Reverse Mortgages: Reverse Mortgages are not created equal. For your protection Farris Mortgage only offers FHA Reverse Mortgages! What is a reverse mortgage Congress created the FHA Home Equity Conversion Mortgage program, (HECM) commonly known as a reverse mortgage, in 1987 at the request of senior advocacy organizations that were worried about the growing number of seniors who were house rich but cash poor. To help seniors that was in financial distress with medicines, groceries, or even their existing mortgage payments. Your current mortgage, if any, must be paid off before obtaining any funds from a reverse mortgage. You can use proceeds from the reverse mortgage for this purpose. A reverse mortgage is a loan for homeowners 62 years or older that uses a portion of the home’s equity as collateral. The loan generally does not have to be repaid until the last surviving homeowner permanently moves out of the property or passes away. At that time, the estate has approximately 6 months to repay the balance of the reverse mortgage or sell the home to pay off the balance. All remaining equity is inherited by the estate. The estate is not personally liable if the home sells for less than the balance of the reverse mortgage. Eligibility for a reverse mortgage (HECM) To be eligible for a reverse mortgage, (HECM) the Federal Housing Administration (FHA) requires that all homeowners be at least age 62. The home must be owned free and clear or all existing liens but are able to be satisfied with the reverse mortgage. If there is a mortgage balance, it can be paid off completely with the proceeds of the reverse mortgage loan at the closing. Generally there are no income or credit score requirements for a reverse mortgage. Eligible home types Almost all home types are eligible. However, mobile homes must have been built in the last 30 years, the land must be owned, it must be on a permanent foundation, and it must meet an FHA inspection. Some condos and townhomes may be eligible as well. Difference between a reverse mortgage and a home equity loan Generally a home equity loan, a second mortgage, or a home equity line of credit (HELOC) has strict requirements for income and creditworthiness. Also, with other traditional loans the homeowner must still make monthly payments to repay the loans. A reverse mortgage has no income or credit score requirements and instead of making monthly payments to the lender, the homeowner can receive payments from the lender. With a reverse mortgage the amount that can be borrowed is determined by an FHA formula that considers age, the current interest rate, and the appraised value of the home. The more valuable the home (up to a certain point), the higher the loan amount will be, depending on lending limits. As stated previously, with traditional loans the homeowner is still required to make monthly payments, but with a reverse mortgage the loan is typically not due as long as the homeowner lives in the home. With a reverse mortgage no monthly payments are due, however the homeowner is still responsible for real estate taxes, insurance, and maintenance. Outliving the reverse mortgage A reverse mortgage cannot be outlived. As long as at least one homeowner lives in the home as their primary residence and maintains the home in accordance with FHA requirements, the reverse mortgage will not become due. The homeowner is responsible for keeping taxes and insurance current. Estate inheritance In the event of death or in the event that the home ceases to be the primary residence for more than 12 months, the homeowner’s estate can choose to repay the reverse mortgage or put the home up for sale. If the equity in the home is higher than the balance of the loan, the remaining equity belongs to their estate. If the sale of the home is not enough to pay off the reverse mortgage, the lender must take a loss and request reimbursement from the FHA. No other assets of their estate are affected by a reverse mortgage. For example, investments, second homes, cars, and other valuable possessions cannot be taken from the estate to pay off the reverse mortgage. Loan limit The amount that is available generally depends on four factors: age (older is better), current interest rate, appraised value of the home and government imposed lending limits. Use the calculator to estimate how much could be drawn. Distribution of money from a reverse mortgage There are several ways to receive the proceeds from a reverse mortgage. • Lump sum – a lump sum of cash at closing. • Tenure – equal monthly payments as long as the homeowner lives in the home. • Term – equal monthly payments for a fixed number of years. • Line of Credit – draw any amount at any time until the line of credit is exhausted. • Any combination of those listed above. Eligibility Requirements In general, to be eligible for a reverse mortgage the youngest homeowner must be 62 years old or older and have sufficient home equity. Determining whether or not there is sufficient equity in the home is an FHA calculation that takes into account: • Current interest rate • Whether the rate will be variable or fixed • Age of the youngest homeowner • FHA lending limits • Appraised value of the home You can use the online reverse mortgage calculator to find out if you have sufficient equity and what the loan principal limit would be. Things that generally do not affect eligibility for a reverse mortgage: • Income • Credit score • Discharged bankruptcy • Health of the homeowners Frequently asked questions: • If a homeowner is not 62 but they are permanently disabled, can they qualify? o No. The FHA use age as criteria to determine reverse mortgage eligibility and makes no exceptions for disability or Social Security status. • Can someone qualify if they have a mortgage? o Yes. Where there is sufficient equity a majority of people who take out a reverse mortgage use it to pay off their existing mortgage so they can stop making monthly mortgage payments. • Do all 62-year olds who own their home qualify? o No. Some homeowners who want to get a reverse mortgage are not eligible because they don’t have enough equity built up in their home. The younger the homeowner is, the more equity they need to have to qualify. Also, some types of homes are not eligible. • What happens if there isn’t enough home equity to qualify? o This is called a “shortfall.” This means that the reverse mortgage would not provide enough money to pay off the existing mortgage on the home — it is coming up “short.” In this situation, some homeowners may choose to make up the difference by paying down the balance on their mortgage by the amount of the shortfall so that they can qualify for the reverse mortgage. However, most people who want a reverse mortgage and have a shortfall don’t have enough money to do this. Sincerely, Erik Richards Mortgage Loan Officer U.S. Bank Home Mortgage NMLS# 336273 500 East Battlefield Road Springfield, MO 65807 417-885-4108 Direct 417-350-0125 Cellular 417-885-4143 Fax
Posted on: Sun, 09 Jun 2013 16:18:09 +0000
Trending Topics
Recently Viewed Topics
© 2015