getting old and running out of money
Many families of seniors are facing a serious problem of not only aging parents who need assistance at home with their health problems but how to pay for this invaluable service.
Too often the care of older parents falls on the shoulders of one family member, who is typically a middle-aged married woman, has children at home and quite often has a career or is employed. Once a family member attempts to care of their parents on their own and without any help from other members of the family, they often develop their own serious health issues and sometimes die within a year due to the stress they are experiencing.
A family can quickly fall into bickering and fighting about how to handle the situation and in addition to this problem, there are the expenses of actually hiring a professional to provide the necessary assistance to the senior who needs help when the family member can no longer manage it on their own.
The fees for such services can vary, but on the average and depending upon if the care is needed 24/7 can be as high as $10,000 a month. How and who will pay for this? The family?
Probably not, but what if funds from a reverse loan were used to pay this expense? Why not utilize the equity in a parent’s home to cover this expense and any additional expenses for their care that may occur as time passes?
Using the equity in a parent’s home makes good sense for everyone in the family. The parents will be well taken care of and their family will not have to be overwhelmed with this responsibility, not use their own funds, miss family time or take time off from their professions each time an emergency comes up with their parents.
In conclusion, it is an excellent option to pay for the fees of caregiving and it is also a solution to keep families from using their own funds to pay for a caregiver, but also to protect their own health and the unity of their family.
There are some occasions when it is necessary for a POA or Power of Attorney to be used when the borrower for the reverse mortgage is no longer physically or mentally competent and unable to manage their personal affairs and they need someone else who can legally represent them when it’s needed.
Generally speaking, if the borrower has a Trust in place, a Durable Power of Attorney is included in the Trust documents for each Trustee and can be used to manage the financial affairs of the named individual on the document.
For the sake of simplicity, I will not discuss all of the details in regards to Underwriting a reverse loan when a POA is being used for the loan application. But I am going to quote directly from a Reverse Loan lender guidelines about what a family needs to know if they intend to use one for their family member if they are unable to represent themselves in the loan process.
- If the borrower is mentally incompetent with a condition such as dementia or Alzheimer’s, he or she must meet the HUD face-to-face requirement at application, the HUD counseling or at the signing of the loan documents.
- A doctor’s letter certifying that the borrower is no longer capable of handling his or her own financial affairs and it must include the date the borrower became incapable of handling financial affairs.
- The date on the doctor’s letter must be AFTER the date the borrower originally signed a Notarized POA.
The above would also apply in those situations where the borrower(s) is competent but physically incapable of signing documents and representing themselves. This could be due to extreme arthritis, blindness or other disabling physical conditions.
I hope that this information makes it a bit easier to understand what the HUD guidelines are to use a POA and also to reassure families that it does not affect their opportunity to be approved for a reverse mortgage. It’s important to know what are the steps that need to be satisfied to be and quickly complete the loan process.
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.
I think it tends to be human nature in that for some people, they hesitate to make a decision for just about everything that requires one. Whether it is getting married or maybe divorced, having children, taking a leap at a new career or choosing a paint color for their house.
And it’s prudent not to blindly rush into anything, you should be well informed before making decisions that are especially crucial to your life.
Most of the time these decisions are minor, but what about the ones that are not and could potentially have a huge impact on your life and future?
Sometimes this hesitation comes from looking for the best price for something if you are considering doing a large purchase, but other times it comes from a place of being worried about the possibility of making a “wrong” decision.
Or not being educated enough about whatever it is you are considering. So, you put off making any decision about it indefinitely.
A good question to ask yourself is, “what is the worst thing that could happen if I make a decision and it turns out to be awful?” Asking yourself that question can potentially take away your fear and help you to move forward.
However, hesitating or waiting can continue for a very long time and it can be costly. And what is the “cost’ of waiting?
If you are hesitating in learning about reverse loans because you have heard “bad things” about them, why are you allowing yourself to be influenced by other’s opinions that generally are incorrect instead of doing some research with a professional?
What is this inertia costing you every month that you wait to find out how much money you could possibly receive from the HECM loan?
10,000 Americans each day are turning 62 and few of them have any funds saved for retirement and those that do, are underfunded in their retirement portfolios and they may not have enough funds to protect them as they grow older and face medical expenses due to aging and other unplanned life events.
I feel that the FHA and proprietary reverse loans will become part of everyone’s retirement plan, because a home is a senior’s greatest assist and why not use the equity in it to pay for unplanned expenses and still be able to remain in their home?
Seniors will start to see that by using a reverse loan to assist in funding their retirement as a viable option to protect them from drawing down on their retirement funds too often and also potentially avoid tax consequences such as paying Capital Gains on any withdrawals.
It’s an obvious and safe solution and should not be overlooked by any senior homeowner and they owe it to themselves to consider the loan as a possible solution allowing them to eliminate their concerns, age in place and not be afraid to consider its use as a possible solution to remaining financially secure.