Regardless of what celebrity endorsers on
late-night TV might have you believe, the HECM program was never intended to be
a perfect solution for every senior.
For a variety of reasons, I frequently advise
potential clients that I don’t think the HECM Reverse Mortgage program is
an appropriate solution for them. This may take them by surprise, coming from a
lender with a vested interest in promoting HECM mortgages, but every
transaction is unique in some way, just as every client is unique. I
provide my clients with the same advice and input as I would my own parent… the
good AND the bad, to be logically weighed and considered. Below is an overview of the Reverse
Mortgage Pros and perhaps more importantly, the Cons.
Reverse Mortgage Pros
·
Qualifying the homeowner is a simple process. There is no
minimum credit score and generally there are no income requirements at this
time.
·
Allows the homeowner to stay in their home and maintain ownership
·
Pays off any existing mortgages and liens.
·
No monthly mortgage payments are due for as long as the homeowner
lives in the home, pays the property taxes, homeowner’s insurance and maintains
the property.
·
It’s extraordinarily flexible! The senior can receive the
proceeds in the form of a monthly payment, a Line of Credit, a Lump Sum
disbursement or any combination of the above.
·
A Reverse Mortgage has a “Non-Recourse” clause written into the
mortgage. This means that the homeowner (or their heirs) cannot be in an
“upside-down” position with the balance. They can never be personally
liable for more than the amount for which the home is sold.
·
Heirs inherit the home and keep any remaining equity after the
outstanding balance is paid off.
·
The Reverse Mortgage proceeds are not taxable.
·
The interest rate is often lower than traditional conventional or
“forward” mortgages.
·
If the senior chooses to make payments, the available Principle Limit can increase
giving them a larger monthly payment or Line of Credit.
Reverse Mortgage Cons
·
The most common concern by a senior is that the loan balance
typically gets larger over time and the value of the inheritance to the kids
(or estate) decreases. There is unfortunately nothing to offset or
eliminate this Con, but it is the reason that no monthly payments are required.
Improving the quality of life of my clients is my objective, so I do not fret
too much about whether or not there is an inheritance to be divvied up by an
estate after death. This is an issue for you alone to consider. Fortunately,
we frequently see the children (when they are an active participant in the
process) supporting their parents’ decision and encouraging the Reverse
Mortgage. This, of course, is not always
the case; and when the children are not on board with the transaction, I make
sure to never attempt to sway anyone, leaving it solely at the discretion of
the client and their children.
·
Government assistance, such as Medicaid, could be affected. Let us
know during the initial conversation so we can help to create a structure for
the loan that will not affect your benefits. It is advisable to visit
with your benefits counselor to ascertain if our structure is acceptable to
them. However, Medicare and Social Security benefits are NOT affected.
·
There are fees associated with obtaining a Reverse Mortgage.
The Counseling fee and the Appraisal fee are paid up front (credit card)
whereas the rest is commonly rolled into the loan.
·
If you have an outstanding balance that is larger than the Reverse
Mortgage Principle Limit can cover, there are 2 possible outcomes: you
come in with the money needed to cover the difference or you spend money on
Counseling and an Appraisal for a loan that never closes.
·
The home must meet minimum FHA standards and be considered
“marketable”. If mandatory repairs are indicated by the appraiser, they
may be required to be completed prior to closing the loan and other repairs may
be required to be completed within 6 months after the closing. Money may
be “Set Aside” to insure that funds are available for home repair.
·
Having a collection is not the same thing as “hoarding”.
Collections are fine; hoarding is not. The homeowner must be able
to show the appraiser/inspector that the home is in a marketable condition.
·
Some of the stories we’ve heard about the home “stolen” from the
homeowner by the bank are as elusive as the legends of the Chupacabra in New
Mexico. But everyone loves a scary story, so they continue to infect
public opinion with their overblown and often inaccurate pessimism. There
is much confusion and misinformation about the HECM reverse mortgage program
and this causes some people to dismiss the one program that could have
genuinely helped and made a positive impact on their lives. So, unless
your neighbor or friend is a CRMP, we recommend that you get information from
an experienced professional.
