Today i'll be talking about a mortgage program that has been around for many years, but you probably have not heard of or don't know much about. This mortgage program is very different from most mortgage plans you have heard of. With this type of mortgage, you actually will never have to make a mortgage payment in your entire life. Even better than that, you will actually be the one receiving payments from the bank!! You are probably asking yourself "what in the world is he talking about?" I am talking about reverse mortgages. Before I get into the nitty-gritty details of how they work, let me give you the general idea of how reverse mortgages work.
General Overview
Basically, reverse mortgages are for people who are 62 years or older and who have a home that is either paid off or they have a substantial amount of equity in their home. The homeowner can go to a lender that offers a reverse mortgage program, and they can take out a loan on their home which is based off of the value of the home and the age of the homeowner/borrower. If the homeowner still has a balance on his or her existing mortgage, the reverse mortgage will pay off the existing mortgage balance, and the rest of the proceeds from the reverse mortgage will go to the homeowner to spend on whatever his/her heart desires. If there is not an existing mortgage on the home, the homeowner will get to spend all of the proceeds from the reverse mortgage.
This kind of sounds like a rifinance doesn't it? Well it's not...so get over it. The proceeds from the reverse mortgage are for the homeowner to spend. The homeowner can receive the payments via monthly payments, a line of credit or receive a one time lump sum. The great thing about reverse mortgages though, is that you never have to repay the loan during your lifetime. If you use your loan proceeds up before you die, you will not have the house taken from you either. The loan does not have to be repaid until the homeowner passes away. The loan is usually repaid through the sale of the home, and if the sale of the home does not cover the entire loan amount, say due to decreasing property values, the bank get's paid back via an insurance policy they have on their loan. The loan does not have to be paid off by selling the home. If there are heirs of the deceased borrower who want to keep the home, they can pay the home off via cash or through getting another mortgage on the property.
On a side note, if during your lifetime the value of the property goes up, you can have your loan reviewed and possibly qualify for an increase in your loan limit!
How to determine your eligibility for getting a reverse mortgage and the loan amount you will receive
To be eligible for getting a reverse mortgage, you have to be at least 62 years of age. You also must occupy the home. The property also must be a single family or a one to four unit owner occupied dwelling. This would include condos, townhomes, single family homes and some manufactured homes. The propery must also meet the Department of Housing and Urban Development (HUD's) minimum property standards.
The loan amount you can receive from a reverse mortgage is determined first by the property value. The more the property is worth, the higher the loan amount will be. The second variable that determines your loan amount is the age of the borrower. The older the borrower, the higher the loan amount will be. In the case of their being two borrowers on the loan (I.E. husband and wife) they will use the age of the youngest borrower to determine the loan amount. Both borrowers must be 62 years of age or older to qualify. The third factor that will determine your loan amount is the current interest rate. The lower the interest rate, the higher your loan limit will be. Finally, your loan amount can not exceed the establised loan limit for your area set by The Department of Housing and Urban Development (HUD).
Requirements associated with reverse mortgages
Once you qualify for a reverse mortgage and receive the proceeds, there are certain requirements that you have to comply with in order to avoid having to repay the loan during your lifetime. First off, you have to pay and keep current on your homeowners insurance and your property taxes. Second, at least one of the borrowers has to continue to occupy the home. In other words, the home has to continue to be the primary residence for at least one of the borrowers. Third, you have to maintain the home according to Federal Housing Administration's (FHA) property standards. If the property owner gets sick and remains in the hospital, they are allowed to be in the hospital for up to 12 consecutive months before they will have to pay the loan back. If there is more than one borrower, this would not apply if one of the borrowers remained in the home.
As long as these requirements are met, the property owner will not have to pay back the loan during his/her lifetime.
Payment Options
You have a few different options as to how you can receive your reverse mortgage loan proceeds. To begin with, you can receive the loan proceeds in periodic payments (usually yearly or monthly payments). This is a great way to supplement your income if you are living off of social security, pension income or any other type of fixed income.
The second payment option is having an open line of credit that you draw upon at anytime. This is a great option if you want to use the loan proceeds for specific expenses that may not be frequent, or if you want to use the loan proceeds on unforeseen expenses that may arise.
The third payment option is receiving a lump sum of money.
The reverse mortgage process
If you decide to get a reverse mortgage, there is a process that you must go through. The steps in the process are as follows.
1) Education-The first step is getting educated about reverse mortgages. The best way to do this is to go and talk with a reverse mortgage specialist. He/she will be able to educate about reverse mortgages and answer any questions that you may have. They will also provide you with reading materials that contain information about reverse mortgages that you can take home and review. It would also be a good idea to talk to an accountant about reverse mortgages so you know what all the financial implications are.
2) Counseling- If you decide that a reverse mortgage is right for you, you must attend a counselor education session with a HUD approved counselor. They will further educate you about reverse mortgages, the reverse mortgage process, and they will explain to you the financial and legal obligations associated with reverse mortgages.
3) Application-Your reverse mortgage loan specialist who works for the lender making the reverse mortgage will meet with you and help you fill out the application for the reverse mortgage.
4) Processing- Once the application is filled out and submitted to your lender, it must go through several processes before it is approved.
- First off, an appraisal will be ordered by the lender to determine the value of the home
- Second, homeowners insurance will have to be ordered for the home.
- Third, a title insurance policy for the lender will have to be ordered. A title insurance policy for the homeowner is highly recommended, but not required. Title insurance protects the lender and the homeowner from claims against ownership made by undisclosed spouses, heirs of previous owners, creditors holding liens against previous owners, and other parties.
- The last stage of processing is underwriting. Once the appraisal is approved and value of the home is determined, the title search has been cleared, and homeowners insurance has been ordered, the property will go to the lender's underwriters for final approval.
- It generally takes 6-8 Weeks from the time the application is submitted until the closing of the loan occurs.
Overall, reverse mortgages are a great way to help ensure one has enough money during his/her golden years and through retirement. To qualify for a reverse mortgage, you don't have to worry about credit score or your income as the loan is determined by the value of the home, the age of the borrower and the current interest rate. This is truly a great way to increase income for older people who own their home outright or have a lot of equity in their home. If you have any questions about reverse mortgages, please feel free to contact me at (850) 567-0037 or via email at nahoom1171@yahoo.com.
You can also contact your local reverse mortgage specialist, Michael Weltman with Wells Fargo at (850) 556-6694 or via email at michael.weltman@wellsfargo.com.
Have a great week!
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