower continues to “own” their property ( not the “bank”) and it will go to their heirs per their wishes who may want to keep it and refinance the reverse loan using a traditional mortgage, but in most situations they will sell the property, receive any remaining equity and have a mortgage interest deduction in that tax year.

And if the loan amount exceeds the value of the property, the estate is not responsible for paying the difference between the two and the FHA Mortgage Insurance Premium will cover the difference

In conclusion of these multiple posts, the choices for borrowing equity are a HELOC and a Second Fixed rate mortgage or a Reverse loan.  Each person’s situation is different from another’s and what might be ideal for one, may not be the best for someone else.

Each one has it’s benefits and and drawbacks but only the potential borrower can decide and hopefully will select the most appropriate loan for their goal.

 

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Who is “LESA”?

LESA isn’t anyone at all, but a new layer of underwriting that was put into place two years ago for Reverse loans.

This is an acronym for “Life Expectancy Set Aside” and it’s purpose is to review a potential Reverse loan borrower’s ability, capacity and willingness to continue to pay their housing expenses;  property taxes, Homeowners Insurance, any HOA fees or Flood insurance premiums.

The Lender will verify that the expenses associated with the property will have been paid on time for the previous 24 months and if they haven’t a Letter of Explanation must be provided by the borrower to explain “why’ they were late, along with any documentation to support their explanation.

This letter must also explain any derogatory credit that may show on their credit report, as well.

The Loan Officer is now required to collect all sources of any income the borrower is receiving in addition to their Social Security and what this means, that there are more documents to collect from the clients than in the past.

  • (2) Years 1040’s if they are self-employed or have rental income from other properties
  • (2) W’s if they are still employed and recent YTD Paystubs for 30 days.
  • Social Security Award Letter to document how much they will receive in the following year.
  • (2) Months Checking acct statements to verify SS and or Pension deposits
  • (2) Months or most recent Quarterly statements for all Cash Reserves.
  • And additional items may be requested during the loan processing time.

Because this post is becoming too long, I will continue it on another one after this one has been published.

But don’t let this scare you, as reverse loans are still easy to qualify for, there’s just more Underwriting being done than there was previously.

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Confused About Reverse Loans?

I have been a Reverse Loan Consultant for almost 15 years and when I first started in this amazing and wonderful industry, the fees were very costly but that has changed over the last several years and the loan has become a terrific option to utilize one’s equity without being obligated to make mortgage payments each month.

My previous post was part of an article that I will share the remainder of here, but it discussed how much equity is in American seniors homes; well over $12 Trillion dollars and growing.

Seniors number 1 concern, is outliving their money.  Let’s face it.   No one can  live on Social Security and if one is fortunate enough to have a pension and investments, there is the concern about drawing down on them too soon and…

Running out of money.

A Reverse loan can eliminate that fear and worry and if a senior would get over their fear an bias about them, they will find out that they are very affordable.

As a matter of fact, I can offer a No Cost Reverse loan.    It just depends upon the size of the loan.

And the Title stays in their name or Trust AND THE BANK NEVER TAKES OVER THE PROPERTY.

Here is the remainder of the article that I’m carry over from the previous post.
The Street: Education is Key When Discussing Reverse Mortgages

September 5th, 2016 | by Alana Stramowski Published in News, Reverse Mortgage

There are some facts that homeowners need to know before taking out a reverse mortgage though. A small, but important detail that often is overlooked is the fact that the amount withdrawn during the initial year of taking out a reverse mortgage determines the mortgage insurance premium when the loan is closes.
The fees used to be extremely high, in some cases, but now, the Department of Housing and Urban Development (HUD) limits origination feed to just 2% of the first 200,000 of the maximum claim amount plus 1% of additional home value, but not exceeding at total of $6,000. according to the article.
Reverse mortgages can be extremely complicated for those homeowners taking a look for the first time, but with the proper education, they can see how the product could benefit them to support their overall retirement plan.
Read the full article on The Street.
Written by Alana Stramowski

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HUD Approved Counseling for Reverse Loans

As mentioned in my previous 2 posts, counseling by an HUD approved agency is required by the federal government prior to applying for a Reverse mortgage.

Now, that does not mean or obligate anyone who completes the counseling to apply for this loan, it’s simply an excellent option for anyone that is seeking accurate information about the HECM program and not be influenced by some of the myths that continue to circulate about it.

I can provide a list of some of these approved agencies and they do typically charge an $125 fee for their service.   But it’s worth it, plus once completed the “applicant” will receive a HUD Counseling Certificate that verifies they have completed the counseling and if they decide to move forward on a loan application, they will need to give this to the Loan Officer.

Here is the remainder of the article about counseling that I have been sharing on my blog.

“Clarifying what makes the reverse mortgage become due and payable creates some surprise among prospective borrowers, Tetreault said, but it also opens the door to other questions that seniors might not have thought about previously, such as what happens if they do not pay property taxes and insurance payments on time.

“We talk about what their responsibilities are as reverse mortgage borrowers to make sure they do not put themselves at risk of foreclosure,” she said.

The million-dollar question

HECM counseling is a necessary stepping stone in the older homeowner’s journey to get a reverse mortgage. This decision is typically prompted by a significant need, whether that is the result of an unexpected personal issue or even the intrigue of using home equity to supplement retirement wealth.

In many cases, the million-dollar question is: how much money can I get from a reverse mortgage?

One of the things ClearPoint does off-the-bat is ask counselees how they plan to use the money they receive from a reverse mortgage; whether that means using these funds for daily or future expenses, paying off debt, etc.

In understanding what the loan proceeds will be used for, Tetreault said counselors can help prospective borrowers determine if a reverse mortgage is really the right product for them, or if there are other alternatives that might fit best with their financial plans.

At the end of the day, the decision to get a reverse mortgage hinges upon education and the awareness of what other resources are available to seniors that can help them accomplish their personal needs.

“Education empowers consumers,” Tetreault said. “Whether seniors take that information and decide to get the reverse mortgage or not, at least they are educated and have an understanding of all the choices and options available to them.”

Written by Jason Oliva/Reverse Mortgage Daily

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Reverse Loans are Bad, Aren’t They?

There was an interesting column that was written recently in Forbes that questioned why more seniors aren’t researching the benefits of using a reverse mortgage to extend their retirement funds.

I of course, have the answer.

It’s fear and the unwillingness to even speak over the telephone with a qualified Reverse loan consultant.   I know, because I speak from experience.

The general public, professionals and the media that continues to churn out inaccurate stories of someone’s bad experience with the loan, is driving a mindless and inappropriate fear about them.

And this idiocy and ignorance is hurting the senior community, because they don’t know what to believe and because of “what they have heard”, they have an opinion that is solely based on hearsay and inaccurate portrayals of the Federal loan program.

The home is the biggest asset anyone has and for a senior, it can be used to help them extend any savings or retirement funds further into the future and pay for medical and caregiving expenses.

Using a reverse loan in lieu of drawing down on any savings or investments, is a smart decision.

Currently, people over age 62 retain $4.08 trillion in home equity.   Yes, you read that and it’s a huge number, isn’t it?

But people get weird and defensive when you mention “reverse mortgage”, because of the bad things that they have heard about it

“The biggest hindrance: long-held misconceptions and miseducation of the reverse mortgage product in the eyes of the consumers”.  Forbes

I have been a Reverse loan consultant for almost 14 years and it has been a continual struggle to develop consistent business because of the incessant, negative pounding that doesn’t stop.

However, I do feel that it has become less of an issue and there is more positive press than in the past, as professionals and the general public are becoming educated about why this is such a great retirement tool and a positive experience.

Costs have been reduced   ( That was always a BIG objection) and with the new Financial Assessment in place, they are safer than ever.

And in closing, it may not be appropriate for everyone, but it’s great to have it as an option, wouldn’t you agree?

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