Reverse Mortgage Frequently Asked Questions

What is a Reverse Mortgage?

A reverse mortgage is a loan against your primary residence that you Do Not have to repay for as long as you live in your home. Through a reverse mortgage you turn the equity in your home into cash without having to sell your home or repay the loan. The funds that you receive can be done in one of several ways or possibly a combination of several of the ways:
•    A lump sum distribution at closing
•    A monthly cash advance
•    A credit line for you to draw from as you need the funds

What are the Requirements to Qualify for a Reverse Mortgage?

Qualification for a reverse mortgage is totally different from what we are all used to in qualifying for any type of loan. First of you do not have to have an income. Remember you do not make a monthly payment so you do not have to have an income. What about a credit score? It doesn’t matter. Your credit report will be accessed but only to verify that you do not have any federal tax liens against you. If you do have federal tax liens they must be cleared in order for the reverse mortgage to go into effect. They can possibly be cleared with funds at closing from the proceeds of your equity. What you do have to have is age. The minimum age requirement is 62.

Can I Purchase a Home Using a Reverse Mortgage?

Yes you can! One way would be to utilize the funds form your Reverse Mortgage and pay cash for a vacation or second home that is not your primary residence. After January 1, 2009 you will be able to use a Reverse Mortgage for the purchase of your primary residence.

Who has Title to My Home If I Have a Reverse Mortgage?

You Do, just the same as if you have a Forward Mortgage on your home.

What If My Credit is Not That Good?

It doesn’t matter. There is no credit, income or medical requirements needed in order for you to obtain a Reverse Mortgage, just equity in your home.

What are My Options for Receiving Funds?

You can receive your funds in several different ways or in a combination of them.
•    A lump Sum Distribution
•    As fixed monthly payments for a set period of time or for as long as you live in the home
•    As a line of credit that allows you to draw on the funds at any time

How much Will I Get?

The proceeds from your Reverse Mortgage are based on several factors such as your age, the appraised value of your home and current interest rates.

Am I Limited on How I can Use the Funds from a Reverse Mortgage?

The simple answer is NO. You can use the proceeds from a Reverse Mortgage for whatever you elect to use them for.

What If I Have an Existing Mortgage?

The Reverse Mortgage must be in the first position. What this means is that your existing mortgage would be paid off as part of the transaction.

What Am I Required To Pay With A Reverse Mortgage?

The nice thing about a Reverse Mortgage is that you do not have a monthly mortgage payment. You are however required to maintain the real estate tax and homeowners insurance on the property.

When Is The Loan Repaid?

A reverse Mortgage is repaid when you permanently move from the home, sell the home or fail to occupy the home as your principal residence.

How Much Will I Owe When My Reverse Mortgage Comes Due?

The amount owed will be determined by how much you have borrowed to date, accrued interest and mortgage insurance, along with any servicing fees due. In no circumstance will your Reverse Mortgage Payoff exceed the value of the home when the payoff becomes due.

What about My Heirs and Their Inheritance?

When the residence is sold and the Reverse Mortgage payoff is satisfied, any proceeds from the sale over the payoff amount go to your estate.

I realize that these may not be all the questions regarding Reverse Mortgages. If you have a question about a Reverse Mortgage in Greater Atlanta contact me. Together we will find the answer to your questions.

For additional information on Reverse Mortgages in Atlanta please visit these previous articles in this series:
•    Part One -  The Basics
•    Part Two – How to Use A Reverse Mortgage
•    Part Three – Examples
•    Part Four – Downsides and Pitfalls of Reverse Mortgages

As was stated in Part Three, everything about a Reverse Mortgage can’t be just perfect. There have to be some aspects of a Reverse Mortgage that may not be as desirable as on other mortgage products. Let’s examine what some of the downsides and pitfalls may be.

High Fees and Closing Costs

Fees and closing costs are higher on a Reverse Mortgage compared to a forward mortgage (Standard Mortgage with Monthly Payments). Each Reverse Mortgage has a one time 2% charge of the appraised value from FHA that goes into a pool of funds, much like a one time Mortgage Insurance payment. Reverse Mortgages also have a one time charge for monthly servicing of the loan. With a forward mortgage this fee is collected monthly and hidden in the payment. Origination Fees along with Attorney Fees and all other fees to close a loan remain in effect. A counseling fee has to be paid as HUD requires all applicants to obtain counseling prior to the lender processing the loan. On the bright side of most of the fees and closing cost associated with a Reverse Mortgage, the borrower is not paying them in the form of cash they are being rolled into the loan. The best way to evaluate what kind of fees and closing costs would be involved in a Reverse Mortgage for you would be to schedule a consultation with Qualified Atlanta Reverse Mortgage Lender.

I’m Spending My Kids Inheritance

With a Reverse Mortgage you are utilizing the equity in your primary residence as opposed to leaving it to your heirs. Of course the strong likelihood of appreciation exists for the residence thus leaving a situation where there may be equity for the heirs to divide.

Property Taxes and Insurance

If you had a forward mortgage on your primary residence and paid your property taxes and insurance through an escrow account you will now be paying those bills yourself.

Limits on Reverse Mortgage Amounts

Remembering from Part One in this series, Reverse Mortgages are an FHA product and are thus regulated and controlled by FHA loan limits. Currently that figure is $417,000. There are rumors that the possibility exists that there will be Jumbo Reverse Mortgages available in the near future. While I don’t know this to be fact or fiction I am just letting you know what I am hearing.

Possible Problems With New Construction

Newly built properties must comply with FHA minimum property requirements, the Certificate of Occupancy must be issued, if the residence is a Condo the Homeowners Association must have been in control of the association for 1 year and any loan that financed construction must be paid and the Reverse Mortgage assumes the first position on the residence.

Possible Problems With A Refinance

When utilizing a Reverse Mortgage for refinancing your primary residence there will of course be an appraisal performed. If the appraiser determines that major repairs need to be made, funds from the Reverse Mortgage can not be drawn upon until these repairs are completed. These needed repairs can be handled in one of several ways:
1.    Completed Prior to closing with borrowers funds
2.    Completed After closing with a Repair Rider to the Reverse Mortgage
3.    Completed After closing with funds escrowed at closing

I hope you are finding this educational series on Reverse Mortgages helpful. Just doing the research has been a huge educational experience for me. I have one more part planned and that will be a FAQ (Frequently Asked Questions) unless you as the readers have topics that you would like for me to research for you and report here. Let me hear from you, So until Part Five….

Before we dig any deeper into Reverse Mortgages lets review what we have covered so far. In Part One we found out what a Reverse Mortgage is, what the requirements are for obtaining a Reverse Mortgage, how not to be taken advantage of and using a Reverse Mortgage for the purchase of a home. In Part Two we examined some important questions to ask yourself about your financial health and we looked at some possible ways to use a Reverse Mortgage to your advantage. To aid with understanding how a Reverse Mortgage can work let’s look at a couple of examples.

Using A Reverse Mortgage For A Refinance

John is 77 years old and his wife Mary is 75 years old. They currently live in their $200,000 home that has a remaining balance owed of $75,000. Their current payment is $825 per month and their income is $2,200 per month from Social Security. Upon interviewing John and Mary, their loan officer establishes what their goals are and what they would like to accomplish:

•    They want to remain in their home
•    They want to have money available for a few repairs on their home
•    They want to eliminate their current mortgage thereby increasing their discretionary income
•    They want to have funds available in case of an emergency

Based on their age, John and Mary qualify for a Reverse Mortgage in the amount of $142,000. Subtracting the remaining balance owed on their current mortgage along with all the costs associated with closing the loan, John and Mary will have $55,348 available for repairs or emergencies, will never have to make another payment on their home as long as they live there and feel as though they just received an $825 per month raise. In fact they just received that $825 increase by keeping the monthly house payment they were used to making for themselves. SWEET!

Using A Reverse Mortgage For A Purchase

Mr. and Mrs. Smith, aged 77 and 75, are in the process of relocating to Atlanta to be closer to their daughter, son-in-law and their grandson. They have sold their very nice home in Oklahoma and have net proceeds of $200,000. They have asked their Atlanta Buyers Agent to help them find a home close to their daughter for $200,000 or less so that they will not have a mortgage payment. Their daughter happens to live in a very nice area of Gwinnett County and homes in the $200,000 range close by are not common. Fortunately the Smiths were working with a REALTOR who was also educated in the advantages of a Reverse Mortgage. After obtaining all the information and scheduling a consultation for Mr. and Mrs. Smith with a loan officer, it was determined that they would be able to purchase a $400,000 dollar home that kept them in a similar lifestyle that they were accustomed to. They would only have to use $127,000 of their proceeds for their downpayment with the balance of the purchase being financed via a Reverse Mortgage. The Smiths are able to keep part of their proceeds, live in a much nicer home than they anticipated and now can spend more quality time with family.

What To Expect in Part Four

It sounds as though a Reverse Mortgage is the greatest thing since sliced bread and for some that is true. In Part Four I think we should examine some of the pitfalls and downsides of a Reverse Mortgage. So until then…..

In Part One of this series we examined what a reverse mortgage is, what you need to do to qualify for one, the code of ethics a respectable lender will adhere too and being able to use a reverse mortgage to purchase a home. In this article let’s dig a bit deeper and examine how to use a reverse mortgage to your best advantage.

Questions to Ask Yourself

Having reached the age requirements to qualify for a reverse mortgage and coming close to retirement time you need to look at your financial health and determine what kind of impact retirement will have on your lifestyle. Will you have a retirement income from your employer? Will you be funding your retirement totally on your own from your investments? How will Social Security benefits fit into your future? Do you have a combination of these possibilities? The main question becomes, when I retire will I have the funds that I need to maintain my lifestyle? A reverse mortgage can help with the funds that you may need!

Ways To Use A Reverse Mortgage

Let’s examine a few of the possibilities for ways to put a reverse mortgage to work for you. One of the most common advantages to a reverse mortgage is providing the recipient with a supplemental monthly income. Recalling from Part One, one of the ways for you to receive you funds from your reverse mortgage is via monthly payments to you from the mortgage company. These can be set up as a fixed amount that is paid to you monthly for as long as you live in the house. So if retirement was not looking like it would be in your future any time soon due to monthly financial requirements a reverse mortgage may well solve your problem. Make certain to talk with a qualified Atlanta Reverse Mortgage lender along with your tax advisor or financial planner to determine what is best in your exact circumstances.

Let’s say that you have retired and your combination of employer funded benefits, your investments and your social security benefits provide you with ample funds to sustain your lifestyle but you have always wanted that vacation home at the beach or in the mountains. In order to obtain it prior to reverse mortgages you had to either pay cash from your funds or take out a loan that required a monthly payment. Consider that now you may be able to obtain your vacation home utilizing a reverse mortgage. By accessing the equity of your primary residence with a reverse mortgage you may be able to purchase your vacation home for cash while not having a payment on your current home. How about that, 2 homes with no payments is a real possibility.

Perhaps a vacation home is not for you. Well that’s OK also. Maybe you just want to modernize and update your current home. Finally having that dream kitchen with granite counter tops and replacing those avocado green or harvest gold appliances with stainless steel ones is what floats your boat. Guess what that is OK. Maybe you have decided that you want to help pay for your grandchildren’s education. As a parent that went through that process several years ago, I can tell you it would be greatly appreciated. Perhaps you just want that new luxury car that has been crying out to you for years. Well you could do that too. This is in no way a complete list but I think you can see there are limitless ways for you to put a reverse mortgage to work for you.

Stay tuned over the next week or so for additional articles in this series about Reverse Mortgages in Atlanta.

Recently there has been a considerable amount of conversation regarding the Reverse Mortgage. Today I had the opportunity to attend a continuing education class totally on Reverse Mortgages. Due to some misunderstandings by myself among many others I thought it my responsibility to provide the facts and let you the educated consumers decide if this could be a good match for you and your situation. This forum may not answer each and every question that you have concerning a reverse mortgage but I promise together we will get you the answers to help you with your decision.

What Is A Reverse Mortgage?

A reverse mortgage is a loan against your primary residence that you Do Not have to repay for as long as you live in your home. Through a reverse mortgage you turn the equity in your home into cash without having to sell your home or repay the loan. The funds that you receive can be done in one of several ways or possibly a combination of several of the ways:
•    A lump sum distribution at closing
•    A monthly cash advance
•    A credit line for you to draw from as you need the funds

What Are The Requirements?

Qualification for a reverse mortgage is totally different from what we are all used to in qualifying for any type of loan. First of you do not have to have an income. Remember you do not make a monthly payment so you do not have to have an income. What about a credit score? It doesn’t matter. Your credit report will be accessed but only to verify that you do not have any federal tax liens against you. If you do have federal tax liens they must be cleared in order for the reverse mortgage to go into effect. They can possibly be cleared with funds at closing from the proceeds of your equity. What you do have to have is age. The minimum age requirement is 62.

What About The Horror Stories?

We all hear horror stories of people being taken advantage of. Many times these horror stories involve unscrupulous vultures taking advantage of senior citizens. This could be an arena for that to occur in were it not for an ethics commitment by concerned lenders. Understand first that a true reverse mortgage is a FHA Insured Mortgage. Until maximum amounts exceed $417,000 they will continue to be FHA. Equally important is the fact that lenders that are truly concerned with your wellbeing will be members of NRMLA, the National Reverse Mortgage Lenders Association. Under the NRMLA Code of Ethics members are held responsible for the actions or failure to act by officers, directors, employees, agents and representatives. This Code of Ethics focuses on the following values:
•    Fairness
•    Confidentiality
•    Integrity
•    Competence
•    Diligence
•    Professionalism

To insure compliance “secret shopper type” calls are made to participating lenders.

What About Purchasing a Home?

Currently the reverse mortgage product is only available for the refinance of an existing primary residence. This is changing as this article is being written. One of the provisions of HR3221 – Housing and Economic Recovery Act is that effective on January 1, 2009 a reverse mortgage can be used to purchase a primary residence. So after the first of the year it will be possible to utilize this product for either a refinance or a purchase.

More To Come

This is the first in a series of articles on Reverse Mortgages. Stay tuned for insight into ways to use a reverse mortgage, pitfalls of reverse mortgages, costs associated with reverse mortgages and any additional pertinent information that will help in understanding this product.