Temecula Reverse Mortgage Question - "How much will I qualify for?" or "What is the loan to value on a reverse mortgage?" are both questions I receive multiple times each week. Thanks for asking, this is a question I get all the time and I'm happy to explain it to you in my own way.
Unlike traditional or "forward" mortgages which have Loan to Value amounts of 80% or 90%, or in the case of FHA loans up to 96.5%. What you have to remember is that on a "normal" mortgage you will be making monthly payments - most likely these payments will be a combination of interest and principal. (Yes you will be paying mostly interest in the early years of a "normal" mortgage. But you will be paying the loan balance down a bit every single month. Just that fact alone means that you will be building equity.
On a reverse mortgage loan, you won't be making any mortgage payments. Though you could. So, the interest on the loan accrues to the balance. This means that the interest gets added to the balance at the end of the month and your balance rises. Since you now have a higher loan balance you have less equity.
Well, as you know reverse mortgages are only for homeowners over 62 and are not repaid until the borrower permanently leaves the home due to sale, death or illness. Think about it, if you are only 62 years old with today's life expectancy you could easily have 30 years that has added to the loan amount. The bank wants to be able to get their money plus interest back when you've permanently left the house. So if you're only 62 they will loan you much less than an 85 year old.
Another factor is interest rates, if rates are low , the balance will rise slower than if rates are higher. That translates into the second factor in the equation. The Expected Interest rate. A lower Expected Rate at the beginning of the loan will mean a higher loan to value. Higher expected rate means a smaller loan to value.
The last factor is home value. Generally the higher the value the more you can borrow. But, FHA has an added twist and that is the FHA Lending Limit. Currently for Reverse Mortgages the lending limit is $625,500. So the lender will calculate your loan to value on a Reverse Mortgage at either your home's FHA appraised value or the lending limit, whichever is less. This means the loan amount will be the same for a home worth $625,500.00 as it would be for a home worth $800,000 or 1 Million for borrowers of the same age with the same expected rate.
FHA has translated all of the above into a spreadsheet where you can check the expected rate combined with your age and take the factor give and multiply it by the value of your home to come up with the "Principal Limit" or loan amount. Then again you can always just ask me. My email address and phone number are all over the blog here.
I hope this answers your question. If you would like a detailed estimate of what you would qualify for you would be right to assume I need your estimated home value and your birthday. The current Expected Rate is published at least weekly and often more than that as rates change. Email me anytime with questions by clicking on the "Learn More" button..... or go the old fashioned way and give me a call.
By Deborah Nance
Your Local Southern California Reverse Mortgage Professional
Click the Learn More Button below to email me a question.
iReverse Home Loans, LLC, NMLS#810502 originates reverse mortgages in Alabama, Alaska, Arizona (MB-0919584), California, Colorado, Connecticut, Florida, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon (ML-5378), Pennsylvania, South Dakota, Tennessee, Texas, Utah, Vermont (1164-MB), Virginia, Washington and Wisconsin.
Important Information: Reverse Mortgages are neither "endorsed" nor "approved" by the Federal Government. The FHA (Federal Housing Administration) provides certain insurance benefits for lenders and borrowers in connection with the lender’s HECM loans; the FHA does not make or originate loans. The owner(s) retain title to the property that is the subject of the reverse mortgage until the person sells or transfers the property and is therefore responsible for paying property taxes, insurance, maintenance and related taxes. Failing to pay these amounts or failure to maintain the condition of your property may cause the reverse mortgage loan to become due immediately. A reverse mortgage is a complex loan secured by your home. Whether such mortgage makes sense for you depends on your financial situation and needs. For these reasons, we strongly recommend that you consult with a qualified independent housing counselor, family members and other trusted advisers before making this decision. This website is not from HUD or FHA and was not approved by HUD or any government agency.