11 Strategic Use of a Reverse Mortgage

Upon expiration of the 3 day rescission period, the loan funds are disbursed. The homeowner accesses the funds in the form of the payment option selected. Any existing debt on the home is paid off. A new lien is placed on the home. The homeowner may use the loan proceeds for any purpose. (There is no rescission option on a HECM for Purchase Reverse Mortgage).

You can choose to receive the money from a reverse mortgage all at once as a lump sum, in fixed monthly payments either for a set term or for as long as you live in the home, as a line of credit, or as a combination of these. 

If you select fixed payments, you loan Servicer will disburse them on the first business day of each month.

As a borrower, you have the right to change your payment plan at any time. You simply request a new Payment Plan Agreement form from your Servicer. A change may include a small administrative fee of no more than $20.  Once the agreement is executed, the new payment plan will go into effect the first business day of the next month. 

So it follows that in most circumstances, the option of obtaining a Reverse Mortgage is a strategic decision. The motivations for such a mortgage product are as varied as are homeowners themselves. Some wish to extinguish their existing forward mortgage, while others may need the proceeds from the equity of their homes to pay off substantial debts, including tax liens. Still others wish to obtain extra income for home improvements, vacations, major purchases, or just a feeling of greater financial security. Be sure to tell your HECM professional of your reason(s) for interest in a HECM loan so that he or she may best guide you to the program most suited to your needs.

10 How to Qualify for a Reverse Mortgage

It’s easy to determine if you qualify for a reverse mortgage. The basic requirements are:

1. You must be at least 62 years or older.
2. You must reside in the home as your primary residence.
3. You must have sufficient equity in your home.

Additional requirements:

Primary lien: A reverse mortgage must be the primary lien on the home. Any existing mortgage must be paid off using the proceeds from the reverse mortgage. (Reverse mortgage proceeds can be used,) 

Taxes and Insurance: You must remain current on your real estate taxes, homeowners insurance, and other mandatory obligations, including condominium fees, or you are susceptible to default.

Property Condition: You are responsible for completing mandatory repairs and maintaining the condition of the property.

Conveyance of the mortgaged property by will or operation of law to the estate or heir after mortgagor's death: When a reverse mortgage becomes due and payable as a result of the borrower's death and the property is conveyed by will or operation of law to the estate or heirs (including a surviving spouse who is not on title and therefore not obligated on the HECM note) that party (or parties if multiple heirs) may satisfy the HECM debt by paying the lesser of the mortgage balance or 95% of the current appraised value of the property.

Advantages of your new Reverse Mortgage:

• You will not be required to make a mortgage payment to your reverse mortgage in order to qualify to live in your home as long as it is your primary residence. You will still be responsible for property taxes, insurance and repairs to the home.
• People with or without a current mortgage can qualify.
• Reverse mortgages are insured by the Federal Housing Administration (FHA) and are called Home Equity Conversion Mortgages (HECMs).
• Income and credit are not factors to qualify for a reverse mortgage – currently only your age and the value of your home will determine your proceeds.

 See more about qualifying

9 Reverse Mortgage Pros and Cons

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.

There are Three Reverse Mortgage Options to Choose From:

1.     1 HECM Adjustable

The Adjustable Rate Mortgage (ARM) is tied to the LIBOR index and is updated monthly.  A “margin” is added to the LIBOR index and that creates the annual interest rate that is charged on the outstanding balance.  The ARM option offers clients the most flexibility.

• The senior can receive monthly income,
• The senior can take a disbursement at the time of closing,
• The senior can have the funds available in the form of a Line of Credit to use on an as needed basis, or
• The senior can have a combination of any of the above!

Additionally, should the client’s needs change in the future, the set-up of the loan can be changed at any time for a nominal fee (currently the charge is about $30 to make a change).

Finally, you should know that any unused portion of funds (the money that is available but hasn’t been taken yet) actually appreciates at 1.25% HIGHER than the rate that is being charged on the used portion.  Under certain circumstances, this can be used as an excellent estate planning tool and could leave a bigger estate to your heirs than just the value of the home.  Essentially, over time it is likely that the Line of Credit is worth more than the value of the home itself!

2.      HECM Fixed

The Fixed Rate program is not as flexible at the ARM, but it does offer a rate that will never change.  With the Fixed program, the only option for disbursement of funds is Lump Sum.  The Fixed Rate is often used when the purpose of the money is already known.  As an example: If the Principle Limit (or Loan Size) is $100,000  and the senior has a $85,000 mortgage lien that needs to be paid off, then after the original mortgage is paid, the senior would have $15,000 left over to save or spend however they like.

3.      HECM Hybrid

This is a relatively new option that combines the Fixed and the ARM.

Summary

Each program can then be modified further to your specific needs.  Your New Mexico Reverse Mortgage expert will show you how to qualify for a reverse mortgage, answer your questions and help you select a loan program that best suits your needs.

Why is Counseling Required by HUD?

7 Why is counseling required by HUD?

Counseling is required for all HECMs; in fact, Reverse Mortgages are the only mortgage products that require this. This is due to the fact that reverse mortgages are designed for an seniors who are often on fixed incomes and is driven by the equity in what is universally a person’s most valuable asset—their home. The Federal government and the reverse mortgage industry want to ensure you properly educated to make the right decision. A counseling session can take place either face-to-face or by telephone. Counselors have been trained to deliver the required information in as specific a manner as possible. The session generally lasts 60 to 90 minutes but can take longer as needed.

Loan originators are not permitted to direct you to a specific counselor or counseling agency. Instead, they are required by HUD to provide a list of counselors, including local agencies and national intermediaries approved by HUD to provide counseling across the country.

Generally, a counseling session will take place three to ten business days from the time you place the call to the counseling agency.

Reverse mortgage “counseling” an educational, tutoring process, providing clear explanations of the details of the process. The counselor will explain much of the same information that will be later provided to you by a lender.

Prior to being counseled, you will receive an information packet from either the counseling agency or New Mexico Reverse Mortgage, depending on who you contact first.  This information packet will include the following materials:

·       An informational document called "Preparing for Your Counseling Session"

·       A loan comparison print-out, so the counselor may review with you the best and most lucrative options.

·       A printout of the Total Annual Loan Cost (TALC) Disclosure required by the Federal Reserve Board on all reverse mortgage transactions. This form illustrates the cost of the loan if it is outstanding for different durations of time.

·       The National Council on Aging (NCOA) booklet, Use Your Home to Stay at Home – A Guide for Homeowners Who Need Help Now.

No fees may be incurred by you or on your behalf prior to completion of mandatory counseling.

A Counselor will:

·       Explain a reverse mortgage to you, as well as the details of the loan process you can expect

·       Explain the various reverse mortgage product options;

·       Explain the costs associated with the loan;

·       Utilize a Financial Interview Tool (FIT) to help you determine if you can afford a reverse mortgage and meet your financial obligations, such as paying your taxes and insurance;

·       Explain alternative options that might be available to you, such as property tax deferral programs;

·       Check your eligibility for grant money or other financial assistance by utilizing Benefits Checkup, a tool for identifying services, such as housing assistance, tax deferral programs, home repair grants or loans, food stamps, fuel assistance, social services or healthcare;

·       Explain the consequences affecting the prospective borrower’s eligibility under state or federal programs and the impact on the estate or your heirs;

·       Review the loan comparisons provided to you by the lender as well as the Total Annual Loan Cost disclosure;

·       A counselor will not recommend that you obtain a specific product from any particular lender. His or her role is to provide information and clarity but not to advise; your choice of lender is purely your own.

·       Counseling generally costs in the vicinity of $125-250 per session. Some counseling agencies are awarded various grants that sometimes enable them to offer the service free of charge.

·       When you complete the session, both the counselor and you will sign a counseling certificate verifying you have fulfilled this requirement.

How does reverse mortgage work? Call (505) 897-4900

So, How Does a Reverse Mortgage Work?

You had the initial consultation with a New Mexico Reverse Mortgage professional about your situation and you’ve decided to begin the process.  Naturally, you now want to know about the process and the work involved in completing the Reverse Mortgage throughout the next few weeks.

1. Talk with us, go to counseling and sign an application package:

Your New Mexico Reverse Mortgage expert will review your particular circumstances to help you decide which program best suits you, based on your lifestyle, financial needs and retirement goals. We will expand your knowledge base and provide you with numbers, charts and reference materials specifically prepared for you.

Thus armed with a solid understanding of the program and accurate numbers, you are ready for the HUD required counseling session!

The U.S. Department of Housing and Urban Development (HUD) requires that all applicants receive third-party counseling to explain the available options and details of a Reverse Mortgage. We provide you the best list of counselors available for you to choose from. Typically you pay a fee (regulated by HUD and no greater than $125) to a non-profit organization.  The counseling session typically takes over an hour, but at the end you will be issued a Certificate.  This important Certificate needs to be faxed to New Mexico Reverse Mortgage at (505) 897-0600. A list of counselors and more information can be found here.

New Mexico Reverse Mortgage will complete an application package with you, a process that generally takes only about 10 minutes. We will then schedule an appointment to get your signatures on a variety of papers that constitute the Application Package.  At that time, we also would also need copies of the following:

• Signed Counseling Certification
• Valid State issued ID or Driver’s License
• Social Security Card (other documents can be used as a supplement)
• Most recent mortgage statement(s), if any
• Your Homeowner’s Insurance Agent’s contact information or Insurance Declarations Page
• Any old Title Insurance Policy
• A valid Survey (or Inspection Location Report) – providing us a copy will safe you $250 to $550
• Revocable Trust document (if applicable)
• Other items may be needed on a case-by-case basis

After signing the application package, we are ready for the next step.

2. Title Work and the Appraisal Inspection

After you sign the application package, we enlist the services of a Title Company to do the title search and create the binder. At the same time we place the order for the home to be inspected and appraised.  Please inform us in advance of any concerns or issues regarding the title or a specific appraiser with whom you have had a negative experience in the past, so that we can address such issues proactively.

The appraisal must be ordered through an Appraisal Management Company (or AMC), and you must pay the appraisal fee upfront.  This AMC will assign an FHA Certified Appraiser to inspect and place a market value on your property. Appraisals are typically charged upfront to your credit or debit card. Depending on the location of your home and other factors, you may pay more, but in the Albuquerque Metro area a typical appraisal costs about $475. On your behalf, we will place the appraisal request to a certified AMC system. An FHA licensed, independent appraiser will be assigned by the AMC, who will call you to schedule a time and date to inspect, measure and take photos and notes of your home.  The mortgage companies and loan officers have little or no communication with the appraiser.

(New Mexico Reverse Mortgage does not earn a fee, set the prices or get a choice as to which appraiser is assigned to your home, due to recent regulations forbidding lenders to choose an appraiser of their choice.

3. Underwriting and Closing

After the appraisal and title work is complete, New Mexico Reverse Mortgage submits the loan to the lender’s underwriting department where all the documents are reviewed and finalized. The Underwriter has the final say as to the home value used to calculate the Loan.

We are then issued a “Conditional Approval”, which lists outstanding conditions that must be fulfilled before the loan is deemed clear to close.  The majority of these conditions will be satisfied by New Mexico Reverse Mortgage internally and without needing your assistance.  Occasionally, we will need your help to resolve some conditions that we simply cannot satisfy without your input, such as the submission of documents to which you alone have access.

Occasionally, the Underwriter will require either a “desk” or “field” review of the original appraisal.  These reviews are required at their discretion and are used to verify that the original appraisal they were presented with is acceptable.  A Desk or Field Review may delay the closing by a week or more.

Once we have satisfied the Underwriter’s Conditions, we are issued the “Clear to Close” and it’s time for closing!  From the time New Mexico Reverse Mortgage received the Counseling Certificate to the date of Closing, on average 4 or 5 weeks have elapsed. The process varies depending on a variety of circumstances, including the location and uniqueness of your home.

At closing, you will sign all the final documents, most of which are similar or identical to the papers you signed in your initial application package. You may find that the Closing process is simply a review of information they already acquired.  However, these are the final documents so if you have questions, be sure to get clarification.

Generally, the closing takes place at the Title office. However, if that is not convenient or possible, arrangements can be made for the Escrow Officer or a Notary to meet you at your home.  Depending on the situation and location you may have to pay a fee for that extra service.

Before disbursement of funds, there is a required three-day “Right of Rescission” period that must be observed. This is a period during which you can choose to cancel the transaction. On any type of refinance (forward or reverse) on a primary residence, Federal law requires the lender to wait three business days before we disburse your funds.

After the loan is “Funded”, you then have access and may use the money however you wish.

4. Repayment

For the life of the loan, you do not need to make a monthly mortgage payment. However, you will remain responsible for the payment of taxes, insurance, and maintenance. Reverse Mortgages are due when the borrower no longer occupies the home. If death of the borrower occurs, the heirs/estate may repay the loan from the sale of the home or refinance the home.

While you clearly understand how the reverse mortgage program works, your heirs may not be as well-versed on the subject. So, when the time comes, they can contact New Mexico Reverse Mortgage and we’ll help them as to what steps they should take.  For this and other reasons, when you choose New Mexico Reverse Mortgage to assist you with your loan, our job may be completed at time of closing, but our relationship with you is for life.

What is a CRMP?

A CRMP is a loan officer who has attained a Certified Reverse Mortgage Professional (CRMP)designation.  Dealing with a lender who does not have this certification is a risky undertaking.

In addition to locating a company that is a NRMLA member, it is of paramount importance to work with a CRMP.  The CRMP designation assures you that the person with whom you are working has a proven history, has acquired extensive knowledge of the programs and their regulations, and is viewed as a leader in the industry.

To learn more and find a New Mexico CRMP, click here.

If you choose to work with a loan officer who does not have CRMP status, then you should (at a minimum) ask the person how many reverse mortgage transactions they manage each year and how many years’ experience they have.  A fair gauge is whether or not they have closed at least 48 loans over the past 4 years.  Anything short of this is cause for healthy skepticism. 

Considering the implications and regulations involved in all HECM programs, a high level of expertise in your loan officer is absolutely invaluable, and a CRMP certification is an excellent indicator of the lender’s experience, knowledge and reputation.  Those practicing the origination of reverse mortgages that do not possess this minimum of training and expertise have historically proven themselves lacking in sufficient knowledge to be of maximum benefit to their clients.  In fact, some have led their clients down nearly disastrous roads and near financial ruin owing to their limited knowledge.  Please work with a CRMP!