What is a reverse mortgage?
A reverse mortgage is a way to convert the equity in one's home into cash. The homeowner(s) must be 62 years old, and living in the home. They must either own the home outright or have at least 50% equity in home to allow the withdrawal of a portion of the equity. There are many things to consider prior to deciding if a reverse mortgage and if is the right thing to do for you and your family. This section is meant as a general overview and each type of reverse mortgage is treated separately.
1. There are no payments required and you can take the proceeds as a lump sum, as monthly payment, or as periodic withdrawal as you need the money. You decide when and how you receive the proceeds.
2. The home must be free and clear and any liens and mortgages, or they can be satisfed with funds from the reverse mortgage
3. There are no credit score requirement, because you are taking out your own equity in the home, and no monthly repayment is required , unlike a refinance mortgage which would require a monthly payment to prevent foreclosure.
4. You can live in the home as your primarty residence until last borrower passes-away or permenantly leaves the property, generally considered to be a full year absent. The house must be sold within 6 months or the occurance of either of the above so the reverse mortgage can repaid.
5. The remaining proceeds from the sale will go the borrower's estate after the reversed mortgage had been satisfied.
6. The funds can be used for anything you want, a vacation, to pay taxes, invest in stocks or bonds, buy another property or just as a subliment to Social Security and/or other other retirement fund payments.
7. The borrowers must discuss a potential reverse mortgage with a HECM Counselor, which is either free or low cost, and perhaps with your family to make sure it is the right thing for you and your family. If it is HUD/FHA Reverse Mortgage. See the specific guidelines for the other types of reverse mortgages.
8. You must use a an FHA-approved lender. However, it is not recomended by FHA to pay a fee to find a an FHA-approved lender (any lender who does FHA loans can do HECM Reverse Mortgages). You can also contact me, and I would be pleased to work with you. I have a number of FHA approve mortgage lender and will suggest the one that fits your specific needs. You can reach me by phone at 510.215.1743 or go to the contact page and email your interest (click here). The non-HECM reverse mortgage have specific lenders and you must contact each of those lenders to determine, who actually funds those reverse mortgages.
Types of Reverse Mortgages are HECM, Single Purpose and Proprietory Reverse Mortgages
HUD - FHA HECM Reverse Mortgage:
HUD's Home Equity Conversion Mortgage (HECM) - is a reverse mortgage created by and regulated by U.S.Department of Housing and Urban Development. This loan, like FHA loans, is insured by HUD.There is annual insurance fee of 1.25% of the loan balance, which is added to loan amount. The advantage of the insurance is that even if the the sales doesn't cover what is owed on the reverse mortgage the insurance will make up the difference. So you can never out live your reverse mortgage, and you can stay in your home without having to make another house payment while homeowners/borrowers are living in the home.
The Property Requirements
1. Single family home or 2 to 4 units with one of the units ocupied by the borrower(s)
2. Condos and Manufcatured Homes- Must be a HUD-approved condominium complex, and meet Manufacatured home requirements.
Income and Asset Verification
1. Assets, income, monthly living expenses, and credit history will be veriffied.
2 . Will verify fn time payment of of property taxes , hazard and flood insurane premiums
If you choose an adjustable rate mortgage, you will need to choose one of the following:
1. Tenure - You will pay equal monthly payments as long as as one (1) of the borrower lives in the property as their principal residence.
2. Term - A fixed preiod of months for the selected equal monthly payments
3. Line-of-Credit - This plan allows a unscheduled or installment of payments, at the time of in the amounts of your chosing until the line-of-credit is depleted.
4 A Modifified Term - Is a combination of a line-of-credit and the scheduled monthly payment for as long as you remain in the home or until the funds are depleted.
5. A modified Tenure- Is also a combination of the line-of-credita and scheduled monthloy payments for as long your remain in the home or until the funds are depleted
The fixed rate option, requires you receive a the Single Disbvursement Lump Sum payment, and it is based on the mortgage amount that is borrowered will depend on the following:
1. The age of the youngest borrower or eligible non-borroweing spouse. If there are more than one borrower and no non-borrowing spouse use the age of the youngest borrower to determine the loan amount.
2. The lesser of the appraised value or the HECM FHA reverse mortgage loan amount limit of $625,500 or sales price
3. The current rate of interest
What are the costs of HECM FHA Reverse Mortgage?
!. You can either pay most of the cost by financing them and pay them out of the proceeds of the loan. So basically you don't have to pay them "out-of-pocket". If you choose to pay these costs out of pocket you reduce the net loan amount and those funds will be available to borrow at a latter time.
2. You have fees and charges related to HECH loan and they included mortgage isurance premiums: initial and annual; the charges from third parties; origination fees; interest and servicing fees. The lender will discuss and explain which ones are mandatory.
3. The initial mortgage insurance premium (MIP) will be charged (.50% or 2.5% depending on your disbursements) at closing. As mentioned above there will a charge of 1.25% MIP of the outstanding balance annually over the life of the loan.
How much money can I get with HECM FHA Reverse Mortgage?
The amount depends on the following:
1. Age of the youngest borrower or eligible non-borrowing spouse
2. Current rate of interest
3. The lesser of appraised value or the HECM FHA mortgage limit for of $625,500 or the sales price
How do I find a HECM approved councelor?
1. You can serarch online at : www.hud.gov
2. Call: 800.569.4287 for the name and location of a housing-councelor near you.
Can I cancell after closing, if I change my mind?
Yes,! You can, as with all refinance home mortgages they are subject by law to a three (3) days right to cancel. It is called a three day right of recission and your escrow officer will explain the process at closing. You can also contact your lender and they will also explain the process. But, basically the loan will not be legal and go into effect until 3 days after you have signed the closing documents. During that 3 day period you can change your mind. However, if tou don't inform the escrow officer/lender that you wish to recisend the loan documents it will form a legal contract..
Proprietory Reverse Mortgage
Proprietory Reverse Mortgage - Is a reverse mortgage that is created and priviately insured by the mortgage lenders. These lenders are not subject to all the regulations that govern the HUD FHA HECM loans. However, as best practices, most of these reverse mortgage companies have fairly standard guidelines, which try to replicate consumer protections that are the hallmark of all FHA loans and including required home refinance counseling.
So what's different? Well these loans will have larger loan amounts. They will do "jumbo" reverse mortgages that the federal program will not do. So, if you have a home valued at several million dollars, you will be able to get more cash out from this type of reverse mortgages. Since, there are several lenders and there guideline will vary from lender-to-lender. As mention above they replicate much the consumer protection that are featured int the federal programs.
Single Purpose Reverse Loan
The third type is the Single Purpose Reverse Loan - These reverse mortgages are offered by some states and local government agencies and non-profit home loans. They were designed for low to moderate income and for specific purposes, for example: home repair, and property taxes, by specific lenders. You will need to contact the your state and local housing departments in your local state, county or city to learn who specifically offers these reverse mortgages program.
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