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Your Reverse
Mortgage Guide
Using Your Home Equity to Finance Your Retirement
Call me to set up an appointment with the whole family.
I recommended that every son and daughter take part in the decision
process.
Make the Most of
Retirement!
What Is a Reverse Mortgage?
Program Overview
Why Get a Reverse
Mortgage?
Reverse Mortgage
vs. Traditional Mortgages or Home Equity Loans
Benefits
Loan Specifics
Eligibility
Requirements
How much can be
borrowed?
Payment Options
Interest Rate
Loan Repayment
Effect on Public
Benefits
The Reverse Mortgage
Process
Education
Application
Appraisal
Home Insurance
Title Insurance
Closing
Questions and Answers
Mortgage Terms
Make the Most of
Retirement!
Looking to make the most of the equity you’ve acquired in your home? Today,
there are more homeownership options for retired individuals and couples than
ever before. Whether you’re looking to pay off bills, or would just like
additional income to enjoy your retirement, a
reverse
mortgage may be the answer for you!
What Is a Reverse
Mortgage?
If you
are age 62 or older, own and live in your home free and clear or have a minimal
remaining mortgage balance, a reverse mortgage might help you receive extra
income. A Reverse Mortgage allows you to borrow against the equity you’ve
established in your home without repaying the loan for as long as you live
there. Instead of making monthly payments, you can choose to receive them!
That’s the “reverse” part.
Why Get a Reverse Mortgage?
The
income received through a reverse mortgage can be used for a variety of
purposes. Just like a regular refinance, you are not restricted in how to use
the funds.
Examples of potential uses for funds received through a reverse mortgage
include:
•
Give your children
some of their inheritance now
•
Invest
in CDs, annuities, long-term care insurance
•
Supplement retirement income
•
Cover
medical expenses
•
Make
home repairs or improvements
•
Pay
property taxes
•
Pay
for in-home care
•
And
more…
Reverse Mortgage vs. Traditional Mortgages or Home Equity Loans
A
reverse mortgage is the opposite of a traditional mortgage. With a traditional
mortgage or home equity loan, you borrow a large amount of money and make
monthly payments. You must also have a sufficient debt-to-income ratio to
qualify and make monthly mortgage payments. A reverse mortgage pays you and is
available regardless of your current income or debt-to-income ratio. With a
reverse mortgage, you borrow small amounts – monthly or at other intervals
through a line of credit1. Payment is required only once, at the end of the
loan, typically when you no longer occupy the home as your principal residence.
Benefits
For
many older homeowners, a reverse mortgage is an effective way to convert home
equity into flexible, tax-free2 income. The benefits are numerous:
•
Continue to live in and own the home.
•
Receive tax-free income from the cash advances.
•
Obtain
immediate cash advances in addition to monthly income.
•
Enjoy
the flexibility of determining how you wish to receive your cash disbursements:
fixed monthly payments, a line of credit3, a lump sum cash advance,
or a combination of the plans.
•
Adjust your payment
option to meet your current
circumstances.
•
Repay
the loan at any time without penalty.
•
Have
peace of mind knowing that you and your heirs have no personal liability for the
repayment of the loan since it is secured solely by your home.
•
Relax
knowing that you owe nothing until after you no longer occupy the home as your
principal residence.
Your Mortgage loan consultant will listen to your financial goals and help
you to choose the best solution for your needs.
2
Consult your tax advisor.
Loan Specifics
Eligibility Requirements
The
eligibility requirements are quite simple. There is no income, employment or
credit qualifying restriction.
•
All
homeowners must be age 62 or older and occupy the property as their principal
residence
•
The
home must be owned free and clear or have a remaining mortgage balance which can
be paid off by a reverse mortgage
•
The
property must be a single-family or a two-to-four unit dwelling
•
Townhomes, detached homes, condominium units, planned unit developments (PUDs)
and some manufactured homes are eligible
•
The
home must meet HUD minimum property standards. In some cases, home repairs can
be made after the closing of a reverse mortgage.
How much can be borrowed?
The
maximum amount that can be borrowed is based on the following factors:
•
The
age of the youngest homeowner
•
The
appraised value of the home
•
The
current interest rate
•
The county in which the
property is located In general, the more your home is worth, the older you are,
and the lower the interest rate, the more you’ll be able to borrow.
Payment Options
Customers have unique needs. Some prefer to get the entire amount up front,
while others would prefer a steady monthly payment to supplement their other
income. Regardless of which distribution plan you pick, you are able to adjust
your plan as often as you wish to accommodate changing needs.
There
are three different kinds of reverse mortgage distribution plans to fit your
needs and desires.
•
Lump Sum Cash Advances
Cash
is immediately available (often used to payoff an existing mortgage)
•
Term
Equal
monthly payments for a fixed period of months selected.
•
Tenure
Equal
monthly payments as long as at least one homeowner lives and continues to occupy
the property as a principal residence.
•
Line of Credit
A
credit line which the customer can draw upon as he or she wishes.
•
Combination
An
immediate cash advance in addition to monthly allotments.
Interest Rate
Your
loan will be made based on an adjustable rate loan. You have the option of
choosing a monthly or annually adjusting rate. Rates are linked to the one-year
U.S. Treasury Security Rate. The change in the interest rate has no effect on
the amount of or number of loan advances you can receive, but causes the loan
balance to grow at a faster or slower rate.
Loan Repayment
The
loan is due and payable when you no longer occupy the property as your principal
residence or fail to comply with the loan agreement.
The
only requirement is that the loan be repaid in one payment. There is no
requirement that the property be sold, only that the loan is repaid. This may
occur either through the sale of the home or through other resources (such as
savings or possibly applying for a new mortgage).
Effect on Public Benefits
Loan
proceeds are not considered income and will not affect Social Security or
Medicare benefits because these programs are not based on need.
However, your monthly reverse mortgage advances may affect your eligibility for
some other programs. Consult your local program offices to determine how, or if,
monthly reverse mortgage payments might affect your specific situation.
The Reverse
Mortgage Process
The
process of getting a reverse mortgage involves several phases.
Education
This
is the phase that you are at now. You are taking the time to learn about the
reverse mortgage program to determine if it is appropriate for your situation.
Counseling
As
part of the reverse mortgage application process, you are required to
participate in a consumer education session with a HUD-approved counselor. The
counselor will explain the legal and financial obligations of the program as
well as any alternatives you may have. A reverse mortgage is not for everyone,
so this step will help you ensure you are making the right decision. After the
session has been completed, you are given a Certificate of Borrower Counseling,
which is valid for 180 days after the session. You must then present this
certificate to the lender as proof that you have attended and completed the
counseling session.
Application
Your
home mortgage consultant will help you complete and sign the loan application.
Once you have submitted your completed application, you will receive a
disclosure the estimated total cost of the loan, as required by federal Truth in
Lending Act.
Appraisal
A
professional appraiser will be used to determine the value of your home which
will be used to calculate the amount you can receive as part of your reverse
mortgage.
Home Insurance
Most
lenders will require that you show proof that you have purchased home insurance
or hazard insurance which will protect you incase your home is destroyed as a
result of fire, theft or some other disaster. If you already have home
insurance, make sure your policy is up to date, payments are current and, you
have the minimum amount of coverage required by your lender (if
applicable). You may, however, want to purchase a larger policy to make sure
you’re protected from additional losses.
Mortgage Insurance
Your
lender will also require a mortgage insurance policy. This will protect you and
your heirs by insuring that the amount required for repayment of the loan will
never exceed the value of your home when payment is due. An initial premium will
be due upon closing your loan. This payment can be financed as part of your
reverse mortgage proceeds.
Title Insurance
There
are two types of title insurance: one protects the lender and one protects the
borrower. Title insurance is purchased as protection from claims against your
ownership of the property. Such claims may be made by undisclosed spouses, heirs
of previous owners, creditors holding liens against previous owners, or other
parties. Your lender will most likely require you to purchase a title policy,
which will cover their interests in the property. It’s up to purchase a policy
to protect your interest in the home. Your home mortgage consultant will be able
to recommend a title insurance company who can provide additional information
about the policies available in your area.
Closing
Loan
processing typically takes approximately 6-8 weeks before the closing can take
place. The closing for a reverse mortgage typically takes place in your home.
The loan documents, including the mortgage or deed of trust, are forwarded to
you to simply sign where directed and pay any applicable closing costs. You then
have 3 days in which you can cancel the mortgage if you change your mind. Any
cash disbursements due to you will be forwarded from the processing center after
the 3 days have expired.
Setting the Closing Date
Closings must be coordinated with many parties that may include: the lender,
yourself, your attorney, and the title company representative.
Last-Minute Detail Check
A few
days before the closing, your home mortgage consultant will help you go through
a checklist of what you’ll need to finalize and close your loan.
Including:
•
Closing costs and escrow amounts
Your
Good Faith Estimate may not include all closing costs such as interim interest
or property taxes. Finalize actual costs at this time with your closing agent to
avoid last-minute surprises.
•
Acceptable method of payment
In
most cases certified or cashier’s checks must be prepared in advance.
•
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 any ID and miscellaneous
paperwork that may be required at closing.
After the Closing
With a
reverse mortgage, you have responsibilities similar to those associated with a
traditional mortgage.
You are
expected to:
•
Pay
property taxes
•
Keep
adequate property insurance up-to-date
•
Maintain the home
Questions and Answers
Q.
Am I
qualified for a reverse mortgage if I currently have an existing loan on my
home?
A.
Yes,
but the existing loan must be paid off prior to or at the settlement of the
reverse mortgage. Quite often the reverse mortgage is used to refinance 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.
To
avoid probate, my children and I own the property in joint tenancy. Do we
qualify?
A.
Yes,
if the children are age 62 and older and live in the property. Otherwise, they
would need to be taken off title prior to settlement.
Q.
Does
the IRS consider the monthly advances from the reverse
mortgage income?
A.
No.
The cash advances are actually loan distributions and are not considered income.
The cash advances are tax-free.
Q.
My
spouse is permanently in a nursing home. Can we participate?
A.
Yes.
The requirement is only that one owner occupies the property as a principal
residence.
Q.
Are
there restrictions on how I can use the money?
A.
No. Of
course not, after all - It’s your money.
Q.
Can the
lender take my home away if I outlive the loan?
A.
No!
Nor is the loan due. You do not need to repay the loan as long as you or one of
the borrowers continues to live in the house and keeps the taxes and insurance
current. You can never owe more than your home’s value.
Q.
Will I
still have an estate that I can leave to my heirs?
A.
When
you sell your home or no longer use it for your primary residence, you or your
estate will repay the cash you received from the reverse mortgage, plus interest
and other fees, to the lender. The remaining equity in your home, if any,
belongs to you or to your heirs. None of your other assets will be affected by
HUD’s reverse mortgage loan. This debt will never be passed along to the estate
or heirs. Your heirs will be able to choose whether to keep the house or sell
it. If they decide to keep the home, they must pay the balance due on the
reverse mortgage. Otherwise, they may sell the home and use the proceeds to pay
off the remaining mortgage. They get to keep any excess proceeds from the sale
of the house.
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