Why a Reverse Mortgage is a Good Financial Strategy

Agoura Hills, Oak Park, Calabasas, Chatsworth, Canoga Park, Woodland Hills Reverse Mortgage HECM Janice CohenReverse mortgages are available to seniors 62 and over who either have their home paid off or have substantial equity.  Certain criteria applies to the home in order to meet HUD’s rules, and although anyone on the loan must be 62 and over, they are available to married couples the same as individuals.  The funds available from these FHA insured loans are available in various ways including monthly installments, a lump sum, a line of credit, and as a purchase option.  Even with all these funding choices, reverse mortgages are not right for everyone but they are a perfect match for many.

When is Reverse Mortgage a good financial strategy?

Think of reverse mortgage as a financial tool that turns home equity into cash WITHOUT incurring a loan payment, unlike a traditional mortgage or home equity loan.  No repayment is due as long as the borrower is living in the home.  This also goes for married couples, in which case no repayment would be due until the last borrower permanently leaves the home.  The borrower will still be responsible for some things related to the home, such as property taxes and homeowners insurance.

Reverse mortgages are increasing in popularity as more retirement and financial planners are recommending their use as a potential tool.  Typically retirement planners have used a three legged stool as an example for their clients – saving, social security, and pensions make up this visual structure.  But with changes in the economy and uncertain futures, pensions are disappearing.  In this scenario, those who are “house rich, but cash poor” may find using home equity to balance out the stool is a saving grace.  In addition, for those secure in all three areas, adding home equity can be used as a safety net or to delay, thus enhance, certain areas.

The reverse mortgage industry underwent some changes last year as legislation was passed making these loans a safer option for both borrowers and lenders.  As a result, the reputation that once surrounded the industry has drastically improved and their use is being studied by some of the most prominent retirement experts.

Janice Cohen is a HECM Reverse Mortgage Specialist serving the North Hollywood, Sunland, Tujunga, Burbank, Glendale, La Crescenta, Montrose and many more areas of southern California.  Click here to contact Janice and learn if reverse mortgage is right for you.

Does My Home Qualify For A Reverse Mortgage?

Northridge, Reseda, Encino, Granada Hills, Sylmar, San Fernando, Sun Valley Reverse Mortgage HECM Janice Cohen CaliforniaReverse Mortgages are a specialized loan available to seniors 62 and over.  This creative resource is used by a wide demographic – from those looking to supplement a fixed income, to the more affluent in need of protection for retirement assets, and even those wanting to purchase a home in retirement.  But there are some requirements when it comes to the actual home…

Which types of homes are included? 

According the HUD’s Federal Housing Administration, the home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. Some condominiums and manufactured homes that are approved by HUD also meet FHA requirements.

In the case of a Reverse Mortgage for Purchase, borrowers can use a reverse mortgage to purchase a single family home or 2-4 unit home with completed construction that has received a certificate of occupancy.

Are there reasons my home may not qualify?

A home with very little equity may not qualify, although homes with existing mortgages may.

In addition, homes must be maintained with general upkeep and be current on property taxes and other expenses relevant to the home.

A second home or vacation home may not qualify.  The borrower must be living (or plan to live) in the home.

Bottom line

The funds from a reverse mortgage can be accessed via a lump sum, line of credit, monthly installments, or to purchase a home. If you have questions let your specialist guide you in the many scenarios that are possible and the two of you can think creatively about your needs and desires.

Janice Cohen is a HECM Reverse Mortgage Specialist serving the North Hollywood, Sunland, Tujunga, Burbank, Glendale, La Crescenta, Montrose and many more areas of southern California.  Click here to contact Janice and learn if reverse mortgage is right for you.

What To Expect When Applying For A Reverse Mortgage

Agoura Hills, Oak Park, Calabasas, Chatsworth, Canoga Park, Woodland Hills Reverse Mortgage HECM Janice CohenIf you’ve reached the point you are ready to apply for a reverse mortgage, you have likely done a fair amount of research (and if you haven’t, feel free to read through the informational articles here on my blog).  So what comes next? Here’s a quick run down of what to expect…

Age qualifications.  You’re probably aware the borrower needs to be age 62 or older to qualify, but in the case of married couples who both want to be on the loan, both borrowers will need to be 62 or older.  In addition, the loan amount will be calculated of the age of the youngest borrower, with the older the borrower, the more funds available.

Does your home qualify?  Not every residence qualifies for a reverse mortgage but many do.  The home must be HUD and FHA approved.  These include: single family or a 2-4 unit homes with one unit occupied by the borrower, as well as some condominiums and manufactured homes.  If you’re looking to purchase a home with a Reverse Mortgage for Purchase, any new construction must have a certificate of occupancy.  Once it’s determined your home qualifies, an appraisal will be done to determine it’s value.

Financial Assessment.  In some recent changes made by HUD to ensure the continued progress of the reverse mortgage industry, a financial assessment became part of the application process.  This is set up to make sure borrowers are financially stable enough to continue to pay property taxes, homeowner’s insurance, and other related costs to the home, although once a reverse mortgage is obtained on the home, there are NO mortgage or loan payments.  Although the financial assessment is similar to that with a traditional mortgage, if borrowers don’t meet the traditional criteria, there are still options through a Fully-Funded Life Expectancy Set-Aside, which is an amount drawn under the HECM that is reserved for payment of property taxes and insurance by the lender; or a Partialy-Funded Life Expectancy Set-Aside which works the same as the Fully-Funded option except a smaller reserve is drawn when borrowers meet credit requirements but not income requirements. The amount of both of these reserves is determined by the age of the borrower and the value of the home.

During these first steps, it’s incredibly important to work with a trusted and reputable reverse mortgage advisor and lender.  You should never feel pressured or feel your concerns and/or questions aren’t being addressed.  Also watch out for scams that some homeowners can easily fall prey to.

Janice Cohen is a HECM Reverse Mortgage Specialist serving the North Hollywood, Sunland, Tujunga, Burbank, Glendale, La Crescenta, Montrose and many more areas of southern California.  Click here to contact Janice and learn if reverse mortgage is right for you.