BASICS
OVERVIEW
Eligibility Requirements:
A reverse mortgage is a unique loan option available to homeowners aged 62 and older that allows them to draw on the value of their home through a variety of monthly payout selections, a line of credit, a lump sum, or a combination of these options all without making monthly principal and interest payments.
The beautiful thing about this loan and why it is so useful to many Americans, is that repayment is not required until the homeowner(s) no longer reside in the residence, the last surviving borrower passes away, or does not comply with the loan obligations. This allows an individual to utilize these potential payment and the equity that can be accessed to improve their way of life.
Types of Reverse Mortgages:
Counseling:
One of the key components at the start of the process is to obtain a loan proposal [Insert Link] in which you will receive the necessary list of counseling providers required by HUD. In the proposal package, there will be a link and code that you will provide the counselor in order for them to view the same numbers that are contained within the proposal. They will give you an unbiased overview to ensure that you are understanding the reverse mortgage, what it can do, as well as what it can’t do. This safe guard was implemented by HUD in order to protect seniors from any sort of predatory lending.
This counseling is required before any advancement can proceed on your loan. It is also necessary before any money can be received by the broker in order to start your file (ie. appraisals, credit reports, etc.). Most of these agencies do charge a fee for the counseling service, and once obtained, the counselor will email you as well as your loan officer, a copy of the certificate.
Who do I use to find a Reverse Mortgage?
Expert Advice:
Eligibility Requirements:
The HECM loan is an easy loan to qualify for since it is not entirely based on credit, income, and assets like it’s forward counterpart. In fact, we have closed a number of deals that had started with another lender who tried to do a regular mortgage and the client couldn’t qualify. However, with the reverse mortgage we accomplished a successful close and the clients often said that it was a better solution than the forward. They simply didn’t understand the product, nor did the loan officer whom they were dealing with. With that said, here are the basic requirements of a HECM loan:
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Have at least one borrower on title who is 62 years or older
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Property must be the primary residence of the borrower
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HECM Counseling
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A financial assessment is required for a HECM loan to determine the borrower’s ability to pay taxes and insurance.
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There must also be enough equity in the home. Although the amount required varies depending on factors such as home value, interest rates, and age, the general rule is to guess around 50-60%. We will determine this in the proposal. You can also use the calculator [Insert Link] to get a rough estimate (* please know that this calculator is a worse case scenario, in order to get accurate figures, I’ll need to send you a proposal)
It is important to know there is no need to pay off the home to qualify for a reverse mortgage, and the amount of cash received depends on the borrower’s age, home’s appraised value, expected interest rate, and mortgage option chosen.
Unique Features of a Reverse Mortgage:
Evaluating whether a reverse mortgage is a suitable choice can seem overwhelming, but we’re here to simplify things and equip you with the knowledge necessary to make the best decision for both you and your family.
Here are some key features to help you understand this incredible loan:
No monthly mortgage payment. You simply need to make the tax, insurance, and HOA (if applicable) payments as well as maintain the home
Option to convert home equity into cash via lump sum, monthly payments, line of credit, or a combination of options to reach your goals
Not only are proceeds are generally tax-free, they could be used to offset taxable events (we would want to consult your CPA, as they are the professional on that)
Line of credit grows at a the same rate that is being charged on the loan and cannot be closed by the lender, which is awesome for future retirement use
Protection for a non-borrowing spouse so they can remain in the home
Interest only accrues on used funds, NOT the line of credit
The HECM Loan is a non-recourse loan, protecting your heirs and estate from debt if the home sells for less than the loan balance
Options For Receiving Loan Proceeds:
There are five different ways to receive payments from an adjustable interest rate reverse mortgage, I’ve also included an example on where/why someone would choose this option to meet their specific goals. Of course, the options are not limited to these examples. So let’s take a look:
Tenure: Monthly payments of equal amounts [subsidize your monthly income where social security and/or pension is not enough]
Term: Monthly payments of equal amounts for a predetermined time period chosen by the borrower [to delay the receipt of social security in order to max out the payments]
Line of Credit: Payments made at different times and in varying amounts as determined by the borrower(s) [to be used for emergencies or to implement a coordinated withdrawal strategy in conjunction with your financial professional]
Modified Tenure: Monthly payments combined with a line of credit [as it says, a combination of these benefits]
Modified Term: Monthly payments for a set number of months combined with a line of credit [ditto]
HELOC VS HECM
What’s the difference and why would I chose one over the other?
Home Equity Loan or Line of Credit:
You must have enough income to cover the debt
Your credit needs to be pretty good to qualify
Low closing costs
Can be closed at any time at the banks discretion
Home Equity Conversion Mortgage:
You must meet basic income to cover your living expenses and maintenance on your home
Basic credit requirement to insure you have a willingness to pay your bills as you will be making your tax and insurance payments (if this is a problem, a LESA may be set up to insure these payments can be made)
No monthly principal and interest payments
Line of Credit can NOT be closed at any point unless the qualified borrower ceases to use the property as their primary residence and the non-borrowing spouse remains in the home or the loan is called due because terms are not being met
Remember, you must continue paying property-related fees, taxes, homeowner’s insurance, and maintain the property in good condition while having a reverse mortgage.
HISTORY OF
REVERSE MORTGAGES
1. Introduction of Reverse Mortgages (1961-1980):
2. FHA's Home Equity Conversion Mortgage (HECM) (1987-1990):
1987: The Federal Housing Administration (FHA) implemented the Home Equity Conversion Mortgage (HECM) program, providing a government-insured option for reverse mortgages.1989: The HECM program gained popularity, and Congress passed the Home Equity Conversion Mortgage Insurance Demonstration to test and evaluate the viability of the program.
3. Private Sector Involvement and Growth (1990-2000):
4. Legislation and Market Challenges (2001-2008):
5. Recovery and Regulatory Changes (2009-2010):
2009: The Housing and Economic Recovery Act (HERA) introduced reforms to the reverse mortgage program, including higher loan limits and increased consumer protections.2010: The industry experienced increased scrutiny and regulatory changes to address issues of transparency, borrower education, and financial assessment.
This overview provides a broad perspective on the history of reverse mortgages up until 2010. Keep in mind that specific details and events may vary, and for the most accurate and detailed information, referring to NRMLA publications and official documents would be advisable.
