Reverse Mortgage Information

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Reverse Mortgage Costs in Southern California

Like any loan you obtain on your home a reverse mortgage will have costs.  You can break the costs down into two general categories.  First are one-time upfront fees and second are ongoing costs. Also, it’s very important to recognize that fees are different from state to state and even county by county.One time, upfront fees are almost always financed into the loan and are not an “out of pocket expenses”. In the reverse mortgage world though there are two exceptions.

CheckFirst, is  “HECM Counseling”. All borrowers must complete HECM Counseling prior to applying for a reverse mortgage and there is a fee for this.  You can expect to pay between $90 and $125 for the counseling.  Many agencies will allow you to have the fee paid from the loan proceeds, and they all will waive the fee in the event of a true financial hardship.   

The second upfront fee is usually an “Appraisal Deposit”.  The company I work for asks for an upfront $325 at time of application.  So, the counseling and the appraisal deposit would be two “out of pocket” expenses.

Other closing costs are:
Initial Premium for FHA Mortgage Insurance.  Depending upon which reverse mortgage loan you choose, SAVER or STANDARD the fee will be .01% of the lesser of home value or lending limit for the SAVER or 2% of the lesser of the home value or lending limit.  That’s a huge difference.  If you can get by with the SAVER, I recommend it!

Lender Origination Charge - lenders maximum origination fee is regulated at 2% of the home value up to $200,000 and then 1% of additional value beyond that, capped at a maximum origination fee of $6,000.00  Remember the maximum fee is regulated, but lenders can (and do) charge less!

Some states have additional fees, like Mortgage Taxes - but in Southern California you can bet on the following:
  • Escrow (Settlement) Fees
  • Title Insurance
  • County Recording Fees
  • Appraisal Fee (less any credit for prepaid deposit)
  • Attorney Trust Review
  • Notary Fees.
  • 3rd Party Document Preparation
(these are the most common & what I always quote~but there could be others)

CashOn a presentation August 19, 2011,  I quoted to a client with a home valued at $250,000, fees equal to $3,624.56 for the HECM Saver and $9.599.56 for the HECM Standard.

According to my favorite notary, there are many, many lenders still charging the maximum allowable fees including monthly service fees on reverse mortgages, so be smart & shop around.

Ongoing costs relating to a reverse mortgage (and many other mortgages) are the interest,  servicing fees, and mortgage insurance.

Interest on a reverse mortgage may be fixed or adjustable and again, may vary slightly from lender to lender.

Monthly service fees are an allowable charge of up to $35 per month on HECM loans although in today’s market, most (but not all) lenders are waiving this charge...so again, compare! Having this charge on your reverse mortgage also lowers the amount of funds you can access.  (One of the reasons that I personally think now is a great time to get your reverse if it is something you are planning to do).

Finally there is the ongoing FHA Mortgage Insurance Premium on any HECM loan.  This ongoing cost runs at 1.25% annual rate, calculated & charged monthly based upon the current loan amount. Think:  loan balance multiplied by .0125 divided by 12.

Puppy and cash
This post got a little longer than I anticipated and if you made it this far, thank you.  Please let me know if it was helpful to you.

  

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Deborah Nance

Your Local Southern California Reverse Mortgage Professional

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4 comments • Deborah Nance - Reverse Mortgage Consultant in Southern California • August 26 2011 11:51PM

Corona Reverse Mortgage Client Story

 

GateI really enjoyed working with this young retiree and her family!  Ms. B bought her home with cash after she retired in 2003 and has been enjoying her adult children, her granchildren, gardening and some travelling.  She keeps very active.  With the economy getting out of control over the last four years, she has seen her savings dwindle and the return on her CD’s has gotten lower and lower as interest rates have fallen.  

Finally in November of last year she realized she would not be able to make her property tax payment and so she began to look into reverse mortgages.  She researched online, got quotes and estimates from a variety of lenders, watched everyone’s “free no obligation videos” .  Smart woman that she is, she also involved her children in the process.  The whole mastermind concept of having a team approach to solving a problem.  That’s how this family operates.

Early this month she met with me and her children and we discussed the various reverse mortgage options that would work for her situation.  Her children were involved and active in the consultation with lots of questions and thoughtful to understand all of the options, terms and requirements.  As a team they chose the HECM SAVER Adjustable as the best reverse for Ms. B.

Next,  Ms. B,  and her daughter and son-in-law met with the HUD Approved HECM counselor, took and passed the HECM Counseling, and recieved their Counseling Certificate.  I then met with Ms. B to pick up the certificate and complete an application for a HECM Saver Reverse Mortgage.  14 days later the appraisal had been done, the loan approved and we were sitting at the table with the notary signing her loan documents.  She was able to pay the Property Taxes, access $30,000 in immediate cash AND the rest was put in a line of credit totalling over $44,000 that she can access for future needs - that is net after paying the closing costs which totalled $1300.

She and her family understand that the reverse is a mortgage on the home, and Ms. B is planning on making some payments on the new reverse loan to build up the credit line so she has even more security as she ages.  

Smart woman, smart family!

 

  

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Deborah Nance

Your Local Southern California Reverse Mortgage Professional

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1 comment • Deborah Nance - Reverse Mortgage Consultant in Southern California • May 28 2011 12:28AM

In a reverse mortgage what are the responsibilities of the heirs?

 

In a reverse mortgage what are the responsibilities of the heirs?

Most importantly, right now before they're gone - ask your parents if they have a trust or a will. Consult with a qualified attorney to find out your responsibilites if you are named as successor trustee or executor.

Once they're gone - You can find some direction from HUD and from the actual loan documents and agreements, but let me answer this as the pending executor for my own parents who happen to have a reverse mortgage.  I’m not giving you any kind of legal advice, just saying what I’m planning to do.

My parents do have a Trust and a Will, so I know that we will have the proper authority to legally sell or refinance the home.  Reverse mortgage servicers reach out to borrowers at a minimum of once per year to make sure they are still living in the property and they also rely on reporting agencies that monitor deaths.  So - I will be calling the lender very soon after my parents are gone to let them know that they have “graduated”.   Heavenly

I will also be looking to see if there is equity in the property, meaning - is the balance on the reverse less than the value.  That will be easy to do because every month the lender sends them a statement showing the current balance.  I will use my contacts in the real estate world to help me to determine the value of the home.  

If there is money there, then I will let the lender know that we are going to sell the house and they will be paid off at closing.  If the house takes awhile to sell, I will take advantage of the allowable extensions to the foreclosure by writing the lender and requesting it.  

If there is no equity, well, then I will let the lender know that too and ask them if they would prefer a “Deed in lieu of foreclosure” or would they just like to foreclose?  They will want the deed, as it is less costly and time consuming, and so will I.

Here’s the rub - Many reverse mortgage borrowers will die without a will - then what? If that happens in your parents case, who has ownership of the property?  I don’t know.  I imagine you would need to talk to a probate attorney to find out who will have the power and authority to transer title, and how that is done.  A judge’s order may be required.  In anycase, without proper end of life and estate planning on your parents part - you may not have any authority to sign a listing agreement, a deed, or any other document on behalf of the estate.  You will want to seek advice from a qualified, knowledgeable attorney.

One more note - direct from FHA - prior to obtaining a reverse mortgage:
This blog reflects only my thoughts and opinions and not necessarily those of my employer.


 

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Deborah Nance

Your Local Southern California Reverse Mortgage Professional

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6 comments • Deborah Nance - Reverse Mortgage Consultant in Southern California • March 08 2011 09:30PM

Riverside - Did you see the Fox News Segment on Reverse Mortgages?

Folks in Riverside may have seen this Fox News segment on Reverse Mortgages. Watch the latest video at video.foxnews.com  

It's worth listening to... Apparently, Fox got it wrong the first go around - good for them to correct their report.

Here is a link to the organization that they refer to at the end of the segment.  The National Reverse Mortgage Lenders Association.

If you want reliable information about reverse mortgages, NRMLA is a great place to start!

 

 

  

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Deborah Nance

Your Local Southern California Reverse Mortgage Professional

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3 comments • Deborah Nance - Reverse Mortgage Consultant in Southern California • January 29 2011 01:03AM

Corona Reverse Mortgage Question - Who Gets My Home When I Die?

Corona Reverse Mortgage Question - Who Gets My Home When I Die?

Your heirs do!  Contrary to the very common myth, the bank does not own your home - you do. A reverse mortgage is just a loan against the home like any other mortgage.  The major difference is that usually on a reverse mortgage the payoff amount is higher than what you originally borrowed because of accrued interest.*    

The loan becomes immediately due and payable upon the death of the last remaining borrower, but the lender cannot start foreclosure proceedings (based upon said death) until 6 months from the date of death.  

If the loan balance is lower than the home value, then the heirs will most likely choose to sell the property, payoff the loan and keep the change.  However, they may also decide to pay the loan off with cash, or refinance the loan.  It’s entirely up to them.

If the loan balance is higher than the value of the home (underwater) then don’t panic.  Reverse mortgage loans are non recourse loans, meaning that if the lender suffers a loss upon foreclosure and sale of the home they do not have any recourse to the estate, borrower, or heirs.  The lenders only option is to sell and take the proceeds as payment in full.  The lender then may qualify for a claim of loss on the FHA Mortgage Insurance that was purchased on the loan.  It’s all good.

Leaving something to your children is an important component to feeling like you’ve lived a successful life, but more important is leaving your children with the tools to be successful in their own lives.  Education, confidence, independence and love.  A reverse mortgage is a financial tool that may help you to live a more financially secure life.

*Balance due will include all upfront fees, loan proceeds, draws plus interest.

  

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Deborah Nance

Your Local Southern California Reverse Mortgage Professional

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0 comments • Deborah Nance - Reverse Mortgage Consultant in Southern California • January 26 2011 05:04PM

FHA's Home Equity Conversion Mortgage (HECM) aka "Reverse Mortgage"

Summary:
The Home Equity Conversion Mortgage (HECM) program enables older homeowners to withdraw some of the equity in their home in the form of monthly payments for life or a fixed term, or in a lump sum, or through a line of credit.

In addition, the HECM mortgage can be used to purchase a primary home when the borrower is 62 years of age or older and is able to use cash in hand to pay the difference between the reverse mortgage and the sales price plus closing costs for the property.

Purpose:
To be eligible for a HECM mortgage, current homeowners must be 62 years of age or older, own their home outright or have a low mortgage balance that can be paid off at closing with proceeds from the reverse mortgage. The home must be their principal residence. In addition, the HECM can be used to purchase a primary home if the borrower is able to use cash in hand to pay the difference between the HECM and the sales price and closing costs for the property.

The program requires that borrowers either receive free or low cost reverse mortgage housing counseling from a HUD approved reverse mortgage counseling agency before applying for a reverse mortgage. FHA insures HECM loans to protect lenders against loss if amounts withdrawn exceed equity when the property is sold.

Type of Assistance:
HECM can be used by homeowners who are 62 years of age and older. The total income that an owner can receive through HECM is the maximum claim amount, which is calculated with a formula including the age of the owner(s), the interest rate, and the value of the home.

Borrowers may choose one of five payment options: (1) tenure, which gives the borrower a monthly payment from the lender for as long as the borrower lives and continues to occupy the home as a principal residence; (2) term, which gives the borrower monthly payments for a fixed period selected by the borrower; (3) line of credit, which allows the borrower to make withdrawals up to a maximum amount, at times and in amounts of the borrower's choosing; (4) modified tenure, which combines the tenure option with a line of credit; and (5) modified term, which combines the term option with a line of credit.

The borrower remains the owner of the home and may sell it and move at any time, keeping the sales proceeds that exceed the mortgage balance. A borrower cannot be forced to sell the home to pay off the mortgage, even if the mortgage balance grows to exceed the value of the property. A HECM loan need not be repaid until the borrower moves, sells, or dies. When the loan must be paid, if it exceeds the value of the property, the borrower (or the heirs) will owe no more than the value of the property, if they sell the property to repay the loan.

Two mortgage insurance premiums are collected to pay for HECM: an upfront premium (2 percent of the home's value), and a monthly premium (which equals 0.5 percent per year of the mortgage balance).

A lender can charge an origination fee up to $2,500 if the home's appraised value is less than $125,000. If the home is valued at more than $125,000, lenders can charge 2% of the first $200,000 of the home's value plus 1% of the amount over $200,000. HECM origination fees are capped at $6,000.

All HECM borrowers are required to complete reverse mortgage counseling through a HUD approved housing counseling agency.

Eligible Customers:
To be eligible for HECM, a homeowner must (1) be 62 years of age or older, (2) have a low outstanding mortgage balance or own their home free and clear, and (3) have received HUD approved reverse mortgage counseling to learn about the program.

An eligible property must be a principal residence, but it can be a single family residence, a one to four -unit building with one unit occupied by the borrower, a manufactured home, a unit in an FHA approved condominium, or a unit in a planned unit development. The property must meet FHA standards, but the owner can pay for repairs using the reverse mortgage. 

Application:
Borrowers who meet the eligibility criteria above can apply through an FHA HECM approved lending institution. Borrowers can locate FHA approved lenders through HUD's searchable listing.

Technical Guidance:
This program is authorized by the Housing and Community Development Act of 1987, Section 417, Public Law 100-242 (12 U.S.C. 1715z-20). Program regulations are in 24 CFR 200 and 206.

For More Information:
Homeowners who want to learn more about this program should call HUD's toll-free housing counseling information line, (800) 569-4287 or see the searchable list of HUD approved reverse mortgage housing counseling agencies.

Additional information is available from AARP's Home Equity Conversion Information Center (202) 434-6044.

  

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Your Local Southern California Reverse Mortgage Professional

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0 comments • Deborah Nance - Reverse Mortgage Consultant in Southern California • May 24 2010 10:45PM

Top 10 Questions about Reverse Mortgages (Straight from FHA)

Top Ten Things to Know if You're Interested in a Reverse Mortgage

From Untitled Album

Reverse mortgages are becoming popular in America. HUD's Federal Housing Administration (FHA) created one of the first. The Home Equity Conversion Mortgage (HECM) is FHA's reverse mortgage program which enables you to withdraw some of the equity in your home. The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement social security, meet unexpected medical expenses, make home improvements and more. You can receive additional free information about reverse mortgages in general by contacting the National Council on Aging at (800) 510-0301 or downloading a free booklet, "Use Your Home to Stay at Home," a guide for older homeowners who need help now. Since your home is probably your largest single investment, it's smart to know more about reverse mortgages, and decide if one is right for you!

1. What is a reverse mortgage?

A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. FHA's HECM provides these benefits. You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.

2. Can I qualify for FHA's HECM reverse mortgage?

To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, and you must live in the home. You are also required to receive consumer information free or at very low cost from a HECM counselor prior to obtaining the loan. You can find a HECM counselor online or by phoning (800) 569-4287.

3. Can I apply if I didn't buy my present house with FHA mortgage insurance?

Yes. It doesn't matter if you didn't buy it with an FHA-insured mortgage. Your new FHA HECM will be FHA-insured.

4. What types of homes are eligible?

To be eligible for the FHA HECM, your home must be a single family home or a 1-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.

  5.  What's the difference between a reverse mortgage and a bank home equity loan?

With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.

You don't make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes, insurance and other conventional payments like utilities. With an FHA HECM you cannot be foreclosed or forced to vacate your house because you "missed your mortgage payment."

6. Can the lender take my home away if I outlive the loan?

No. 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 and maintains the property.

7. Will I still have an estate that I can leave to my heirs?

When you sell your home, 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.

8. How much money can I get from my home?

The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. You can use an online calculatorlike the one on the AARP website to get an idea of what you may be able to borrow.

9. Should I use an estate planning service to find a reverse mortgage?

FHA does NOT recommend using any service that charges a fee for referring a borrower to an FHA lender. FHA provides this information free, and HECM housing counselors are available for free or at very low cost, to provide information, counseling, and a free referral to a list of FHA-approved lenders. Search online or call (800) 569-4287 toll-free, for the name and location of a HUD-approved housing counseling agency near you.

10. How do I receive my payments?

•·         Fixed Rate Reverse - One option - All funds must be advanced at closing        

•·         Adjustable Rate Reverse has Five Options

  1. Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
  2. Term - equal monthly payments for a fixed period of months selected by the borrower.
  3. Line of Credit - unscheduled payments or installments, at times and in amounts of your choosing until the line of credit is exhausted.
  4. Modified Tenure - combination of line of credit with monthly payments for as long as you remain in the home.
  5. Lump Sum - You take all funds at closing. 

As always your comments, thoughts and suggestions are welcome.  Please "Like" my blog!

  

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Your Local Southern California Reverse Mortgage Professional

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1 comment • Deborah Nance - Reverse Mortgage Consultant in Southern California • May 23 2010 06:21PM