Explain Reverse Mortgage
From LoveToKnow Mortgage
Who better to explain reverse mortgages than a specialist in the field? These mortgage loans can be difficult to understand, so it is a good idea to find out the facts from someone who fully understands reverse mortgages.
In this LoveToKnow interview, reverse mortgage specialist Grace Farenbaugh defines reverse mortgages while also revealing what you need to know before signing on the dotted line.
What is a reverse mortgage?
A reverse mortgage is a mortgage where no payments are made. The loan only needs to be paid back when the last homeowner permanently moves out of the property.
Who is eligible for reverse mortgages?
Reverse mortgages are available to homeowners 62 years and older, who have sufficient equity in their home.
Why aren’t reverse mortgages available to everyone?
The answer is pretty basic. If banks lent money to everyone using reverse mortgages, no money would be paid back and within probably just a few weeks, these banks would go broke! Reverse mortgages were created to help homeowners who no longer have full-time income. They also offer peace of mind to homeowners who have earned the right to have their house pay them back. An additional benefit of having mortgages specifically available for seniors is that they can remain financially independent as opposed to exclusively depending on others, such as family members, social security, et cetera.
What should an interested applicant do in order to apply for a reverse mortgage?
Contact a reputable reverse mortgage expert. The best way to find one is to ask your friends, tax advisor, CPA, financial planner, REALTOR® or a loan officer you’ve worked with in the past. An initial meeting is essential to start the process. This is then followed by counseling from a HUD approved counselor. After that, the loan application can be submitted.
Are reverse mortgages ever a bad idea?
Reverse mortgages, like all loans, are great for specific borrowers. For those who really don’t need the additional money, or those who prefer that the full equity of their home be left to heirs, reverse mortgages don’t really make sense.
What is the optimum situation for a reverse mortgage?
A homeowner 62 years or over with a low balance lien, or even better, no lien on the property is the ideal candidate for a reverse mortgage.
What types of fees are involved with reverse mortgages?
Like other FHA insured loans, there is an Upfront Mortgage Insurance Premium that is financed. Other financed fees are also the same as other mortgage loans including:
- Escrow
- Title
- Appraisal
- Origination
- Wire
- Recording
- Flood certificate
- Underwriting
How are reverse mortgages different from traditional equity loans?
Besides the no monthly payments, most reverse mortgages are called HECM’s (Home Equity Conversion Mortgages). This is essentially a line of credit that can be accessed as a lump sum at closing, or some can be taken out at the time of closing with the option to take out more at a later date. Reverse mortgages can also be set up as a term monthly amount, a monthly tenure, or a combination of any of these. There are dozens of options that a homeowner can choose from. Moreover, most Reverse Mortgages have a credit line growth rate. So year after year, additional funds can be accessed.
Do all lenders off reverse mortgages?
Reverse mortgages are offered by many lenders, but not all.
What is the most important thing to know when trying to explain reverse mortgage?
The most important thing to know about reverse mortgages is that these loans are non-recourse loans. That means the lender has no recourse if the value of the home is less than the balance owed at the time the loan is due. Secondly, it should be noted that no income or assets need to be verified in order for a homeowner to qualify for a reverse mortgage. Similarly, even if a homeowner has bad credit, as long as any liens on the property do not exceed the lending limit, a homeowner may qualify. Keep in mind that the older you are, the more money that will be made available to you through a reverse mortgage.
What should applicants be cautious about when asking someone to explain reverse mortage?
Do not work with a reverse mortgage loan agent who tries to sell you an annuity. They may not have your best financial interests in mind. You’re much better off taking investment advice from your financial advisor.
About Grace Farenbaugh
Grace Farenbaugh is a Reverse Mortgage Specialist with First Security Lending, an award winning mortgage broker and banker based in Burbank, California. For more than 14 years, Grace has helped homeowners enhance their financial well being after retirement.
Grace welcomes questions at grace@firstsecuritylending.com or via phone at 800-357-5626 ext.1814
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