applying for a reverse loan
The FHA HECM reverse mortgage is a Line-of-Credit that allows the homeowner and borrower three options to receive their money. It is very flexible and the borrower can change the terms at any time they may want to, but what are they?
One option ( and most borrowers will choose this), is to have money wire transferred to their checking account when the loan closes and funds.
Or they may wish to receive a tenure payment that will be funded to them every month for the rest of their lives.
Or a Modified-Term payment that I discussed in the previous post. Regards of which option may be used, they all can be changed at any time or do a combination of them. Whenever the borrower wants to make a change or receive additional funds from their account, all they have to do is contact the Loan Servicer and for a small fee of $25-$30 they can request a change.
Maybe they want to receive their money every month for the rest of their lives. This would be the Tenure option and it will continue to be deposited into their account indefinitely as long as they occupy the property. Even if the funds in the reverse loan are exhausted.
Regardless of which option or combination a borrower may utilize, the borrower is required to live in the home, pay the property taxes and Homeowners Insurance and keep their home in good repair.
And what is the most common choice used? Cash at the close of the loan and request funds from the Line-of_credit when they want more money in the future.
Depending on whom you may talk to about about reverse loans, you will get many different opinions as to whether or not they are awful, wonderful or somewhere in between these two poles of opinions.
There is a number of inquires that come up on the Internet from people who are searching for information about these unique loans. And some of them are as follows:
- reverse mortgage cons
- simi valley reverse mortgage
- reverse mortgage disadvantages
- reverse mortgage companies
These are just a few of the searches that come up and of course there is more of them than I can list here.
The one that I didn’t see is “the loan of last resort”. At one time, the typical borrower was a senior who was running out of money to live each month and had no other resources for funds. And originally these types of borrowers were quite common.
And thus the term “the loan of last resort” was coined. But it’s incorrect these days because they are now being used to protect ones’ retirement savings from being rapidly drawn down, paying off an existing mortgage or buying a new home.
Reverse mortgages are the same as a traditional home mortgage, with the exception that the borrower is not obligated to make mortgage payments each month. Keep the home insured pay the property taxes and keep the home in good repair.
What are the typical objections to reverse loans? The equity is being drawn done ( but not necessarily) and their closings costs and fees are expensive.
I will go over these two concerns in my next post and the negative image this mortgage has with professionals and others.
California obviously has the most expensive properties in the country and a very high rate of citizens who are seniors but are carrying mortgages on their homes which are preventing them from retiring due to mortgage debt.
Many working seniors would like to retire but they can’t because of the ongoing mortgage payments and sometimes they find themselves withdrawing funds from their retirement investments to make the payment each month.
And depending on how many years are left on the mortgage, many are concerned about running out of money to make the payments and the other monthly obligations.
The average home value in California generally exceeds the HUD Lending Limit that is currently at $679,650 and if a homeowner has a home with a great deal more equity than the FHA HECM would allow them to withdraw, then a Jumbo reverse loan would be an additional option for consideration.
There are many new Jumbo loan programs to choose from that are superior to the FHA HECM in many aspects and are considerably less expensive in regards to fees. Here are some highlights and are subject to change in the future.
- Maximum loan amounts to 4 MM
- Fixed rates or a LOC
- 2nd T.D’s for those who would like access to their equity but currently have a 1st T.D. in place with a favorable interest rate they wish to keep, preserving more of their equity. This option can also be used as a 1st T.D.
- Origination fees vary by the loan choice but are “none” to either 6K or 8K maximum.
- No Mortgage Insurance Premiums.
- Non-Recourse Loan. The borrower continues to own their home. No equity sharing or pre-payment penalties. The property will go to the heirs of the borrowers when they (the borrowers) have passed away.
- Can be used to purchase a home. “Right-Sizing/Down Sizing”.
- No payments are required other than the borrower must continue to pay property taxes, Homeowners Insurance, and HOA fees and keep the property well maintained.
- No loan terms.
- Borrowers must be at least age 60 or 62. It depends upon the loan choice to determine the minimum age.
Due to some recent changes in the last year, the FHA reverse loan has lost some “traction”, due to the return of the historical MIP calculation, a reduction in the amount of funds available to the borrower, and most recently a collateral review of each applicant’s appraisal.
And if there are any concerns that the first appraisal may have been inflated, a second one will be required at a cost to the borrower and no one would like being told that they might have to pay for an additional appraisal.
This latest policy change will cause the loan processing period to possibly extend out an additional two weeks, but this will be another post for a later date.
But like the Calvery coming to the rescue, Jumbo reverse loans might very well be an ideal solution for some senior homeowners as there are more options to consider then there were in the past.
Jumbo reverse loans are less expensive than the FHA option and ideal for those properties that would be considered “high value”, such as 1MM or more and for California, that could apply to many seniors who own a home which might exceed the current HUD Lending Limit of $679,650.00.
Another name for this option is a proprietary reverse loan, meaning it’s not a government program as the FHA loan is, but is offered though investors and they work exactly like the traditional reverse mortgage.
And what are the new proprietary loans like and how similar are they to the FHA reverse loan?
I will share those details in the next post very shortly.
When I first started in the reverse loan industry over 17 years ago, there was only one loan option at the time. And it was the FHA Home Equity Conversion Mortgage, affectionally known as the HECM. It is a Line-of-Credit and remains the most popular reverse mortgage that seniors apply for.
Initially, there was one interest rate and no other choices, but now there are several different rates that a borrower can select, of course depending upon what is the most beneficial to them and their particular goals. And there are also Fixed-rate mortgages for those who may be sensitive to interest rate fluxations.
And although the FHA loan remains very popular there are additional options for the borrower to choose from, especially if their home exceeds the HUD Lending Limit that as of this writing, is $679,650.00 and they want to access more of their equity than the HECM would provide to them.
So what is the solution to this question when a home’s value is much more than the HUD Lending Limit and especially in those states such as California where the average home value is quite often above 1MM?
A Jumbo reverse loan of course. And in the last few years what started out as a single offering, has developed into several options allowing more benefits to a senior homeowner.
My next post will share some of the details about them, how they function and whether or not they are always the best choice for a senior who is considering a reverse mortgage.