money

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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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 Loan Paperwork

Reverse mortgage loan applications need the following documents from the borrower and it’s very important that they provide everything that is needed to process their loan in a timely manner.

How quickly a loan funds and closes mainly depends upon the borrower’s cooperation in providing whatever the lender as requested.

  • Copy of photo I.D.   Typically a current Driver’s License or a Passport
  • Copy of Social Security Card or a Medicare Card
  • Copy of Social Security Awards Benefit Letter.   These are mailed out each December and show how much Social Security income will be received in the following year.
  • (2) Months of checking acct statements   ( All pages) to show SS deposits or any other payments such as a pension/retirement check.
  • Most recent statement for any existing mortgage(s)
  • Copy of Homeowners Insurance Declaration Page
  • Complete copies of most recent quarterly statements for investments and or 2 months of bank statements.   All pages.
  • Copy of Trust if one is in place.    The new loan will record in the name of the Trust.
  • Name and Phone number for the management company if there is a Home Owners Association.

If the borrower is currently employed or receiving income from rental properties, the following items will also be required along with the list above this line.

  • (2) Years Federal Tax Returns – All Schedules
  • (2) Years W’2’s and any 1099’s
  • Most recent Year-to-Date Pay Stub for the previous 30 days.

Yes, I know.   It’s a lot of documentation and it’s very similar to what is needed for a traditional loan.   However, it continues to quite easy to be approved for a Reverse loan compared other mortgages.

Plus, you won’t have any payments to make on it, so don’t be intimidated by this list.

If the reader has any questions about this or anything else about Reverse loans,  please call me.   I’m here to help you through the confusion.

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Reverse Loan Counseling

Before anyone can apply for the FHA Reverse loan, they have to complete counseling with a HUD approved counseling agency.

If anyone would like a copy of the list, please contact me and I will send it to you without any obligation on your part.

I haven’t been doing any video in quite some time and today I decided that I would and then post it here.  I certainly hope it works just fine.

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How to Qualify for a Reverse Loan

In my previous two posts, I discussed the new Underwriting procedures for qualifying for a Reverse loan and I don’t want anyone to become too concerned or afraid that they would not be able to get one if their income is low or they have some negative credit on their credit report.

The loan has never been Underwritten using FICO scores or “debt to income” ratios and that is still the case.

As long as you are at least 62 years of age and live in your property, you are eligible for the FHA loan that is only offered to seniors.

I don’t want to repeat myself here in this post about the documentation that the borrower will need to provide to the Loan Officer or discuss the Financial Assessment or the LESA but I want to explain how you can still be approved.

(Please look at my previous post that lists the items that you might have to provide to the Lender.   Not all of them are necessary depending upon your particular sources for income, etc.)

But the borrower will need to be prepared to provide more documentation than in the past and a letter of explanation if they have any derogatory credit and or have been  late on their property taxes, etc.

I have had clients who were essentially not a good risk to the Lender because they were clearly irresponsible when it came to making their obligatory housing expenses AND they had some “shaky” credit as well.

With the cooperation of my clients, I was able to write an excellent Letter of Explanation for them and they were not required to have a LESA set up for their loan.

However, a LESA can provide the client the peace of mind that their property taxes, homeowners insurance and any HOA fees will always be paid from the LESA account and with not having a mortgage payment on a reverse loan is a benefit to the borrower.

Plus, if for any reason the borrower’s income declines in the future, they will never have to worry about how to make any of their housing expenses, as the LESA account will automatically do it for them.

And they can feel secure living in their home.

Please feel free to call me if you have any questions about The Life Expectancy Set Aside and or would like to know approximately how much money you could receive from a reverse loan.

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