Make The Most Of Retirement!
Homeownership is likely the most important investment you've made on the road of life.
When you retire and your income needs change, the equity you've built in your home
over the years can serve as a resource to provide financial security and peace of mind. If
you are a homeowner age 62 or older looking to supplement your income or prepare for
unexpected or future expenses, a reverse mortgage may be just the solution for you.
Now's the time to put your home to work for you.
Program Overview
What Is A Reverse Mortgage?
A reverse mortgage allows you to borrow against the equity you've established in your
home. Instead of making monthly payments, you can choose to receive them. That's
the "reverse" part of a reverse mortgage. To be eligible, you must be age 62 years or
older and own your home free and clear or have an existing mortgage balance that
can be paid off by the reverse mortgage.
You'll want to consult a tax advisor to confirm this, but in most cases a reverse
mortgage gives you access to tax-free funds, though it may impact your eligibility for
some needs-based programs.
How Does It Differ From A Traditional Home Loan?
With a traditional mortgage or home equity loan, homeowners qualify based on their
credit history and debt-to-income ratio. They borrow money which requires making
monthly payments. With a reverse mortgage, your home makes payments to you and
there are no income, employment or credit score qualifying restrictions.
Why Get A Reverse Mortgage?
A reverse mortgage can give you access to your home’s equity without the burden of
monthly payments – allowing you to cover your expenses and stay in your home or
purchase a home ideal for you. Reverse mortgage proceeds may be used for any
purpose, including:
• Eliminating your existing mortgage
• Meeting daily or monthly expenses
• Covering healthcare expenses
• Remodeling or home repairs
• Reducing credit card debt
When it is time to receive your loan proceeds, you can base your disbursement
schedule on your needs. Choose from monthly payments, a line of credit to draw
from, a lump sum, or a combination of any of the above. You can even change how
you receive your reverse mortgage proceeds as often as your needs or situation
changes over time.
And with the reverse mortgage for purchase feature, the loan proceeds purchase a
new primary residence better suited to your needs.
Three Essential Facts
Making an educated decision begins with addressing common misconceptions that
keep many senior homeowners from looking into the advantages of a reverse
mortgage. Contrary to what you may have heard — as long as all program
requirements are met:
1. You retain the title to the property and continue to own your home.
2. Instead of making mortgage payments, you can have a mortgage that pays you.
3. You cannot owe more than the value of the home.
Program requirements include but are not limited to one of the borrowers
continuing to live in the house, keeping the taxes and insurance current and
maintaining the property according to FHA standards. If the program requirements
are no longer being met and you or your heirs choose to retain ownership of the
home, the full outstanding loan balance must be paid. Please ask your loan officer
or mortgage broker for more information about repayment.
Loan Specifics
Eligibility Requirements
Reverse mortgage eligibility requirements are quite simple. There are no income,
employment or credit score qualifying restrictions.
• All homeowners must be age 62 years or older and occupy the property as their
principal residence.
• The home must be owned free and clear or have a remaining mortgage balance
that can be paid off by the reverse mortgage.
• The property must be a single-family or a one-to-four unit, owner-occupied
dwelling.
• Townhomes, detached homes, condominium units, planned unit developments
(PUDs) and some manufactured homes are eligible.
• The home must meet Department of Housing and Urban Development (HUD)
minimum property standards. In some cases, home repairs can be made after a
reverse mortgage closing.
Much Can Be Borrowed?
The amount that can be borrowed is determined by a HUD formula that is based
on the following factors:
• The age of the youngest homeowner
• The appraised value of the home
• The current interest rate
• The established lending limit
So, based on the HUD formula, the older you are, the more your home is worth,
and the lower the interest rate, the more you’ll be able to borrow. Ask your loan
officer or mortgage broker for a personal calculation and details of how the
national lending limit will be incorporated.
Disbursement Options
You have several options to receive your reverse mortgage proceeds. They are
available to you in the following distribution options:
• Lump Sum — A specific amount is made immediately available (often used to
pay off an existing mortgage).
• Term — Funds are released in set monthly amounts for a set period requested
by the customer.
• Tenure — Funds are distributed in equal monthly allotments for as long as at
least one customer continues to occupy the home as a principal residence.
• Line Of Credit — Funds remain available for the customer to draw on
as needed.
• Combination — Customers receive any combination of lump sum, monthly, or
line of credit distributions. Regardless of how you choose to receive your
proceeds, you can adjust your plan as often as you wish to accommodate
changing needs.
Interest Rate
Reverse mortgages are available with either fixed- or variable-rate. With a fixedrate
reverse mortgage, your interest rate will remain the same through out the life
of the loan, while with a variable-rate reverse mortgage, the interest rate may
adjust at predetermined periods. In most variable-rate cases, you may choose
between products with monthly or annual rate adjustments. The frequency by
which your interest rate adjusts - monthly or annually - will not affect the
number of loan advances you receive, but will affect how fast or slow your loan
balance grows.
What Are The Costs Involved With A Reverse Mortgage?
There are closing costs, such as an origination fee, title insurance, a mortgage
insurance premium and attorney fees, which can be financed into the loan. Beyond
that, the customer is expected to continue maintaining the property and paying the
real estate taxes and homeowners insurance premiums.
Loan Repayment
You do not need to repay the loan as long as you or one of the borrowers
continues to remain in the home as your principal residence, keep the taxes and
insurance current, and maintain the property to FHA standards. The balance due
can come from home sale proceeds, or from other resources, such as savings,
insurance or possibly applying for a new mortgage. There is no requirement that
the home be sold, only that the loan be repaid. If the program requirements are no
longer being met and you or your heirs choose to retain ownership of the home,
the full outstanding loan balance must be paid. Please ask your reverse mortgage
consultant for details about when repayment may be due.
Effect On Other Benefits
Reverse mortgage loan proceeds are not considered income and will not
affect Social Security or Medicare benefits. However, receiving monthly reverse
mortgage advances could affect your eligibility for some public assistance programs
that are based on need. Consult a local attorney to determine how —
or if — a reverse mortgage funds-distribution plan might impact your
specific situation.
The Reverse Mortgage Process
Education
The process of getting a reverse mortgage begins with the phase you are in now.
You are taking the time to get information and learn more about this kind of home
financing to determine if it is right for you.
Counseling
Reverse mortgage applicants are required to participate in a consumer education
session with a HUD-approved counselor. Family members and other advisors are
welcome to accompany you. The counselor will explain the legal and financial
obligations of a reverse mortgage and discuss other financing alternatives to help
ensure you make the right decision.
Application
Your loan officer or mortgage broker will help you complete and sign your
reverse mortgage loan application. Shortly after the application is submitted, as
required by federal Truth-in-Lending Act, you will receive a disclosure that
outlines your total estimated loan cost.
Processing
Appraisal
Your loan officer or mortgage broker will arrange for a professional appraiser to
contact you to schedule an appraisal that will determine the value of your home.
The appraisal will be used to calculate the amount you can receive from your
reverse mortgage. Once your appraisal is completed, your appraisal report will be
reviewed to ensure it meets minimum guidelines and my be approved, suspended,
or approved subject to repairs. You will be provided with a copy of your
appraisal at closing
.
Homeowners Insurance
Most lenders require that your homeowners policy provides for loss/settlement on
a replacement cost basis. In the event that replacement coverage is not available,
your home must be insured at the maximum dwelling coverage limit allowable for
your property. Your loan officer or mortgage broker will verify your coverage
with your insurance agent. At that time, your homeowner's insurance will also be
updated, with your authorization, to reflect your lender as the first mortgagee on
your homeowners policy or condo certificate of insurance.
Title Insurance
There are two types of title insurance. One protects the lender and one protects
the borrower. Together, the coverage protects you and your lender from claims
against ownership of the property, which might be made by:
• Undisclosed spouses
• Heirs of previous owners
• Creditors holding liens against previous owners
• Or other parties
You will be required to purchase a title policy that covers your reverse mortgage
lender’s interest in the property. The decision to purchase a policy that protects
your interest is up to you.
Underwriting
Once your appraisal is approved, a value has been determined, and the title report
has been cleared, an underwriter will review your loan and supporting documents
to ensure that approval conditions have been met and then issue the clearance to
close. If additional approval items are required, you will be notified by your
reverse mortgage consultant or loan document specialist. If all approval
conditions have been met, your loan is now ready to close.
Closing
Processing and underwriting your reverse mortgage generally takes approximately
six to eight weeks before you are ready to close. Your closing must be
coordinated with many parties, which may include: you, your lender, your
attorney, and the title company representative.
Before The Closing —
Your loan officer or mortgage broker will help you go through a loan closing checklist to make sure the following items are in order:
• Closing costs and escrow amounts — Your Good Faith Estimate may not
include all closing costs such as interim interest or property taxes. You will
need to finalize your actual costs with your attorney or closing agent to avoid
last-minute surprises.
• Acceptable method of payment — In most cases closing costs may be financed
as part of the reverse mortgage.
• Any additional items needed — Some counties require photo ID, evidence of
hazard or flood insurance or other miscellaneous documents. This is the time
to gather all the paperwork that may be required at closing.
At Closing Time — Reverse mortgage customers can choose where they would
like their closing to take place, in a title office or at their home. The loan
documents, including the mortgage or deed of trust, are forwarded to you to read
and sign as instructed, and pay any applicable closing costs. Any funds
disbursements due to you will be forwarded from the processing center shortly
thereafter.
After The Closing — As a reverse mortgage customer, you have responsibilities
similar to those associated with a traditional mortgage, such as:
• Paying your property taxes
• Keeping your insurance coverage up-to-date
• Maintaining the home
Questions And Answers
Q. Are there restrictions on how I can use my reverse mortgage proceeds?
A. Absolutely not! It’s your money to use as you see fit.
Q. Am I qualified for a reverse mortgage if I have an existing loan on my home?
A. Yes, but the existing loan must be paid off prior to or at your reverse mortgage
closing. Quite often a reverse mortgage is used to pay off an existing loan.
Q. My property is held in a Living Trust. Do I qualify?
A. Yes, as long as you are the primary trustee and are qualified by age.
Q. My children and I own the property in joint tenancy to avoid probate.
Do we qualify?
A. Yes, if the children are at least 62 and older and live in the property.
Q. Does the IRS consider monthly reverse mortgage advances as income?
A. No. The cash advances are actually loan distributions and are not considered
income. Consult your tax advisor to confirm your advances would be tax-free.
Q. Are manufactured homes eligible?
A. Yes. The home must have been built after June 15, 1976, placed on an FHAapproved
permanent foundation for a minimum of one year, and meet minimum
HUD property standards.
Q. My spouse is permanently in a nursing home. Can we participate?
A. Yes. As long as all other program requirements are met, only one owner is
required to occupy the property as a principal residence.
Q. Can the lender take my home away if I outlive my loan term?
A. No! Moreover, you do not need to repay the loan as long as you or one of the
borrowers continues to live in the house, keep the taxes and insurance current and
maintain the property to FHA standards. And you can never owe more than your
home’s value.
Q. What if I move out of the home temporarily for medical reasons?
A. Borrowers may leave the property for up to 12 consecutive months for medical
reasons and will need to continue to meet the program requirements. After this
time, the borrower must be able to return to the home as their primary residence.
Q. What if I need to permanently move out of my home?
A. Repayment of the loan is required when the last surviving borrower no longer
occupies the home as their principal residence. The balance due can come from
home sale proceeds or from other resources, such as savings, insurance or
possibly applying for a new mortgage. There is no requirement that the home be
sold, only that the loan be repaid in full.
Q. Will I still have an estate that I can leave to my heirs?
A. The home is the only collateral attached to the loan. Any remaining home
equity, along with your other possessions, is unaffected by the reverse mortgage.
Mortgage Terminology
Following are definitions to commonly used mortgage terms included in this guide
or that you may hear during the reverse mortgage process.
Appraisal – A report written by a qualified expert that states an opinion on the
value of a property based on its characteristics and the selling prices of similar
properties or comparable properties in the area.
Appreciation – An increase in the value of a house due to changes in market
conditions or other causes.
Closing – The final step after a lender approves an application. The occasion when
a borrower signs loan documents, including the mortgage or deed of trust, and
when closing costs are paid. Also referred to as the “settlement.”
Closing Agent – Usually an attorney or title agency representative who oversees the
closing and witnesses the signing of the closing documents.
Closing Costs – The costs to obtain a mortgage loan. Closing costs cover any
services and charges — such as title search and insurance, appraisals, surveys,
credit histories, required inspections, taxes, and recording fees — that are necessary
to complete the transaction.
Counseling Session – Before a homeowner can apply for a reverse mortgage, they
are required to attend a consumer education session with a HUD-approved
counseling agency. This session can be provided face-to-face or via telephone. The
purpose of the session is to explain the legal and financial consequences of
obtaining a reverse mortgage.
Credit Report – A report issued by a consumer reporting agency that contains
certain information concerning a mortgage applicant’s credit history and current
credit standing.
Deed of Trust – The legal document conveying title to a property.
Good Faith Estimate – A document that tells mortgage borrowers the approximate
costs they will pay at or before closing based on common practices in the locality.
Home Equity – Your ownership interest, or that portion of the value of the
property that exceeds the current amount of your home loan. For example, if the
property is worth $100,000 and the loan is for $75,000, then you have $25,000,
or 25% equity in your home.
Home Equity Conversion Mortgage (HECM) – A type of FHA-insured reverse
mortgage that allows either a fixed- or variable-interest rate.
Homeowner’s Insurance (also called Hazard Insurance) – A real estate insurance
policy required of the buyer protecting the property against loss caused by fire,
some natural causes, or vandalism. May also include added coverage such as
personal liability and theft away from the home.
HUD – The government agency of Department of Housing and Urban Development.
HUD-1 Settlement Statement – A standard form used to disclose costs at closing.
Index –A published interest rate, such as the prime rate, LIBOR, T-Bill rate, or the
55th District COFI. Lenders use indexes to establish interest rates charged on
mortgages or to compare investment returns. On ARMs, a predetermined margin
is added to the index to compute the interest rate adjustment.
Interest Rate – The interest that is paid to the lender for the use of the money,
usually expressed as an annual percentage rate.
Lien – A legal claim against a property as security for a payment of an obligation.
Loan Balance – The outstanding balance of a reverse mortgage loan. Equal to
principal plus financed fees plus all accrued interest.
Loan Proceeds – Payments to a customer through a reverse mortgage.
Margin – The number of percentage points added to the index to calculate the
interest rate for a variable-rate mortgage at each adjustment period.
Mortgage – A legal document that pledges a property to the lender as security for
payment of a debt.
Mortgage Insurance Premium (MIP) – The fee paid by a borrower to FHA or a
private insurer for mortgage insurance that protects the lender against the risk that
the loan balance might at some time exceed the value of the home.
Origination Fee – The amount collected by the lender for making a loan. It can be
financed into the loan to cover the lender’s costs in preparing the initial loan
application and the processing of the loan.
Principal Residence – The property is considered the primary residence of the
borrower.
Processing – The completion of a mortgage loan application and supporting
documents.
Rate Cap – The limit of how much the interest rate may change on an ARM at
each adjustment and over the life of the loan.
Refinance – The process of paying off one loan with the proceeds from a new loan
secured by the same property.
Servicing Fee – The fee paid by the borrower to cover record keeping and other
administrative costs of processing mortgage payments. This flat fee will be added
to the outstanding loan balance each month.
Title – A legal document establishing the right of ownership.
Title Search – A check of title records to ensure that a person is the legal owner of
a property and that there are no liens or other claims outstanding on the property.
Truth-in-Lending Statement – Required by federal regulations, this statement
tells borrowers the costs of financing their loan expressed as the annual percentage
rate (APR).
Underwriting – The process of a lender reviewing the application, documentation,
and property prior to rendering a loan decision.
Variable-Rate Mortgage – A loan with an interest rate that changes with market
conditions on pre-determined dates.
For More Information About Reverse Mortgages,
Call Today!
LEO RICHARD WHITNEY
Financial Life Consultant
Phone:(956)-791-5798
Cell: (956) 333-2832
6017 McPhearson Rd. Suite A
Laredo, Texas 78041
leo.whitney@yahoo.com
www.LeoRichardWhitney.yolasite.com
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