reverse mortgages 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?

Continue Reading

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.

Continue Reading

Long Term Care Expenses

Most people are completely unprepared to pay for any costs associated with “care-giving” because it never occurred to them that at some point in the future they may very, well need help as they age.

And unfortunately if you haven’t purchased a LTC policy by the time you are in your 50’s, the premium will be very expensive later on, especially if you have developed some health issues and qualifying for the insurance will now be difficult and or too expensive to obtain.

Everyday a senior experiences either a fall, a stroke or a medical procedure that will require nursing and help of some sort within the home and  since few people have purchased Long Term Care Insurance, they and their family will find themselves in a crisis to come up with a solution.

If the senior has a substantial amount of money they have saved over the years, they could use it to pay for their care but if they don’t then maybe it will be the adult children who will have to use their own funds to cover the expenses associated with hiring a service to take care of the family member who needs it.

And a very frightening fact is that 70% of those who are 65 or older will have some sort of situation happen where they are going to need help and they won’t have any way to pay for it.

Typically it becomes the responsibility of a family member and the burden of that responsibility is extremely difficult as it up ends the family dynamic, the caregiver is unqualified to care for the parent and their own life becomes overwhelmed and in some cases, they develop serious health issues of their own due to the ongoing stress of being a caregiver.

An excellent option for the entire family is to use funds from a Reverse loan to pay the costs, plus any cash reserves the senior and their family may have, will be protected from being drawn down and the real fear of running out of money is eliminated.

I have found that more Financial Advisors are suggesting this alternative to their clients and families in lieu of drawing down on their investments and possibly experiencing tax consequences and it is an excellent solution to use to pay for the care-giving expenses and removes the fear and stress a family is experiencing when they don’t have the funds to pay for the services that are needed for the family member.

Funds from a Reverse loan is an excellent option to consider to cover these costs and relieve the worry and burden the senior and their family.

Continue Reading

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.

Continue Reading

Confusion Over Reverse Mortgages

There are a lot of confusing parts and details to Reverse mortgages because they are so different from a traditional loan but it’s difficult to know where one can find honest and reliable information about them.

I have written an article about this topic and following is the 4th. part of it.

Part IV

If the Line-of-Credit HECM is used and a borrower is looking to have the funds in it increase over the years, they can take advantage of the Growth Feature which is included in the Line-of Credit program.

By choosing an initially higher interest rate at the start of the loan and if the borrower does not take a “Draw” (Or they take a small amount) at the close of Escrow, they will see the funds in their account increase over the following years.

These funds are not income, therefor not “taxable” and can be used to enhance any retirement savings or portfolio by avoiding any “drawdowns” on their investments and possibly avoiding “tax” consequences.

If it’s a situation of paying off an existing large mortgage and they want additional cash for monthly expenses, then using a lower interest rate might be their best solution or even using a Fixed Rate Reverse loan.

Maybe they don’t want to have to pay any costs for the new loan and in that event, they could do a” No Costs” Reverse loan, but at a slightly higher rate than if they opted to pay for the costs associated with choosing a lower interest rate.

And so, it goes.

Continue Reading