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Reverse Mortgage Alternatives

Even if you do not qualify for a reverse mortgage, there are other options.

A Reverse Mortgage can be a useful tool in helping seniors to maintain their independence and stay in their homes as long as possible after retirement.  But, a reverse mortgage is not without limitations.  People with a high value home may be shocked at how little they can qualify for in a reverse mortgage because of the loan limits with FHA.

To fill this void in the market, a relatively new product called equity sharing has been designed to help those that don’t qualify for a reverse mortgage.  Even if you do qualify for a reverse mortgage, equity sharing can be an alternative that is not a mortgage and does not accrue interest.

With equity sharing, the property owner (age 65 to 85) agrees to share the future appreciation of the property with the financial institution in exchange for cash today.  The home owner is allowed to keep 100% of the equity based on current appraised value.  Then, going forward, the home owner will split the appreciation 50/50 with the financial institution.  As compared to a reverse mortgage, equity sharing does not have an interest rate accruing, it is not recorded as a mortgage on the property, and it can be used on properties other than the owner’s primary residence.

Example 1:

A home owner in California has a primary residence that is worth $1.2 million with a current mortgage balance of $500,000.  Because the maximum allowable reverse mortgage is $417,000, this home owner would not qualify.  But, with equity sharing, he could get up to $180,000 in cash (15% of the current appraised value) without a loan or a monthly payment, and without the need to payoff the current mortgage balance (assuming the current mortgage is not a reverse mortgage or a negative amortization loan).

Example 2:

A home owner in Tennessee has a beach house in Florida.  He wants to get a reverse mortgage on the beach house, but doesn’t qualify because it is not his primary residence.  The house is worth $750,000 with a current mortgage balance of $300,000.  He would qualify for $112,500 in exchange for a 50% stake in future appreciation.  Ten years from now the home owner sells the house for $1.2 million.  The difference in equity is $450,000 since agreement was made.  The equity partner takes $225,000 (half of the appreciation) plus an 8% surcharge to cover transfer costs and Realtor fees, leaving the owner with net proceeds of $879,000, plus the $112,500 already received at the time of the agreement.

While it does create opportunities, equity sharing is not without its disadvantages.  Depending on how rapidly you think the home will appreciate, the costs could significantly outweigh the costs of a reverse mortgage or other interest bearing alternative.  That being said, it is one of the more realistic alternatives to reverse mortgages available today.

If you would like to find out more about a reverse mortgage or an equity sharing program, send me an e-mail at steve@steverussellonline.com with your name, phone number, date of birth, state where the porperty is located, and the value and mortgage balance on the property.  Or, call me toll free at 888-257-8383 for a free consultation.

Pensacola Mortgage

Reverse Mortgage Increased Lending Limits

HUD increases lending limits nationwide for reverse mortgages.

If you have been shopping for a reverse mortgage only to find that you don’t have enough equity or that your balance on your existing mortgage is too high, there is relief on the way.  As of a press release from the Department of Housing and Urban Development (HUD) dated October 3rd 2008, the lending limit has been increased nationally to $417,000.  Previously, the limits were based on the county lending limits as established by FHA for the HECM (Home Equity Conversion Mortgage), FHA’s proprietary reverse mortgage program, and the most popular on the market.

With this important change in guidelines, the number of people who qualify for reverse mortgages has increased substantially.  This is especially important as the number of seniors relying on social security for retirement continues to rise, while over 50% of seniors age 65 or older own their homes free and clear.

If you are not familiar with reverse mortgages, check out What You Should Know About a Reverse Mortgage.

What Is A Reverse Mortgage?

If you are unfamiliar, here is a quick breakdown of a Reverse Mortgage.

The following information is also available on HUD’s website.

Reverse Mortgages have been around for years, but have become more popular recently as a way to fund retirement and supplement social security and increase overall quality of life.  The FHA HECM reverse mortgage was one of the original reverse mortgages available and is a federally insured private loan to provide a safe retirement planning alternative.  There are many uses for a reverse mortgage including income in the form of monthly payments, passive income by eliminating mortgage payments, cash out for home improvement or purchasing a boat or RV, etc.

  • What is a Reverse Mortgage? A reverse mortgage is a special type of mortgage that allows a homeowner to “reverse” the flow of money on their home and receive cash or income (or both) based on the equity that has built up over time.  But, unlike a traditional home equity loan or second mortgage, no repayment of the mortgage is required until the home owner(s) no longer use the property as their primary residence.  HUD’s reverse mortgage provides these benefits, and is federally insured as well.
  • Can I qualify for a Reverse Mortgage? In order to qualify for a Reverse Mortgage, HUD requires the following:
  1. You must be a homeowner
  2. You must be at least 62 years of age (the minimum age for all residents in the home)
  3. You must own your home outright, or have a low mortgage balance that can be paid in full at closing
  4. You must reside in the home as your primary residence
  5. You are also required to undergo HUD approved consumer counseling to gain a full understanding of the process
  • Can I qualify if I did not buy my current home with an FHA loan? Yes, it is not required that your existing loan, or your original purchase loan be an FHA mortgage.  Your new Reverse Mortgage will be an FHA insured loan.
  • What types of homes are eligible? Your home must be a single family dwelling or a two to four unit dwelling and you own and occupy as your primary residence.  Townhouses, detached homes, units in condominium projects, and some manufactured homes are eligible.  It is also possible for individual condominium units to qualify under the Spot Loan Approval program.
  • What is the difference between a Reverse Mortgage and a bank home equity loan? With a traditional mortgage or home equity line of credit, the borrower must qualify based on their current income and expense ratio and ability to repay the monthly payments.  A Reverse Mortgage has no monthly payments, it pays you.  Therefore, there are no qualifying criteria for income.  The amount you can borrower is determined by your age, current interest rates, and the appraised value of your home or the local FHA lending limits, whichever is lower.  Generally, the older you are, and the more valuable your home is, the more you have available to borrow.  You have no monthly payments because there are none due as long as you live in the property as your primary residence.  Like all homeowners, you are still required to pay your property taxes, home owners insurance and normal owner obligations such as utilities and maintenance.  But, with an FHA insured Reverse Mortgage, you can not be foreclosed on or forced to vacate the property for “missing payments” because there are none.
  • Can the lender take away my home if I outlive the home? No!  You are not required to repay the loan as long as you reside in the home and you continue to pay your taxes and insurance.  You can never owe more than your home’s value.
  • Will I still have an estate that I can leave to my heirs? When you sell your home or no longer live in it as your primary residence, you or your estate will repay the cash received through the Reverse Mortgage plus interest and fees to the lender.  The remaining equity in your home, if any, belongs to you or your heirs.  None of your other assets will be affected by the Reverse Mortgage, and the actual debt will never be passed along to your heirs or the estate.
  • How much money can I get from my house? The amount of money available is based on your age, value of your home and current interest rates.  Generally, the more valuable the home, the older you are, and the lower current interest rates are, the more you have available.
  • Should I use an estate planning service to find a Reverse Mortgage? You should not pay a referral fee to someone to help you find a lender.  You can reach Primary Residential Mortgage directly at 888-257-8383 for more information on obtaining a Reverse Mortgage.
  • How do I receive my payments? You have 5 options:
  1. Tenure – Equal monthly payments as long as at least one borrower continues to live in the property as a primary residence.
  2. Term – Equal monthly payments for a specified length of time.
  3. Line of Credit – Unscheduled payments or installments at times and in the amounts of the borrower’s choosing until the line of credit is exhausted.
  4. Modified Tenure – Combination of equal monthly payments and installments for as long as borrower occupies the property.
  5. Modified Term – Combination of equal monthly payments and installments for a specified length of time.

Hopefully this has answered many of your questions, but we know that you have more.  Contact me at any time to discuss your reverse mortgage in greater detail.  Steve Russell 888-257-8383.