reverse loans

Decision Making and Fears

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?

It’s fear.

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The Differences Between a HECM and a HELOC

I previously discussed in earlier posts some of the details and considerations when a senior might be thinking of borrowing equity from their home and they have four options.

  • Refinance their home using a traditional mortgage – There will be a monthly payment
  • Do a Home Equity Line of Credit/HELOC – % only for five years then become fully amortized for remaining 10 years.   There will be a jump in the monthly payment.   “Payment shock”
  • Get a Fixed rate 2nd. Deed of Trust – Fully amortized monthly payment for 15 years.
  • Use a HECM/Home Equity Conversion Mortgage; a “reverse” mortgage.   No payments or loan term.  It is in effect as long as the borrower continues to occupy the home and/or they”pass” away.

Let’s examine the options a little bit closer.  The first three choices all require the borrower to qualify using their income and credit, plus they will have monthly mortgage payments.

Initially, the first 3 options are less expensive in closing costs, but there are risks associated with obligating oneself for a mortgage payment in the later years of their life.

If the borrower is currently employed and plans on working for many more years, then maybe the first 3 choices are ideal.  But what if you want to retire?  The mortgage payments won’t go “away”, the borrower will have to continue to make them each month.

Doing a traditional “cash-out” refinance is certainly an option to consider especially if the existing mortgage is at a high interest rate or it’s an Adjustable Rate Mortgage  ( who knows what will happen with interest rates in the future?  They will probably increase).  And of course, there is a monthly mortgage payment to be made.

Is this a particularly good option for a senior to continue to maintain an ongoing mortgage for many more years?

I will discuss the other three mortgages in my next post and each of them can be appealing depending on the borrower’s circumstances and what they are attempting to accomplish.

 

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Paperwork Needed for a Reverse Loan

I actually discussed this in a previous post, but to change it up a bit and make it more interesting, I created a short video with terrific music that makes it pretty simple to understand what kind of documents are needed from a borrower.

Of course, depending on their personal situation other items might be needed, especially if the borrower is still working, then pay check stubs and W2’s would be needed and any phone numbers for management companies if the borrower lives in a Condo.

Which is always a good idea, but for whatever it’s worth here is the video.

And please….do call me if you have any questions.

 

 

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Why Do a Reverse Loan?

I have been a Reverse mortgage consultant for almost 20 years and quite often, I am asked why would anyone ever use a reverse loan?

It’s certainly a reasonable question, but most of the time, it’s coming from a  place of lack of correct information about the FHA HECM loan program for seniors and too often the “stories” and myths they have heard about reverse loans.

Initially when I first started in this profession, the most common reason for applying for it, was the need for additional funds to simply pay on going monthly expenses.   Needless to say, the amount of money seniors receive from Social Security are woefully inadequate to pay mortgage payments   ( if they still have a mortgage), food, utilities, medical expenses and the plethora of costs we all have each month.

In my next several posts, I’m going to talk a bit about the loan and how it’s become more affordable and other misconceptions that are still circulating in the public about it.

And I will share some stories about some of my clients   ( Without naming them), as to why they chose to use a Reverse loan in their particular situation.

And…. no one has ever regretted their decision.

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How to Qualify for a Reverse Loan

In my previous two posts, I discussed the new Underwriting procedures for qualifying for a Reverse loan and I don’t want anyone to become too concerned or afraid that they would not be able to get one if their income is low or they have some negative credit on their credit report.

The loan has never been Underwritten using FICO scores or “debt to income” ratios and that is still the case.

As long as you are at least 62 years of age and live in your property, you are eligible for the FHA loan that is only offered to seniors.

I don’t want to repeat myself here in this post about the documentation that the borrower will need to provide to the Loan Officer or discuss the Financial Assessment or the LESA but I want to explain how you can still be approved.

(Please look at my previous post that lists the items that you might have to provide to the Lender.   Not all of them are necessary depending upon your particular sources for income, etc.)

But the borrower will need to be prepared to provide more documentation than in the past and a letter of explanation if they have any derogatory credit and or have been  late on their property taxes, etc.

I have had clients who were essentially not a good risk to the Lender because they were clearly irresponsible when it came to making their obligatory housing expenses AND they had some “shaky” credit as well.

With the cooperation of my clients, I was able to write an excellent Letter of Explanation for them and they were not required to have a LESA set up for their loan.

However, a LESA can provide the client the peace of mind that their property taxes, homeowners insurance and any HOA fees will always be paid from the LESA account and with not having a mortgage payment on a reverse loan is a benefit to the borrower.

Plus, if for any reason the borrower’s income declines in the future, they will never have to worry about how to make any of their housing expenses, as the LESA account will automatically do it for them.

And they can feel secure living in their home.

Please feel free to call me if you have any questions about The Life Expectancy Set Aside and or would like to know approximately how much money you could receive from a reverse loan.

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