Three Things You Never Knew About A HECM Reverse Mortgage

Three Things You Never Knew About A HECM Reverse Mortgage

Northridge, Reseda, Encino, Granada Hills, Sylmar, San Fernando, Sun Valley Reverse Mortgage HECM Janice Cohen CaliforniaReverse mortgages are available to senior homeowners 62 and over, even married couples.  The borrower will live mortgage payment free and always retain the title to the home.  There are many myths and misconceptions that surround reverse mortgages – but there are also some not-so-known perks to the loans.  

Here are my top three:

1.) Most Reverse Mortgages are Insured By the FHA

It is normal for older adults to be concerned with the welfare of their children after their passing. This is one of the reasons many seniors balk at the idea of a reverse mortgage – they don’t want to “saddle their children with their debt.”  

Fortunately, there are safeguards in place to address this issue.

Almost all reverse mortgage are FHA insured. This means under current guidelines there is a large equity reserve that will always protect their home from going upside down.  Even if the homeowner lives to be 110, has used all the equity in the home, and the market has crashed – the heir will NEVER owe more than the home is worth.  FHA/HUD have guaranteed that they will cover the bank’s losses should the situation arise.  This leaves the homeowner and their estate protected against any possible losses.  

It’s important to also know that on the flip side, if the home is worth more than it sells for after the owners passing, the heirs will receive any excess equity available.  The bank will never take more than what is needed to pay off the loan. 

2.) Reverse Mortgages Have the Option of a Growth Line of Credit

For many years, there were only two ways to tap into home equity when obtaining a reverse mortgage – a lump sum or monthly installments.  This is has changed and HUD has added two new options – a Reverse Mortgage Line of Credit (HECM-LOC) which works similar to a Home Equity Line of Credit (HELOC), with the exception the borrowers will NOT be required to make repayments, and the other option is a Reverse Mortgage for Purchase, which allows seniors to use a reverse mortgage to make a home purchase. 

The line of credit is just as it sounds, it is a line of credit with funds that are available for the homeowner to take when they need it. But the major benefit to this line of credit is it also has a growth factor attached to it. This means that any money left in the line of credit will grow at a rate that is equal to the interest rate and mortgage insurance rates on the loan. 

Here’s an example:

Imagine your HECM-LOC has an interest rate of 4.5% and a mortgage insurance rate of .5%. The combined rate is 5.0%.  You have $100,000 in this line of credit which you don’t plan on using for 15 years unless you need it. That $100,000 is going to grow by 5% annually until you begin accessing those funds.

After year one this line of credit is up to $105,000. After year five the LOC is up to $127,500. And After 15 years the total funds in the line of credit are up to nearly $208,000. In 15 years, that 5% return has grown his available funds by 108%!

3.) A Reverse Mortgage Can Be Used To Purchase A Home

Although the Reverse Mortgage for Purchase program has been around for some years, it’s still relatively unknown – even in the real estate community. 

Reverse mortgages are an excellent option for retirees looking to buy a home near or far.  These loans require a down payment at the time of purchase, but beyond that there are quite a few differences than using a conventional mortgage.  

Borrowers are often able to purchase outside their expected “cash purchase” price range, because the cash is used as a down payment and the remainder of the purchase amount is covered under the reverse mortgage loan, while the borrower lives mortgage payment free.  The borrower will also always retain the title to the home, just as they would with a conventional mortgage.  These loans are also FHA insured, so everything discussed above still applies in that regard. The borrower can own other properties and still qualify as long as the home being purchased is their primary residence.  

Janice Cohen is a HECM Reverse Mortgage Specialist serving the Northridge, Reseda, Encino, Granada Hills, Sylmar, San Fernando, Sun Valley and many more areas of southern California.  Click here to contact Janice and learn if reverse mortgage is right for you.

Changes in the Reverse Mortgage for Purchase Certificate of Occupancy Rule

Changes in the Reverse Mortgage for Purchase Certificate of Occupancy Rule

Northridge, Reseda, Encino, Granada Hills, Sylmar, San Fernando, Sun Valley Reverse Mortgage HECM Janice Cohen CaliforniaOne of the hidden gems within the reverse mortgage program has long been the ability to purchase a home with it; the Reverse Mortgage for Purchase program.  But within that program was a frustrating rule – the requirement that the home being purchased have a Certificate of Occupancy before a loan application could be submitted.  This meant seniors seeking this option were limited to pre-built homes.  Well, this rule has changed.  Here’s the scoop:

In 2017, the FHA announced that it will allow mortgagees to take applications for HECM Reverse Mortgage for Purchase loans from potential borrowers without a certificate of occupancy and before the completion of reverse mortgage counseling.  The FHA will not insure the loans until the local officials deem the property to be habitable and issue a certificate of occupancy.  Lenders will be responsible for getting the appropriate paperwork once it is available.

The Reverse Mortgage for Purchase program allows seniors to purchase a home using a reverse mortgage and live mortgage payment free. To qualify for this program, borrower(s) need to be age 62 or older, be purchasing a home to become their primary residence, and have their “required investment”. The borrower will still be the homeowner and will always retain the title. In addition, similar to a homeowner who owns their home free and clear, there will not be a monthly mortgage payment but the borrower will still be required to pay property taxes, homeowner’s insurance, HOA fees, and basic upkeep and utility payments.

The borrower can use this loan to purchase single family homes, town homes, and FHA approved condos. 

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.

 

Is a HECM Reverse Mortgage for Purchase A Good Decision?

Is a HECM Reverse Mortgage for Purchase A Good Decision?

We’re all familiar with the two most common options to purchase a home – take out a mortgage loan or pay cash.  But for seniors 62 and over, there’s another option – the Reverse Mortgage for Purchase program (aka HECM for Purchase).

Looking for a home in the Los Angeles area of California but finding it’s a bit out of your price range?  Because the borrower is responsible for only the down payment on the home and will have NO mortgage payments, a Reverse Mortgage for Purchase can help with this too.

What is needed to qualify for a Reverse Mortgage for Purchase loan?

  • you must be age 62 or older (each borrower on title must meet this criteria, although others residing in home do not)
  • the home you are purchasing must be your new primary residence
  • must meet the FHA’s new reverse mortgage credit and income guidelines
  • you must have your “required investment” (down payment) from a HUD allowable source. The funds cannot be borrowed. The required investment can come from the sale of a currently owned home or asset, a gift or inheritance, or money you have had for at least 90 days.

Who owns the home that I am purchasing?

 As the borrower and homeowner, you will always retain the title to the home, just like any other type of home loan.

What will my personal ongoing obligations be after purchasing a home?

It’s very similar to if you owned your home free and clear – you will NOT have a monthly mortgage payment.  But as the homeowner, you will be responsible for paying property taxes, home owner’s insurance, HOA fees when applicable, and basic upkeep including home maintenance and utility payments.

When will the loan become due and payable?

With a Reverse Mortgage for Purchase the loan does not reach “maturity” until:

  • the last remaining borrower passes away
  • the homeowner sells the home
  • the last remaining borrower leaves the home for 12 consecutive months due to illness
  • the homeowner defaults on property taxes or insurance

Will I need to sell my current home residence to qualify?

Simply put, no. As long as the loan on your current residence is not an FHA loan and your required investment comes from a HUD allowable source, you can keep your current residence – but the new home will need to be your primary residence. Your lender will ensure you are financially stable enough to support the ongoing obligations on all properties you own. If you decide to keep your current residence as an investment, rental, or vacation property – or you are awaiting the sale of home, it is rarely a problem.

What types of properties can I purchase?

Single family homes, town homes, and FHA approved condos are all eligible properties. The home being purchased will need to be the buyer’s primary residence.

Can I use the loan to build a new home?

Previously these loans could not be used as construction loans and homes needed a Certificate of Occupancy before the loan application could be started.  This changed this past October, and now homes in construction are eligible.  Read here to learn specifically about obtaining a Reverse Mortgage for Purchase on new construction. 

How is the “Required Investment” amount determined?

The “required investment” or down payment is determined by a calculation set by HUD based on:

  • The lesser of the sale price or appraised value
  • The age of the youngest of the borrowers
  • The current expected interest rate

What may disqualify me from a Reverse Mortgage for Purchase loan?

  • Foreclosures within the past 3 years.
  • Unresolved bankruptcy
  • Unpaid Federal obligations – i.e. federal taxes, defaults on prior government backed loans (such as student loans or government backed mortgages)
  • Income too low to support multiple properties
  • Unpaid judgments or tax liens

What is the HUD required “Reverse Mortgage Counseling”?

Prior to being approved for a reverse mortgage, HUD’s Federal Housing Administration (FHA) requires each borrow to participate in a counseling session with an approved agency. These third party, not-for-profit agencies are funded by the federal government and work closely with both the FHA and lenders to ensure a smooth process.  The goal of this session is not to steer a potential borrower in one direction or another, but to make sure they clearly understand all aspects of a reverse mortgage.

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.

Only 3% Of Retirees Use A HECM Reverse Mortgage to Purchase A Home

Northridge, Reseda, Encino, Granada Hills, Sylmar, San Fernando, Sun Valley Reverse Mortgage HECM Janice Cohen CaliforniaWhy is it that only 2-3% of older Americans use the Reverse Mortgage for Purchase option to buy a home?  Recent studies show that even with the option available to them, they still seek traditional funding or opt to pay cash.  Why is that?  Well, surveys have shown there are three main reasons:

1.) No one told them they could use a reverse mortgage as a purchasing tool.  Unfortunately this happens far too often.  Real estate agents and lenders are either not aware of this option or are not educated enough to suggest it.  If you’re a senior considering purchasing a home, be sure to ask about using a reverse mortgage.  If you aren’t given proper information, contact a reverse mortgage expert such as myself.

2.) Real estate agents do not have enough knowledge to adequately educate the potential buyer about this option.  If you as a potential buyer find yourself in this situation, ask who you could talk to to learn more or seek out an expert yourself.

3.) The third reason seniors opt for traditional financing is the down payment required to use a reverse mortgage.  The down payment amount varies based on the price of the home, the age of the borrower, and current interest rates.

In order to apply for a Reverse Mortgage for Purchase loan, you must be age 62 or older (each borrower on title must meet this criteria, although others residing in home do not), the home you are purchasing must be your new primary residence, you must have your “required investment” (down payment) from a HUD allowable source.

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.

Reverse Mortgage Tips for Married Couples

Agoura Hills, Oak Park, Calabasas, Chatsworth, Canoga Park, Woodland Hills Reverse Mortgage HECM Janice CohenIt’s not uncommon to hear heartbreaking stories of reverse mortgages that left a spouse in dire straits after the other spouse passed away.  How could this happen?  Is it something that you need to worry about?  If you and your spouse are considering obtaining a reverse mortgage, it’s important to understand the long term effect it could have on either spouse once the other passes away, and feel confident any appropriate protections are in place.

What Married Couples Need to Know 

When applying for a reverse mortgage the amount of money you can receive is calculated according to the age of the youngest borrower.  The older the borrower, the more money is available from the lender.

If both homeowners are over the age of 62, both homeowners can be on a reverse mortgage loan.  If both spouses are on the loan, the loan continues if either passes away and will continue until both borrowers have passed.

Another scenario to consider is if a borrower obtains a reverse mortgage and then remarries.  If this was to happen, it wouldn’t be unheard of for the married couple to live in the home for 20 or more years before the borrower passes.  At this time the new spouse would not be protected under the existing reverse mortgage loan.  If you have reverse mortgage and you remarry, you could consider looking into refinancing the reverse mortgage and adding the new spouse to the loan.

And yet one more thing to note is the possibility one spouse needs to move out of the home into an assisted living facility due to health concerns.  If this happens, as long as the spouse that remains in the home is on the loan, they can continue under their current reverse mortgage.

Bottom line: If you are married and are considering obtaining a reverse mortgage, it is extremely important to work with a trusted and experienced reverse mortgage specialist who can easily answer all of your questions and address any concerns you may have.  Making sure both spouses are protected should be a lender’s top priority.