Reverse Mortgages: A legitimate option for you?
I am writing about Reverse Mortgages for three basic reasons. First, I used to sell Reverse Mortgages for a major US lender so I understand the subject well. Second, there are a lot of misconceptions about Reverse Mortgages which I hope to help correct here. Third, Reverse Mortgages are gaining in use/acceptance and might be a viable option for you or your client.
A Reverse Mortgage is a type of mortgage that allows a homeowner to refinance (or purchase) a primary residence and have no future scheduled mortgage payments. Mortgage payments are deferred until the last borrower permanently moves out of the house for more than 12 continuous months. At anytime the owner can pay off, sell, or refinance the house. The same holds true for the original owners heirs should the property be passed on for any reason. There are no prepayment penalties in the event that the loan is paid off early. Reverse Mortgages are non- recourse loans. This means that the Lender cannot take your house for any reason except possibly outright fraud on the borrower’s part. You can still lose your house if you fail to pay your property taxes or homeowners association dues (but that wouldn’t be the lender taking your house).
The vast majority a Reverse Mortgages are called Home Equity Conversion Mortgages (HECM’S). HECM’S can be a straight refinance, refinance with cash back (lump sum), refinance with a monthly payment paid to the homeowner, refinance within equity line provision or a combination of any of the above. Reverse Mortgages can now also be used to purchase a home. This is a very recent development, so be sure to contact a professional regarding specifics.
Reverse Mortgages are administered by he Department of Housing and Urban Development (HUD). As a rule, the individual lenders are not allowed much deviation from federal guidelines in regards to what they are allowed to charge in closing costs. Some closing costs ARE borrower negotiable so don’t be afraid to ask for discounts. Independent third party counseling is mandatory and is considered a closing cost paid by the borrower.
Not everyone is eligible to apply for a Reverse Mortgage. The Borrower(s) must be at least 62 years of age at time of closing. Borrower(s) must be a citizen or resident alien of the United States. The subject property must be a primary residence, no investment properties are allowed. Eligible property types include single-family residences, condominiums, planned unit development’s (townhouses) and 4- plexes (providing one is owner occupied by the borrower). Some states will allow co-ops and other types of properties, check with a local professional for further details.
Qualifying for a Reverse Mortgage is quite different then qualifying for a “Forward” Mortgage. The primary differences being that Reverse Mortgages are not credit score driven nor are they income qualified. Reverse Mortgages use amount of equity and age of borrower as the two primary means of qualification. As a general rule, lenders look for a maximum loan to value ratio of 75%. Older borrowers can usually borrow more because the time for repayment is usually shorter (statistically speaking).
In the second part of this article, I will discuss the pros and cons of Reverse Mortgages.
The preceding information has been designed to provide you general information, if you have further interest consults a Reverse Mortgage specialist. My name is Greg Hoffman I have lived in Las Vegas since 1990 and have been a Realtor since 1999.
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