Generally, in spite of the articles and television commercials about reverse loans, I have found that many people are still quite confused about reverse mortgages and do not understand that they are just like a regular home loan, with the exception there are no mortgage payments to be made by the borrower.
And what I find very surprising is how many professionals, such as traditional Loan Officers, Bankers, CPA’s, Estate Planning attornies and Financial Advisors are very uninformed, and are not qualified to provide their clients with accurate information if their client asks them about it.
This is unfortunate because quite often seniors are relying on them for professional advice and sometimes the professional simply gets it “wrong” and ends up possibly giving them very bad advice.
For a senior who is attempting to learn about the loan and whether or not it should be considered as a possible source of additional funds, it leaves them without too many reliable sources of correct information. I quite often suggest that they utilize the counseling that is provided by HUD-approved Counseling agencies throughout the country and sometimes it can be done in person.
Part of my consulting service provides them with several National agencies and 10 that are within California. They can call any one of them and set up a counseling appointment that can be done over the telephone and learn about reverse loans.
The Counselor provides accurate information and answers the individual’s questions or concerns about them. At the end of the session, the Counselor will mail a HUD Counseling Certificate that is viable for 6 months.
If the seniors decide to apply for a reverse mortgage, they will give a copy of the Certificate to the Loan Officer to verify that they have been counseled. This is a HUD regulation and provides a layer of safety for seniors and no one can apply for the loan without having received the counseling.
Speaking with a HUD-approved counselor is a great resource to get questions answered and not end up having a salesperson from a Lender calling them constantly and pressuring them to apply for the loan.
In closing, if anyone who is reading this and would like to have a copy of the Counseling list, just send me an email requesting it and I will provide it to you.
And I will not pester you to apply for the loan.
Many people and professionals are under the impression that the costs and fees associated with a reverse loan are very expensive and there is some truth to that belief and because of that belief, will not consider meeting with a qualified loan consultant to get the details.
Because there is more to consider and although initially, the loan is more expensive, over the years it becomes more affordable and could be the ideal solution for a senior who wishes to remain in their home and have some financial stability.
Whether or not the mortgage is a traditional loan or a reverse mortgage, they have similar fees with the exception of the IMIP fee that is charged on all FHA loans, including those where payments are made by the borrowers.
All mortgages have fees such as the following:
- Title Insurance
- Loan Processing
- Credit Report
- Points/Origination Fee
- Recording Fees
- Notary Fee
- Lender “Junk” fees
Reverse loans have some of the same fees with the exception of the following:
- No Processing Fee
- No Lender “Junk fee”
- Attorney review of Living Trust fee for the borrower
- Initial Mortgage Insurance Premium.
All fees on a reverse loan are well regulated by the federal government and that applies to traditional mortgages as well and cannot be changed after the initial disclosure to the loan client unless there has been a “change in circumstances” in reference to the appraisal of the property or the payoff information for an existing mortgage on the subject property.
I will go into this in more detail in my next post and will explain why reverse loans are more expensive in their Closing Costs.
This is due to the initial Mortgage insurance Premium charged by FHA on each loan.
I am often asked why seniors get a reverse loan, there are various reasons and different situations where it becomes the best option, and over the years I have encountered the most common reasons and they tend to be the same ones each time I meet with a client.
The number 1 reason is that seniors simply don’t have enough money every month to cover their ongoing expenses and especially since services, utilities, food, insurance, and medical care have increased but not their income and they may be burdened with a mortgage payment and using their savings to pay it each month.
The number 2 reason is for unexpected and major expenses. Lately, I am meeting with families who can’t afford to pay caregiving expenses, due to a major medical event and they are draining the money from their savings and investments to cover the fees and are concerned about running out of money.
Another unplanned expense might be home repairs. Typically it is a very expensive plumbing repair or a new roof for their home. Quite often there is a great deal of deferred maintenance and now repairs have become necessary and can no longer be put off or delayed.
The number 3 reason, is they want to remodel their home and make it more “senior friendly” as they age and plan to continue to live in their home. It could be remodeling a bathroom or kitchen to make them easier to maneuver in and make things easier to reach if someone is in a wheelchair and of course other considerations.
And the number 4 reason, is they simply want more money to enjoy their life. They may want to travel, purchase a second home using the reverse loan money towards that purchase, or simply to have the peace of mind, that they will not be financially restricted because they will have enough money to meet their personal needs.
A reverse loan can be used for many different reasons, but these are the ones which are the most commonly used by seniors and their families to solve a worry or problem.
California obviously has the most expensive properties in the country and a very high rate of citizens who are seniors but are carrying mortgages on their homes which are preventing them from retiring due to mortgage debt.
Many working seniors would like to retire but they can’t because of the ongoing mortgage payments and sometimes they find themselves withdrawing funds from their retirement investments to make the payment each month.
And depending on how many years are left on the mortgage, many are concerned about running out of money to make the payments and the other monthly obligations.
The average home value in California generally exceeds the HUD Lending Limit that is currently at $679,650 and if a homeowner has a home with a great deal more equity than the FHA HECM would allow them to withdraw, then a Jumbo reverse loan would be an additional option for consideration.
There are many new Jumbo loan programs to choose from that are superior to the FHA HECM in many aspects and are considerably less expensive in regards to fees. Here are some highlights and are subject to change in the future.
- Maximum loan amounts to 4 MM
- Fixed rates or a LOC
- 2nd T.D’s for those who would like access to their equity but currently have a 1st T.D. in place with a favorable interest rate they wish to keep, preserving more of their equity. This option can also be used as a 1st T.D.
- Origination fees vary by the loan choice but are “none” to either 6K or 8K maximum.
- No Mortgage Insurance Premiums.
- Non-Recourse Loan. The borrower continues to own their home. No equity sharing or pre-payment penalties. The property will go to the heirs of the borrowers when they (the borrowers) have passed away.
- Can be used to purchase a home. “Right-Sizing/Down Sizing”.
- No payments are required other than the borrower must continue to pay property taxes, Homeowners Insurance, and HOA fees and keep the property well maintained.
- No loan terms.
- Borrowers must be at least age 60 or 62. It depends upon the loan choice to determine the minimum age.
But don’t get excited about this awesome news, because it’s only increasing 2% which on the average, will boost up benefits 20 to 25 bucks a month.
Just imagine how you could spend that extra money you will be receiving beginning in January of next year. Ummm, let’s see? I can think of a number of thrilling possibilities.
New tennis balls in lots of different colors for your Walker. Or extra money to blow at the Dollar Tree Store where one can find so many awesome deals, especially the junk from China.
Or maybe a couple cocktails at a Denny’s restaurant where you can get a Senior Discount when you order some of their nutritious food.
“Yes”, I am being sarcastic I know. But really only 2% increase?
I may look very youthful in my picture on this website, but I’m a senior too and if I wasn’t working I would be standing on a street corner begging for money and food.
I’m lucky however, because I enjoy being a Reverse Loan Consultant and meeting many wonderful and amazing people who are considering using the funds from a Reverse loan to pay for medical expenses ( I just had a partial knee replacement in August.), home improvement, care giving or maybe simply taking that long “talked about, one day we will go to Maui” and finally doing it.
The number one concern of everyone, but especially seniors is out-living their retirement funds ( If they have any) and not being able to afford to remain in their home for the rest of their lives.
But there is an option, a wonderful option and no one should be “scared” to look into the FHA government insured loan program just for seniors affectionately referred as the HECM.
Its smart to find out if you would benefit from it or not, plus it’s better than being reduced to groveling each month for enough money to pay on going expenses and staying awake at night in a state of fear.
Oh and by the way. I have a Reverse loan on my home that I used to pay off two mortgages I had at the time during the height of the Recession and Financial “crash”. So unlike the majority of any of my competitors, I’m qualified about the advantages of using the loan because of my own experience.
And I’m glad I did. It was a great decision at the time and I don’t regret it.
If I hadn’t taken advantage of using a Reverse mortgage for my own situation, I would have lost my home in a foreclosure as I was quickly running out of money.