equity

Reverse Loan Choices

Most of the reverse loans that are originated are the FHA HECM program and over the years has been the “workhorse” for allowing seniors to utilize their home’s equity without having to qualify for a mortgage payment.

And as of this post, that continues to be the most commonly used reverse mortgage, however, in the last few years, another option has become available to seniors, especially those who have expensive properties at one million dollars or more.

The FHA HECM loan has a cap on the value of the subject property   ( As of 2018) of $679,650 and the new loan will use that as the maximum appraised value, a percentage of “that” and the youngest borrower’s age to determine the amount of money the senior will receive at the close of escrow.

But what if you want more money than it will provide or you have a large mortgage you want to be paid off, but the funds in the HECM are insufficient to achieve this goal?

A Jumbo proprietary reverse mortgage might be the solution because the loan will consider properties valued as much as 6MM and as low as $700,000 and the interest rates are “fixed”.   An additional benefit would be if someone lives in a Condo that is not on the approved FHA Condo list (That means they cannot do a HECM), a proprietary Jumbo reverse loan is the answer to this common problem.

An additional benefit to using this loan is that the Closing Costs are less than the FHA HECM because the borrower is not being charged the MIP insurance premium that all FHA loans require.   And some are not charging an Origination fee, making the loan much more inexpensive to the borrower in comparison to the  HECM.

As more lenders are offering Jumbo reverse loans and the industry evolves to meet the demand for them, I am sure that there will be new programs and opportunities for seniors to access the equity in their homes into the future making their retirement years more affordable and comfortable.

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Retirement and “Reinvention”

The Boomer generation is more likely to find something else, another avenue of expression for their “Second Act” in life after retirement then the previous generation.

Boomers tend to be healthier, active and more engaged in life, rather than being passive and giving into physical changes in their health and personal relationships.

And certainly they don’t plan to give into being old or elderly, because they  ( And myself included) feel that there is still so much more to do in their lives and plan on enjoying every moment of it right down to their last breath.

After entering the work force, marriage and having a family, many of us gave up on some of the dreams we may have had when we were younger because we became obligated and sometimes burdened with responsibilities to our family and our jobs.

And time went on and the dreams slipped away and seemingly became unrealistic and unreachable and sometimes forgotten.

The hurdle to making these latent dreams happen now, might be financial and if that is the reason for feeling as though you still cannot pursue your dream consider using some of your home’s equity by putting in place a reverse loan.

There won’t be any mortgage payments and when you pass away, your home will still go to your heirs and they can keep or sell it just like they would as of this time, if you were to “exit”.

“When you think it’s too late, be careful and don’t let that become your excuse for giving up”  Deshun Wan.

What would some of those dreams look like?

Culinary school, wine making, travel expert, anything in the Arts, getting a new college degree in a field you are interested in, taking a hobby to a new level?   The possibilities are endless for reinvention of ourselves and the only limitation comes from our lack of belief that it’s still possible.

The equity you have in your home could certainly be a resource to fund your next adventure, your next chapter in your life and possibly facilitate a new and life fulfilling experience for you that you never thought could be possible.

Why wait?

 

 

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Why use a Reverse Mortgage?

In my previous posts I have been sharing and discussing various mortgage options for seniors to use if they want to borrow equity from their home.

There are advantages to each of them, but overall they will require a mortgage payment each month and depending on the borrower’s finances, that may become difficult in the future, which leaves the last option, the only one for seniors and has the greatest flexibility.

And that is the FHA HECM/Home Equity Conversion Mortgage, otherwise known as a reverse mortgage and it’s only available to seniors.

“Yes”, the Closing Costs are more expensive than the other loans, but the borrower will generally receive more money and not have a mortgage payment each month and that is “priceless”.

The amount is calculated on the age of the youngest borrower and the value of the property or the HUD Lending Limit whichever is less.

The Line of Credit will never be potentially “frozen” as could happen with a traditional HELOC, plus any unused funds that are in it, will increase over time, allowing more of the borrower’s equity to be available to them without re qualifying.

There is a “Fixed” rate reverse mortgage option for those who feel more comfortable knowing that the interest rate cannot change at any time.

The loan is insured by FHA and has no prepayment penalties on it and if a borrower wishes to buy it down or pay it off any time, they can without any restrictions.

And if they wish more funds than the FHA loan provides, a Jumbo Fixed rate mortgage can be had for properties that are valued  1 MM or more.

The borrower continues to “own” their property ( not the “bank”) and it will go to their heirs per their wishes who may want to keep it and refinance the reverse loan using a traditional mortgage, but in most situations they will sell the property, receive any remaining equity and have a mortgage interest deduction in that tax year.

And if the loan amount exceeds the value of the property, the estate is not responsible for paying the difference between the two and the FHA Mortgage Insurance Premium will cover the difference

In conclusion of these multiple posts, the choices for borrowing equity are a HELOC and a Second Fixed rate mortgage or a Reverse loan.  Each person’s situation is different from another’s and what might be ideal for one, may not be the best for someone else.

Each one has it’s benefits and and drawbacks but only the potential borrower can decide and hopefully will select the most appropriate loan for their goal.

 

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Seniors Are Divorcing

Divorce is always an emotional and difficult experience regardless of the reason or the age of the two individuals who are experiencing this wrenching event in their lives.

Overall the national average of divorcing couples has declined over the years but what is odd, is that it has tripled for those couples over the age of 65 since the 1990’s.

The reasons for senior or “gray’ divorce vary but some of the more common ones is that after raising their children for many years, they began to see themselves as simply parents and no longer friends or lovers.

Then when the adult children leave the home and start their own lives, an older couple may discover that they no longer have any shared interests as they have grown apart over this period of time.

The financial implications of a “gray’ divorce can be quite complicated in that any assets and or retirement funds could end up being liquidated with disastrous consequences for the couple and their future financial stability and security.

I am not a financial advisor and certainly not a Divorce attorney and not qualified to provide any guidance in this matter and it’s best for couples to always seek professional advice when it comes to something as serious as a divorce and splitting up their assets.

However if there is equity in the home, it may be adequate enough to utilize a Reverse mortgage as a tool to either give half of it to one of the divorcing party’s and or buy them out in exchange for the other party receiving any investments they may have accrued together.

But a property settlement would have to be created by their mutual Divorce attorneys to make a final determination as to how all assets are to be divided.

So how would that work?

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Fees or Costs Allowed on a Reverse Loan

In my previous post I discussed the one fee or expense on reverse loans that conventional mortgages do not have.  And that was the FHA insurance premium for MIP.

Conventional mortgages allow what some would call “Lender junk fees”, which typically are for processing, underwriting and other “back office” costs the lender will pass on to the borrower.  And they can add up to additional $1800 to $2000 on a traditional mortgage.

But they are not considered “allowable fees” to a reverse mortgage borrower and cannot be charged and built into the loan.

What are the fees that a reverse loan applicant can expect?

  • Flood Certificate – Pulled by the Appraiser
  • Appraisal fee
  • Credit Report
  • All title settlement, title insurance, transfer fees and recording fees.   These are based on the loan amount, the Title company and county or state.
  • Document preparation fee
  • Notary
  • Payees;  all third party fee and third party providers must be disclosed on the HUD-1 Settlement Statement per RESPA.  List all required loan fees, including fees paid outside of Closing on their worksheets.

All HECM/Home Equity Conversion Mortgage are subject to FHA’s requirements on allowable closing costs.

In my next post I will provide a list of fees that are not allowable and cannot be passed on to the borrower.

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