Reverse Mortgage Information: December 2010

What is reverse mortgage counseling like?  Here is a quick overview of what to do, and what you can expect at your counseling session and some information about where to go to get reverse counseling.

The senior homeowner must schedule an appointment directly with the counseling agency.  The lender cannot do it for you. They are not allowed to "steer" you to a particular counseling agency.  Counseling is conducted in person or over the telephone; HUD recommends that if possible you meet with the counselor face to face. 

Once you have set up an appointment, the agency sends you a packet of information so that you can prepare for your session.  Before you begin, you should also know that some agencies charge a fee for counseling; if you cannot afford to pay this fee you should discuss your inability to pay with the agency at the outset of your session to understand your options.  

Your counselor will ask for key information from you including your name, contact information and the reason you are interested in obtaining a reverse mortgage, for the counseling session.

During your counseling session the counselor will discuss with you your needs and circumstances; provide information about reverse mortgages and other alternative types and sources of assistance that might be available to you

Once you complete your session and you and your counselor are comfortable that you understand the essentials of a reverse mortgage, the counselor will issue a certificate, which verifies for a lender that you have successfully completed counseling.

Your counselors will follow-up with you to learn if you need further assistance and to understand the outcome of your counseling session.  You may also call your counselor to seek further assistance after your session.

HUD has a HECM Counselor search page that you can use to find a local counselor.

Here are some National Counseling Agencies:

National Foundation for Credit Counseling

Money Management International

Consumer Credit Counseling Svc of Atlanta

National Council on Aging

The use of a reverse mortgage here in Riverside California to purchase a retirement home is becoming more and more common.  More and more, Realtors are calling and asking me to work up quotes for their clients using the reverse mortgage to finance the purchase.  They are finding that normally "all cash" buyers over 62 years old can get a lot more home for the money and still have the benefits of no monthly mortgage payment.

Its fun to work with my Realtor clients as they assist their home buyers in achieving the dream of the perfect retirement home!   

Just getting started on a new deal with a fantastic family, helping mom to purchase a gorgeous newer home worth over $500K, putting less than $200K down and still, no mortgage payments.  (Of course the property will be owner occupied, taxes, insurance and maintenance kept up to date) The family is thrilled that their senior will be in a newer home, in good repair and close by the family. 

You can use an FHA HECM Reverse Mortgage to buy a new home if:  The youngest homeowner is 62 or older. The purchased home will be occupied within 60 days of closing. The purchased home will be the primary residence. No mortgage loan other than the HECM will be used to purchase the home.  The difference between the purchase price of the home and the HECM proceeds will be paid in cash from the sale of an existing home or another source of funds.

Example – A retired widow, age 70, rents an apartment but has saved $100K to buy a property.

She finds a home that is selling for $250K so she is short by $150K. She decides that HECM for Purchase is her best option. At her age she can borrow around $150K on the $250K home. Taking the full $150K and her $100K savings, she buys the home. She know owns the home and has no mortgage payments

There are some special restrictions:  If the homeowner is using cash, the cash must be seasoned 60 days. There must be proof that the homeowner has “eligible funds” for the closing and any of these documents must be provided - Letter of Verification of Deposit from the bank plus proof of liquidation of retirement assets.  If they are using proceeds from the sale of a previous residence they will need to provide:  HUD-1 Home Sale Statement. There may be additional requirements as well, such as a letter or intent or explanation - your reverse mortgage consultant will assist you in obtaining the required documentation.

The property must be the primary residence and can be 1 to 4 units, FHA Approved Condominiums, and Approved Manufactured Homes.

Ineligible property types include: Cooperatives, Homes without a Certificate of Occupancy or equivalent, Boarding house, Bed and Breakfast establishments, Existing manufactured homes built before June 15, 1976, Existing manufactured homes built after June 15, 1976 that does not conform to the manufactured home construction safety standards or lack a permanent foundation

If repairs need to be done on the home, major repairs must be taken care of before the transaction can close:

• Critical health, safety and structural integrity issues must be repaired
• Repairs must be completed by seller prior to closing
• The buyer cannot pay for any repairs before they own the home
• The repairs must be included in the purchase agreement

Costs - With a HECM for Purchase the usual costs associated with selling and buying a property apply as well as the normal reverse mortgage fees.

Which is better for senior homeowners, HELOC or HECM Saver?

I’m certain I have a biased opinion but wanted to catch your attention.  Here are some of my thoughts on the matter.

I’ve heard that most financial advisors will suggest to a senior that a home equity line is a better option for them than a reverse mortgage.  I think that’s because they believe the upfront costs on a reverse mortgage are just too high.  Now, with the HECM Saver program, a reverse mortgage may be an option.

Some comparisons follow…

FEES

• Traditional Home Equity Lines often have very low or even zero upfront costs, depending upon creditworthiness and loan to values you can often find a great deal.
• The HECM Saver will have some upfront fees including Upfront MIP (.01% of the lending limit or home value, whichever is less).  On a $600,000 home you would find the upfront MIP Premium to be $60. You can expect escrow, title, recording, appraisal, and other fees as well and they can all be financed into the loan.

CREDIT SCORE

• You must “qualify” for a Traditional HELOC.  The lender will look at your credit history and evaluate your ability to repay the loan. Minimum credit scores are required.
• HECM Saver has no minimum credit score requirement, but all owners must be over 62 years of age and live in the property.  Borrowers are required to complete a HECM Counseling session with a HUD approved counselor prior to applying for the HECM Saver loan.

REPAYMENT

• With a traditional HELOC you will be required to make at least interest payments on any amounts advanced.  There may also be annual fees.  At some point (usually 10 to 15 years) credit will no longer be advanced and the borrower must refinance.  VERY IMPORTANT TO CHECK THE TERMS OF YOUR LOAN AGREEMENT ON THIS ONE!
• With a HECM Saver, there are no required payments of interest or principal.  The loan is not required to be paid off until the last remaining borrower no longer lives in the home.

LOAN AMOUNTS

• Traditional HELOCs will determine the loan amount based upon home value, credit score and your income.  
• A HECM Saver will loan an amount based upon a formula derived from the youngest borrowers age, the expected interest rate, and the home value or lending limit.

I’d love to hear the opinions of any financial experts who chance to read this article, what do you think of FHA’s newest HECM Saver as an alternative to a traditional home equity loan?