Stewart Brown Jr – Mortgage Loan Originator – Purchase or Refinance
| Simply put, a reverse mortgage is a loan for homeowners 62 years of age or older who have significant equity or who have completely paid off their primary residence. It allows the homeowner the ability to receive income from their home’s built up equity tax free. Unlike a regular mortgage or forward mortgage, the homeowner makes no payments and actually receives payments or funds in the form of a lump sum or periodic installments from the lender. A reverse mortgage only ends when the the borrower dies, sells the home or permanently vacates the property. The most popular and regulated of all reverse mortgages is the HECM or the Home Equity Conversion Mortgage. This product is the only reverse mortgage insured by the U.S. Federal Government and only available through an FHA approved lender. |
| Simply put, a reverse mortgage is a loan for homeowners 62 years of age or older who have significant equity or who have completely paid off their primary residence. It allows the homeowner the ability to receive income from their home’s built up equity tax free. Unlike a regular mortgage or forward mortgage, the homeowner makes no payments and actually receives payments or funds in the form of a lump sum or periodic installments from the lender. A reverse mortgage only ends when the the borrower dies, sells the home or permanently vacates the property. The most popular and regulated of all reverse mortgages is the HECM or the Home Equity Conversion Mortgage. This product is the only reverse mortgage insured by the U.S. Federal Government and only available through an FHA approved lender. |
| When trying to understand how a reverse mortgage works the most important thing to know is that even if your home is 100% free and clear of any mortgages you will not be able to do a reverse mortgage for the entire value of your property. The amount that can be borrowed is known as the principal limit and this amount is based off of several factors. Those include: (1) the age of the youngest borrower or eligible non borrowing spouse (2) the home’s value (3) current interest rates and (4) the HECM mortgage limit which at the time of this video in 2022 is $970,800. If you are older, the interest rate is low, and the home is worth a considerable sum then you will have a higher principal limit. In addition, the amount might also increase over time if the borrower has a variable rate HECM. |
| When trying to understand how a reverse mortgage works the most important thing to know is that even if your home is 100% free and clear of any mortgages you will not be able to do a reverse mortgage for the entire value of your property. The amount that can be borrowed is known as the principal limit and this amount is based off of several factors. Those include: (1) the age of the youngest borrower or eligible non borrowing spouse (2) the home’s value (3) current interest rates and (4) the HECM mortgage limit which at the time of this video in 2022 is $970,800. If you are older, the interest rate is low, and the home is worth a considerable sum then you will have a higher principal limit. In addition, the amount might also increase over time if the borrower has a variable rate HECM. |
| If you opt for a variable rate HECM reverse mortgage product there are essentially 5 different payment options you need to be aware of: (1) tenure plan (2) term plan (3) line of credit that can be accessed until it is exhausted (4) modified tenure plan which is a combination of a line of credit and fixed monthly payments for the remainder of the time you live in the home and (5) a modified term plan which is a combination of a line of credit and a stream of fixed monthly payments for a specific length of time. If you choose a fixed interest rate you will receive a lump sum one time payment. With all of these options, it’s important to remember that interest accrues each month and requires that you have set aside adequate funds to pay property taxes, homeowner’s insurance and maintenance on the property. |
| If you opt for a variable rate HECM reverse mortgage product there are essentially 5 different payment options you need to be aware of: (1) tenure plan (2) term plan (3) line of credit that can be accessed until it is exhausted (4) modified tenure plan which is a combination of a line of credit and fixed monthly payments for the remainder of the time you live in the home and (5) a modified term plan which is a combination of a line of credit and a stream of fixed monthly payments for a specific length of time. If you choose a fixed interest rate you will receive a lump sum one time payment. With all of these options, it’s important to remember that interest accrues each month and requires that you have set aside adequate funds to pay property taxes, homeowner’s insurance and maintenance on the property. |
| As you research the requirements for a reverse mortgage, first and foremost, age is the critical factor. For the standard HECM reverse mortgage you must be 62 years of age or older. Additional requirements include: (1) the home has no mortgage or has a significant amount of equity (2) You must occupy the property as your primary residence; a reverse mortgage can’t be done on a second home or investment property (3) You cannot be delinquent on any federal debt as this is a federal program (4) you have the income and means to continue making property tax payments, homeowner’s insurance and HOA dues and (5) You must participate in an information session provided by a US Dept of Housing and Urban Development approved reverse mortgage counselor. |
| As you research the requirements for a reverse mortgage, first and foremost, age is the critical factor. For the standard HECM reverse mortgage you must be 62 years of age or older. Additional requirements include: (1) the home has no mortgage or has a significant amount of equity (2) You must occupy the property as your primary residence; a reverse mortgage can’t be done on a second home or investment property (3) You cannot be delinquent on any federal debt as this is a federal program (4) you have the income and means to continue making property tax payments, homeowner’s insurance and HOA dues and (5) You must participate in an information session provided by a US Dept of Housing and Urban Development approved reverse mortgage counselor. |
| The most popular type of reverse mortgage is the HCEM or Home Equity Conversion Mortgage. The HECM is the only reverse mortgage option that is insured by the U.S. Federal government and only available through an FHA approved lender. The next type of reverse mortgage that exists are proprietary reverse mortgage products. These are private loans that are not insured by the federal government. With these proprietary products you can often times receive a larger amount of your equity in proceeds and access it in some cases as early as 55 years old. In addition, these reverse mortgages have jumbo options for homes that exceed the HECM limit. And then there are single purpose reverse mortgages. These are not very common and are offered by state and local government agencies or nonprofit organizations. These are the least expensive option, but can only be used one time for a defined specific purpose. |
| The most popular type of reverse mortgage is the HCEM or Home Equity Conversion Mortgage. The HECM is the only reverse mortgage option that is insured by the U.S. Federal government and only available through an FHA approved lender. The next type of reverse mortgage that exists are proprietary reverse mortgage products. These are private loans that are not insured by the federal government. With these proprietary products you can often times receive a larger amount of your equity in proceeds and access it in some cases as early as 55 years old. In addition, these reverse mortgages have jumbo options for homes that exceed the HECM limit. And then there are single purpose reverse mortgages. These are not very common and are offered by state and local government agencies or nonprofit organizations. These are the least expensive option, but can only be used one time for a defined specific purpose. |
| Unfortunately, there’s no end to the number of scammers and people trying to part you with your money. Most things are common sense, but as we’ve seen in the mortgage market over the decades many scams have taken place. The two biggest things to look out for regarding reverse mortgage scams are contractor loans and veteran loans. Contractor loans are just what they sound like, contractors trying to convince you to take out a reverse mortgage when selling home improvement services. The second are advertisements promising special deals for veterans such as no fee reverse mortgages from the US department of Veterans Affairs. If you see these types of offers, avoid them at all costs. The Department of Veterans Affairs does not provide any type of reverse mortgage product. But just be vigilant and if any saleperson or company is pressuring you to sign anything, thats a big red flag. |
| Unfortunately, there’s no end to the number of scammers and people trying to part you with your money. Most things are common sense, but as we’ve seen in the mortgage market over the decades many scams have taken place. The two biggest things to look out for regarding reverse mortgage scams are contractor loans and veteran loans. Contractor loans are just what they sound like, contractors trying to convince you to take out a reverse mortgage when selling home improvement services. The second are advertisements promising special deals for veterans such as no fee reverse mortgages from the US department of Veterans Affairs. If you see these types of offers, avoid them at all costs. The Department of Veterans Affairs does not provide any type of reverse mortgage product. But just be vigilant and if any saleperson or company is pressuring you to sign anything, thats a big red flag. |
| If you are trying to determine how much equity you can take out of your home with a standard HECM reverse mortgage you can find a list of tables in an Excel format that is published by HUD, the Department of Housing and Urban Development. It’s quite a large cumbersome spreadsheet. But it will give you a good idea of the maximum principal limit you’ll be able to receive from your home. The table is broken out by interest rates along the horizontal axis and these will be as low as 3% all the way up to 18%. And these rates are further broken down into eighths. From there you will use the vertical column all the way to the left to navigate to your current age. Once you’ve intersected your urrent age with the applicable interest rate from your lender it will be provide you the appropriate maximum percentage you will be qualified for. Multiplying that number by your property’s estimated value will yield a good approximation. |
| If you are trying to determine how much equity you can take out of your home with a standard HECM reverse mortgage you can find a list of tables in an Excel format that is published by HUD, the Department of Housing and Urban Development. It’s quite a large cumbersome spreadsheet. But it will give you a good idea of the maximum principal limit you’ll be able to receive from your home. The table is broken out by interest rates along the horizontal axis and these will be as low as 3% all the way up to 18%. And these rates are further broken down into eighths. From there you will use the vertical column all the way to the left to navigate to your current age. Once you’ve intersected your current age with the applicable interest rate from your lender it will be provide you the appropriate maximum percentage you will be qualified for. Multiplying that number by your property’s estimated value will yield a good approximation. |
| Homeowner’s often wonder if they get into a reverse mortgage if they are at risk of losing their home. The short answer is yes. But with any mortgage, reverse or otherwise, if you don’t comply with the terms you agreed to you can ultimately lose your home. So lets take a look at the ways that you could violate the terms of your reverse mortgage. First, if you don’t pay your property taxes, homeowner’s insurance or HOA dues you would be in violation of the terms of your agreement. Second, the home no longer is your primary residence.This doesn’t preclude you from traveling, but if you vacate the property for more than 12 consecutive months your reverse mortgage could be called due and payable. Lastly, you decide to move or sell. At this point the reverse mortgage will be called and payable. Keep in mind there are many protections afforded the HECM created by HUD which safeguard homeowners so abuse by lenders is rare these days. |
| Homeowner’s often wonder if they get into a reverse mortgage if they are at risk of losing their home. The short answer is yes. But with any mortgage, reverse or otherwise, if you don’t comply with the terms you agreed to you can ultimately lose your home. So lets take a look at the ways that you could violate the terms of your reverse mortgage. First, if you don’t pay your property taxes, homeowner’s insurance or HOA dues you would be in violation of the terms of your agreement. Second, the home no longer is your primary residence.This doesn’t preclude you from traveling, but if you vacate the property for more than 12 consecutive months your reverse mortgage could be called due and payable. Lastly, you decide to move or sell. At this point the reverse mortgage will be called and payable. Keep in mind there are many protections afforded the HECM created by HUD which safeguard homeowners so abuse by lenders is rare these days. |
| Before entering into a reverse mortgages its good to take a high level overview and underatand it’s positives and negatives. Let’s start with the negatives. 1) mortgage insurance premiums, origination, and servicing fees can add up. 2) There is no escrow account, so you are on the hook for property taxes, homeowner’s insurance and HOA dues and maybe 3) leaving less of an inheritance to your family. The positives of a reverse mortgage are your proceeds are tax free and can be used for whatever you like including living expenses, debt repayments, healthcare and hospital bills. Also, non-borrowing spouses not listed on the mortgage can remain in the home after the borrower dies. Extra funds can help retirees enjoy their retirement more. In addition, borrowers facing foreclosure can use a reverse mortgage to pay off an existing mortgage and stop foreclosure. |
| Before entering into a reverse mortgages its good to take a high level overview and underatand it’s positives and negatives. Let’s start with the negatives. 1) mortgage insurance premiums, origination, and servicing fees can add up. 2) There is no escrow account, so you are on the hook for property taxes, homeowner’s insurance and HOA dues and maybe 3) leaving less of an inheritance to your family. The positives of a reverse mortgage are your proceeds are tax free and can be used for whatever you like including living expenses, debt repayments, healthcare and hospital bills. Also, non-borrowing spouses not listed on the mortgage can remain in the home after the borrower dies. Extra funds can help retirees enjoy their retirement more. In addition, borrowers facing foreclosure can use a reverse mortgage to pay off an existing mortgage and stop foreclosure. |
| When it comes to loan options, reverse mortgages are not inexpensive. However, most HECM’s allow borrowers to roll their closing costs into the loan amount. This will however reduce the amount of funds available to you. Here’s a quick breakdown of HECM fees and charges directly from HUD’s website: (1) MIP or mortgage insurance premium. There is a 2% initial MIP at closing in addition to annual MIP of .5 percent of the outstanding loan balance. Next is the origination fee. This is capped at $6000. Lenders charge the greater of $2500 or 2% of the first $200,000 of your home’s value plus 1% over $200,000. There are also some incidental servicing fees that range from $30-$35 a month and of course some third party fees such as appraisal, title, recording fees, etc. that you will also need to pay. |
| When it comes to loan options, reverse mortgages are not inexpensive. However, most HECM’s allow borrowers to roll their closing costs into the loan amount. This will however reduce the amount of funds available to you. Here’s a quick breakdown of HECM fees and charges directly from HUD’s website: (1) MIP or mortgage insurance premium. There is a 2% initial MIP at closing in addition to annual MIP of .5 percent of the outstanding loan balance. Next is the origination fee. This is capped at $6000. Lenders charge the greater of $2500 or 2% of the first $200,000 of your home’s value plus 1% over $200,000. There are also some incidental servicing fees that range from $30-$35 a month and of course some third party fees such as appraisal, title, recording fees, etc. that you will also need to pay. |
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