For seniors who live in California and would like a reverse loan to gain access to their equity, they often find that the FHA Home Equity Conversion Mortgage does not allow them enough of their equity to be available to them, and they end up leaving equity “on the table”.
Home values in California tend to be much higher than other parts of the country and since the HUD Lending Limit for reverse loans is capped at $765,600 that means if a borrower’s home value is considerably higher than that, their loan will be capped at the lower value and they would receive less money from the loan.
When that happens, the loan amount will be determined by the above Lending Limit. But what if your home’s value is much higher than that? If it is, then the next possibility is to apply for a Jumbo Proprietary reverse loan that I have discussed in previous posts.
Not only are they more affordable in fees, but they will allow more of the equity to be available to the borrower. It could be a Fixed-rate, a Line-of-Credit or even a 2nd. Trust Deed if the borrower is comfortable keeping an original loan in place.
Some of them have fees and other options do not, depending upon the loan and interest rate that is selected at the time of the loan application.
When considering a reverse loan, it is very important to know what your options are and what would be the best one for you to secure more funds from your home to protect your retirement funds, plan for caregiving expenses or take a dream vacation.
Please contact me if you would like a personalized proposal and more in-depth information about how a reverse loan might be just perfect for you.
In the post that I previously shared, I discussed the fees and costs the borrower pays when they originate a reverse loan, and I mentioned the fees were very similar to traditional mortgages with the exception of the Mortgage Insurance Premium.
This insurance fee is quite expensive and gives the reverse loan a reputation for having higher closing costs compared to more traditional loans and I agree. it is expensive, but it is important to understand why it is being charged and how it protects and benefits the borrower and their heirs.
A reverse mortgage or HECM is insured by the federal government and will be repaid in the future regardless of how long the borrower(s) lives or if the property value declines. It has a “non-recourse” feature and that means you can never owe more than the property is worth at the time the loan is repaid.
If for any reason all of the equity has been used over the years and now the loan balance exceeds the value of the property, the borrower and or the estate will not have to pay the difference between the two figures, as the MIP will cover the shortfall.
At the time of the loan application and Closing, the fee is currently 2% of the Maximum Claim Amount and an annual fee for the life of the loan at .50% that is charged upon the loan balance during the time the loan is active.
I don’t want to make my explanation too complicated or confusing, so, for now, I will conclude my comments but will discuss the fee further in my next post and why it’s such a great benefit to the borrower and their heirs.
I will explain what the Maximum Claim Amount is and also give a bit of information about what a “Principal Limit” is and why the “Expected Interest Rate” and not the Note rate is used to calculate the amount of funds an applicant may receive from their reverse mortgage.