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Truth In Lending: Reverse Mortgages For Baby Boomers

Originally Posted: January 18, 2011

Daniel Gualtieri

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Exploring a reverse mortgage and understanding the qualifying steps is just good preemptive planning. (nicri.org.au)

Southampton - Sadly, for the millions of Baby Boomers that happened to land in the middle of a perfect economic storm or have hit every retirement speed bump imaginable, you might be asking yourselves what's next? Over the course of 10 short years Baby Boomers especially have seen their retirement savings hit by everything from the dot-com bust, market crashes to rising insurance costs and property tax increases. Sandwiched between college loans and paying for their parents medical needs to pay cuts, lay offs and now the housing market melt down.

Whether you've planned ahead, or plan on forgoing retirement until "things return to normal," some don't have the luxury of choice, others don't have many options left.
From action plans to exit strategies the dilemma some will face, how to cut back on living expenses or find alternatives means (other than robbing a bank) when social security and cashing in on IRA benefits is just not enough.

Waiting it out until the market returns may not be a suitable option. (simpledebtfreefinance.com)

If you're one of the millions that were planning on "down sizing" by selling your home, now may not be the right time especially if you're selling a home that is "dated or has deferred maintenance needs." Waiting it out until the market returns may not be a suitable option if you're already struggling to make ends meet.

Exploring a reverse mortgage and understanding the qualifying steps is just good preemptive planning. Using the reverse mortgage as a means to rid yourself from the burden of a monthly mortgage payment is something you'll need to discuss with your entire family before you begin the application process.

A reverse mortgage uses a portion of the home's equity as collateral. The loan does not have to be repaid until the last surviving homeowner permanently moves out of the property or passes away. At that time, the estate has approximately 12 months to repay the balance or sell the home to pay off the balance. All remaining equity is inherited by the estate. The estate is not personally liable if the home sells for less than the balance of the reverse mortgage. I should mention there are no prepayment restrictions or penalties for paying off a reverse mortgage early, like any FHA mortgage it can be paid off at anytime.

There are two basic reverse mortgage plans. The HECM standard and the HECM Saver. Both have a value ceiling currently at $625K. This means that if the home is appraised for more, the loan amount will be based on the $625K value. To be eligible for a reverse mortgage, the Federal Housing Administration (FHA) requires that all homeowners be at least age 62. All existing liens must be satisfied with the proceeds of the reverse mortgage. Good news: there are no income or credit score requirements for a reverse mortgage. However, judgements and/or liens must be part of the payoff to become eligible.

There are two basic reverse mortgage plans. (justinperry.net)

There are several ways to receive the proceeds from a reverse mortgage. Lump sum - a lump sum of cash at closing. Tenure - equal monthly payments as long as the homeowner lives in the home. Term - equal monthly payments for a fixed number of years. Line of Credit - draw any amount at any time until the line of credit is exhausted or any combination of the aforementioned.

Comparing the HECM Saver to HECM Standard, FHA designed the HECM Saver as an alternative to the HECM Standard for the purpose of lowering loan closing costs and providing an alternative to a Home Equity Line of Credit (HELOC). The program is designed for those who would like to borrow a smaller amount than what is currently available with the HECM Standard. Almost all home types are eligible. However, some condos, co-ops, PUD (town homes) and mobile homes may not.

A reverse mortgage has no income or credit score requirements. (refipost.com)

The difference between a reverse mortgage and a home equity loan: Generally a home equity loan, a second mortgage, or a home equity line of credit (HELOC) have strict requirements for income and creditworthiness. Also, with other traditional loans the homeowner must still make monthly payments to repay the loans. A reverse mortgage has no income or credit score requirements and instead of making monthly payments to the lender, the homeowner receives from the lender. Since 2008, HELOC lines of credit have been much more difficult to get and qualify for, have much stricter repayment guidelines and now make the reverse mortgage the only viable solution for most.

With a reverse mortgage the amount that can be borrowed is determined by an FHA formula that considers age, the current interest rate, and the appraised value of the home. The more valuable the home (up to a certain point), the higher the loan amount will be, depending on lending limits.
With a reverse mortgage no monthly payments are due, however the homeowner is still responsible for real estate taxes, insurance, and maintenance. And yes, you can still default on a Reverse Mortgage.

When is a reverse mortgage a bad idea? When it's used for short term needs. If you only need the money for a short period of time and then can repay the full balance, a reverse mortgage may not be a good fit. The minimum recommended amount of time is five years. However, if you're hoping to make to the next housing rebound cycle then the program is worth exploring.

A reverse mortgage can not be outlived. As long as at least one homeowner lives in the home as their primary residence and maintains the home in accordance with FHA requirements (keeping taxes and insurance current) the loan does will not become due.

Again this may not be your best budgeting solution. FHA requires you (and your family) meet with an independent credit counseling agency so that you understand all the facts.

If you need more information about Reverse Mortgages there are several National Reverse Mortgage Counselors available for tele-conference meetings, including:

 • National reverse mortgage counselor's directory:
NFCC (National Foundation for Credit Counseling), 866-698-6322.

 • NCOA (National Counsel on the Aging), 800-510-0301
and AARP at 800-209-8085.

sharon tom...

sharon tompkins says::
In case people don't know, apparently reverse mortgages are not given for co-ops. FHA used to provide them but no longer.
Jan 27, 2011 2:37 pm


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