Reverse Mortgages

Reverse Mortgage Application

What are the steps to apply for a reverse loan?  Is it the same as applying for a traditional mortgage or is it different?

It is just like applying for a regular loan, except the borrower won’t have to make any mortgage payments but they will still be responsible for maintaining their home, paying the property taxes, and Homeowners insurance.

The loan application is standard, but there are many lender, state, and federal disclosures to sign in the  application package.   It does require quite a few signatures and a complete copy of it is left with the applicants to save and review.

Along with the signed application, copies of bank statements, Social Security card, Drivers License, Declaration page for Homeowners insurance, Trust  ( if there is one), and any mortgage statements for the property, plus a signed HUD Counseling Certificate.

The file and documents are sent to a loan processor, Escrow is opened and a Title Policy is ordered, along with an order for an appraisal to be scheduled.

When the loan processor has all the necessary items to make the file complete, it is sent to a Lender for Underwriting.

They review it and make sure it is complete prior to giving it an approval.   Sometimes they may request a few additional items,  but nothing that is unusual.

The next step is to order the loan documents and coordinate with Escrow, assign a Notary to meet with the clients and have them sign the documents.

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The documents are returned to the Closing Department of the Lender, they review them for all signatures, communicate with Escrow to finalize closing figures and after the 3-day Right of Recession, the loan funds and closes.

The entire process takes approximately 45 days as long as the borrower has provided all of the necessary documents that are needed for the file.

Appraisals can cause a delay, or issues with the Title of the property, and sometimes the lack of cooperation from the borrower will cause the loan to take longer to complete.

Applying for a reverse loan is generally not difficult and can be completed in a reasonable amount of time.

 

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Reverse Loan; Fixed or Adjustable?

Reverse loans offer many choices to senior borrowers, but it can be confusing to decide which one to use because they are different from traditional mortgages, no mortgage payments are required and they are easier to qualify for on a fixed income.

And they also do not have a loan term.  Reverse loans are still a mortgage, but unlike what we are all accustomed to.   They are different, but similar in that both are liens against the subject property.

In the past when applying for a mortgage to buy a home or refinance, the most popular one was the Fixed rate, because you always knew what your mortgage payment would be, unlike an Adjustable Rate Loan where it can change and possibly increase over time.

And everyone always shops for the lowest interest rate, but that meant you had to pay more Points to get a low interest rate, but if you chose a higher rate the Points would decrease, or possibly be a “Zero” Point loan.

However, with a reverse loan, it is entirely different.   There are no Points, but an Origination fee and sometimes, there isn’t any fee at all.

The other difference is how the selected interest rate determines how much money you will receive from a reverse loan.  Sometimes the lower interest rates provide less money, and cost more, but if the loan is being used to pay off an existing mortgage and freeing up more cash flow, then that would be a consideration.

And then there is the question whether or not to chose a Fixed interest rate or the HECM Line-of-Credit.  is the borrower paying off a large mortgage?   Then the Fixed rate might be the best choice.

But if there is a small mortgage or none at all, then the HECM Line-of-Credit would be the preferable choice, as it will give the borrower more flexibility with their funds, plus it has a “growth” feature that will provide additional funds in the future.

Anyone reading this is most likely thinking, it’s confusing.   And it is.   And that is exactly why it is important to meet with a Reverse Loan Consultant who can provide you with a personalized proposal and eliminate some of the confusion.

In the midst of Covid-19 and the uncertainty of the future, more seniors are now actively investigating the benefits of a reverse mortgage and many have applied for their own loan to preserve their savings and have a financial “safety net”.

And maybe you should, too.

 

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Unplanned Life Events

We can never know what might or could happen in our lives from day to day.   Recently it has been the pandemic of Covid-19 that has killed almost 200,000 Americans as I am writing this and the extreme fall-out from it which has created a massive amount of people who have lost their jobs and businesses.

Then there are the weather events.   Massive killer fires in the western half of our country and the East and the South have to face more hurricanes and flooding.  No one feels safe anymore and if you are a senior, even less so.

And that is why more seniors are seriously considering using a reverse loan so that they have money that is “banked” and available to them no matter what happens.

One example would be they have an insurance claim for damage to their home and the insurance company is fighting with them over it, at least they have money in the meanwhile to take care of their personal needs until they reach a settlement.

Add in isolation for seniors due to Covid-19, and anxiety about money is not a positive situation, but at the least having enough money reduces some of it, and about how to pay for food, care giving and other monthly expenses.

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If a senior has been relying on income from being employed to pay their mortgage payment, but now they are unemployed, they could refinance into a reverse loan that doesn’t have a monthly payment.

But reverse loans have a reputation for being expensive, but are they?   They have the same costs as a traditional loan,  but many people have heard they are expensive, but in truth, they are not.

Now more than any time in the past, is the time to learn about reverse loans, how much money you could receive, and if doing one is your best option to eliminate your worries and fears about the future.

Contact me for a chat about your situation and find out if a reverse loan be of value to you.

 

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Covid-19 and Seniors at Risk

It has been a while since I have written anything in my blog, because like everyone else, my life was turned upside down with the pandemic and it’s destructive swath across the world, taking lives, ruining economies, creating fear, anxiety, and uncertainty.

Anyone who had a 401-K, some sort of a retirement plan or at the least, a savings account have seen them dashed, drained away and depleted within days and the Stock Market will continue to reel in uncertainty for most likely, a very long time.

Eventually, we will get through this terrible time, but if you are a senior, you may not have the ability to wait it out until the markets recover and are very worried about running out of money.  I am here to say, that this is the one time a senior has an advantage over younger people because they have an option that younger people don’t have.

If a senior age 62 or older, lives in their home  (even if they have a mortgage on it), they could apply for a reverse loan.   However, too many are afraid of them because they think the Lender will end up owning their home  (false),  they have to still make payments (false), there is “fine print” to trick them (false) and they are “too good to be true”.  (False again.)

  • The FHA HECM is the most regulated mortgage in the lending industry, to protect seniors from financial abuse.
  • Anyone who wants to apply for a reverse loan must complete telephone counseling with a HUD-approved Counseling Agency.
  • There are no mortgage payments, however, the borrower must continue to pay property taxes, Homeowner insurance and keep their home in good repair.
  • There are no restrictions on how the borrower uses their funds, except they are discouraged from buying annuities or other investment products.
  • They can remain in their home for their entire lives and leave it to their estate.

The reverse loan industry is seeing an increase in loan applications at this time because obviously money from a reverse loan will give them the safety and security they need and take away the fear and anxiety about running out of money.

The loan is safe, well-regulated and an ideal solution for all senior home-owners to consider right now.   From the time the HUD Counseling is completed, the loan processing time takes about 45 days, however, it might begin to take longer with the increase in applications.

Although I am located in California, anyone who reads this may contact me if you have questions.   I can point you in the right direction for a reverse loan consultant in your state.

Don’t hesitate.  If you have a home or Condo and you are old enough, you have this opportunity for financial security.  Look into a reverse mortgage.  Now.

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Refinancing a Reverse Loan

Like any other mortgage, there may be a time when it’s optimal to refinance a reverse loan due to a drop in interest rates, increased home value or that the borrower is several years older than when they did their original reverse mortgage.

As of this posting, interest rates have decreased and many reverse loan borrowers are being solicited to refinance their current loan into a new one, however, there are some guidelines that have to be followed and not every borrower will pass them.

There has to be a tangible benefit to the homeowner to refinance their reverse loan and at the same time protect them from being taken advantage of and being charged unnecessary fees.

Regulations are in place to protect seniors from being taken advantage of and this has resulted in 3 “tests” to determine whether or not it would be beneficial for the borrower to refinance their current loan into a new one.

The borrower must pass 2 out of the 3 tests to be considered eligible to refinance their existing mortgage and if they do, they can apply for the new mortgage.

There is a”seasoning’ requirement and this means the loan has been in place for not less than 18 months from the time it was originated, funded and closed. Otherwise, the borrower will have to wait, although there are some exceptions to this, that could be discussed in an additional post.

  1. Closing Cost Test.   The increase in available loan proceeds must exceed five (5) times the total closing costs amount  This is the “benefit factor.”

2.  Loan Proceeds Test.  For any reverse mortgage refinancing the available Benefit Amount from the new HECM is the amount of the Principal Limit available to the borrower MINUS the HECM loan balance being paid off and the Closing Costs for the new mortgage.   This must equal or exceed 5% of the HECM Refinance Principal Limit.

3.  Rate Reduction Benefit Test.  The borrower must recover the total costs of the new loan through savings in the annual interest rate charged on the new loan within 4 years.

Confused?  Of course and the only way a borrower can find out if they would qualify for a refinance would be to provide a complete copy of their most recent mortgage statement to a reverse loan professional and have them do the calculations for you.

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Over the years I have refinanced many of my former clients, but they all have to pass the tests and most of the time they do.   If they wish to refinance into a Jumbo/Proprietary reverse loan, that can be done too, and the qualifying tests are very similar.

When in doubt, call your loan professional and ask them.   It might be a benefit to you at this time while the interest rates are so low and you might be entitled to more of your equity and increased cash flow.

 

 

 

 

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Reverse Loan Consultant