retirement funds

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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Retiring With More Money

As the need for utilizing one’s equity to leverage a retirement fund increases, more seniors will consider using a reverse loan to protect themselves from outliving their savings and running out of money.

Boomers are living longer than previous generations and the number 1 fear for any senior, is that they will not have enough funds saved for the remainder of their lives and what will happen to them if they use up all of their retirement funds and investments?

But the use of a reverse loan can possibly remove that fear and the negative image and myths that have plagued the FHA HECM for many years, are finally changing and are now seen in a positive light.

http://reverseloanmoney.com

More Financial Advisors and CPA’s are recommending to their senior clients that they consider using it to protect their retirement funds from unnecessary draw-downs, taxable consequences and preserve their portfolio.

And now the mortgage is being seen as a creative and beneficial option to allow seniors to continue to live independently in their homes and be free of the stress and worry of running out of money in the future.

With the current concerns about Medicare and Social Security becoming insolvent in the near future and that Medicaid/MediCal will not be able to meet the needs of an aging population, is very scary and depressing and how will seniors be able to live comfortably and have enough money to maintain their lives?

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Reverse Mortgages and Annuities

An annuity should never be purchased using money from a reverse loan, but in the past there were times when a reverse loan borrower would unwisely do just that and sometimes these vulnerable seniors were (for lack of a less sensitive term) “robbed”.

But what has happened since then to protect seniors from this kind of scam?

In 1987 Congress passed the FHA Insurance and Uniform Lending practices and the FHA insurance bill that would insure Reverse mortgages.

The first reverse mortgage to be insured by FHA was in 1989 and they continue to oversee this program very closely as an added protection to seniors and since that time additional oversight has come from Housing & Economic Recovery Act, HUD, Ginnie Mae, the National Reverse Lenders Association and the Consumer Financial Protection Bureau.

Prior to this time, reverse loans were created and offered by other entities  such as insurance companies in exchange for a portion of the equity of the borrower’s home when they passed away and at very high interest rates.

And quite often an annuity was tied to this transaction by obligating the borrower to use the funds from the reverse loan to purchase  this insurance product.

Is this an acceptable suggestion for a senior to utilize in their “later” years?

 

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Reverse Loans and Divorcing

In my previous post I mentioned that since the 1990’s, “Gray” divorce  ( As senior divorce is often referred to) has increased.   As a matter of fact it has tripled and more seniors are splitting up than in any previous time.

More often than not, the “wife” will want to continue to live in the home but is unable to qualify for a traditional loan due to lack of income and cash reserves.

So what happens if one of them wants to keep the home and continue to live in it?

More than likely they won’t have enough income to qualify for a traditional loan and even if they are going to receive spousal support, a lender will not use it for qualifying purposes because there will be no history of it’s receipt to the spouse who has been awarded support.

And what would be her option?

Depending on her age, the value of the subject property and if there are any mortgages on it, she may be able to qualify for a reverse mortgage, pay off the spouse and continue to live in her home.

Her only responsibilities would be to continue to pay property taxes, home insurance and any HOA fees and keep the home in good repair.

Reverse loans are a financial tool.  A tool to leverage the longevity of a retirement portfolio, purchase a home, provide additional income for on going expenses and other aging concerns.

And it’s also an excellent tool that can help the pain of divorce be just a little bit less and allow one of the divorcing couples to remain living in their home and not be displaced.

My description is quite simplistic in this post and the borrower does need to qualify on their residual income, but overall using a Reverse mortgage as part an option to retain the property in a divorce is a very good suggestion and should be considered in the settlement process.

 

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Reverse Mortgage Misconceptions

In my previous post, I discussed the negative image of the Reverse loan and where it came from and how we in the industry, are still plagued by this perception that is no longer true.

In spite of the amount of television ads and the many qualified resources for accurate information about the FHA loan program, there are still many people that continue to believe that they are a terrible option for a senior to use to access their equity.

Not true.

And I have to wonder how many seniors chose not to take advantage of the HECM program when it would clearly benefit them, due to their fear and lack of credible information.

I do not work for a BIG Lender, I am employed by a Broker and I work independently from my home office and I always, always meet potential clients personally in-their-homes.

I do not advertise and neither does my Broker and I conduct my business 100% referral based.   From former clients, Bankers, Trust and Elder Law attorneys and Financial Advisors.  I have built relationships with them over the course of many years and they know that they can trust me to take excellent care of their clients.

That is how I transform mistrust and lack of credibility.  And most importantly, I do not pester them to apply for the loan.  It takes time to make a decision and it has to be the best one for the client.  Not me.

However, an excellent resource for information that is accurate and correct is to chose one of the HUD Counseling agencies and request a telephone appointment for Reverse loan counseling.   They generally charge between $125 to $150 for an hour session, but it’s worth it and will give a person a better grasp of the loan and how it may or may not benefit them.

Here is a link to HUD for a list of approved counseling agencies.

https://www.hud.gov/program_offices/housing/sfh/hecm/hecmlist

So “whatever you have heard”, don’t believe your neighbor, friend, hairdresser, financial advisor or anyone that is not qualified or knowledgeable about Reverse mortgages.

Because they simply do not know anything.

Only “what they have heard”.

 

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