What is Required? How Do I Qualify for a Reverse Mortgage?

QUALIFYING FOR A REVERSE MORTGAGE BASICS

If you are a senior homeowner with equity in your home, qualifying for a Reverse Mortgage shouldn't be difficult. While it's true that there is a financial assessment to ensure you can pay your real estate taxes and homeowner's insurance (and HOA or condo fees where applicable), there is no minimum credit score requirement or health requirement . Here are the Reverse Mortgage requirements:

• All borrowers must be at least 62 years of age.
• You must own your home, condo, townhouse, or  manufactured home and live in it as your primary residence for at least 6 months out of the year. For snow birds, those who live up north and travel south part of the year, this can work out well

• You cannot be delinquent on any federal debt.
• HUD approved Reverse Mortgage Counseling is required. You will be issued a HECM Counseling Certificate by your counselor.
• No application can be submitted to underwriting without a signed & dated HECM counseling certificate.
• You must show you can pay your real estate taxes, homeowners insurance, flood insurance where required or condo /HOA fees where applicable.

What is a LESA?
A LESA,  Life Expectancy Set Aside, was set up by the federal government to protect reverse mortgages against default.  The LESA sets aside some of the proceeds of the reverse mortgage in order to pay property taxes and homeowner's insurance on an ongoing basis.  After a financial assessment by the lender, the lender will decide if a LESA is warranted.

There are certain red flags that may indicate a borrower may have trouble paying their taxes. Discuss LESA with your reverse mortgage specialist to learn more.  It's not a negative, it's a positive!

A Reverse Mortgage has a huge advantage over other mortgages. Piggy banks serve one purpose, to give back what we have saved over time. Did you ever think of your home as a piggy bank? Well, it is. It is your home's equity that you "saved" over the years which is now available to you as your own "retirement plan". I think of a reverse mortgage as a gift you give to yourself.  You open the package and enjoy your life for the better! So ask your Reverse Mortgage specialist if a Reverse Mortgage will work for you.

"Time freedom. In today's busy world,  it's something rare. But it's something our Reverse Mortgage gave back to us. I highly recommend the program." 

REMAIN IN YOUR HOME OR USE THE HECM FOR PURCHASE PROGRAM TO BUY A NEW HOME!

There is no pre-payment penalty on a Reverse Mortgage, and the loan is designed to provide either monthly proceeds, a line of credit, a lump sum, or a combination of all three. As long as your home is your primary residence, and you pay your taxes and insurance as well as maintain your home, you will never have to pay a mortgage payment and never have to move.  There is a HECM purchase program for those who wish to buy a new home, and again, there is no monthly mortgage payment.

The HECM program is regulated and insured by the Federal Government! Your loan is insured by FHA, Federal Housing Administration.  A Reverse Mortgage can change the way you view things and can give you freedom to do the things you've been wanting to do. Investigate whether or not a Reverse Mortgage may be an option worth your consideration.

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Reverse Mortgages Have Changed

Non Borrowing Spouse

It used to be that if a borrower had a spouse who was under age 62 and that borrower was not on the reverse mortgage (Home Equity Conversion Mortgage or HECM), once the borrower passed away, the spouse would eventually have to leave the home if they could not pay off the reverse mortgage.  Death is considered a "maturity event" in the reverse mortgage world, and this was a tough situation.  For this reason, we discouraged borrowers from taking out a reverse mortgage if their spouse was under 62 years of age.

Thankfully, all this has changed.  Through the Mortgage Stability Act, there has been a change in reverse mortgage parameters.  The reverse mortgage will not become due when the borrower passes away, and spouses who are under age 62 will be able to remain in the home. However, the HECM line of credit would not be accessible and any monthly proceeds would end. Speak to your reverse mortgage professional about these issues to see if this is still a viable option for you, and if you qualify for a reverse mortgage. You can also refer to the HUD Mortgagee Letter # 2014-07 , April 25, 2014 regarding non-borrowing spouse parameters .

NOTE:  Prior to getting a reverse mortgage, consult an attorney to obtain any necessary documents you have such as will, life estate, power of attorney, marriage certificate as these documents will need to be reviewed by the lender especially if there is a non-borrowing spouse. (See https://reversemortgagedaily.com/2015/06/12/hud-expands-options-for-reverse-mortgage-non-borrowing-spouses/  )

HECM COUNSELING

It's required by HUD that you receive Reverse Mortgage counseling called HECM counseling by a HUD approved and independent party, After the counseling session (which can be done in person or by phone), you will receive a HECM certificate which goes to your Reverse Mortgage Specialist to be submitted to the lender. You will receive a copy. This type of counseling was initiated so that borrowers would fully understand the step they are taking and have confirmed their understanding with an unbiased party.

Glossary of Terms

Learning About Reverse Mortgages

Adjustable Rate: An interest rate that will change during the life of the loan based on an index.
Amortization:  Amortization is the process of repaying a mortgage loan in full, through structured, regular payments within a certain time frame. The amortization of your home loan will vary depending on the terms of your mortgage.
Annuity: An insurance product that pays out an income stream and is often used as part of a retirement strategy.

Appraisal: A professional estimate of the value of your home based on the features of the property and comparable sales in the area.

Available Principle Limit: The equity amount available to borrowers determined by age, rates and the lesser of the appraised value, sale price or the maximum lending limit.

Closing: The process where the clients sign the loan documents to begin the final process of having their loan fund.
Credit Report:  Your credit report is a compilation of your credit history from multiple sources. Your creditors submit information about your borrowing habits: whether you make payments on time, if you’ve ever defaulted on a loan, or if you’ve claimed bankruptcy. 

Deed of Trust: A document which pledges real property to secure a loan, used instead of a mortgage in certain states.

Default: A breach or nonperformance of the terms of a note or of the provisions of a mortgage loan. Defaults under a reverse mortgage could include failure to repay the loan after a repayment notice has been issued, failure to maintain the property, pay property taxes and/or hazard insurance, and failure to live in the home as your primary residence.

Depreciation: A decrease in the value of the home.

Federal Housing Administration (FHA): An agency within the U.S. Department of Housing and Urban Development (HUD) that provides insurance to FHA-approved lenders for HECM loans.

FHA Insured Reverse Mortgages: Home Equity Conversion Mortgages (HECM).
FICO Score:  ​Your FICO score is a number that represents your creditworthiness. One of the most widely accepted credit scores, this number comes from an algorithm that was developed by Fair, Isaac and Company (now called FICO). FICO is a data analytics company which uses consumer credit files collected from different credit bureaus to compute a credit score. 

Home Equity: The value of the home minus any debt against it.

Home Equity Conversion Mortgages (HECM): FHA-Insured reverse mortgage loans that permit senior homeowners to tap into a portion of the equity in their home.  A HECM allows you to continue living in your home without having to make monthly mortgage payments.
HUD-1 Settlement Statement: The HUD-1 Settlement Statement is a standard form in use in the United States of America which was used to itemize services and fees charged to the borrower by the lender or broker when applying for a loan for the purpose of purchasing or refinancing real estate. The borrower has the right to inspect the HUD-1 one day prior to day of settlement.
LESA: Life Expectancy Set Aside for HECM loans. This is an amount determined by the lender after a Financial Assessment which sets aside taxes, homeowners insurance, condo fees, and other fees the lender determines are necessary where income may  not cover these appropriately.  

Line of Credit: A credit line that permits a borrower to control the timing and amount of withdrawals.

Loan Balance: The amount owed, including principal and interest.

London Interbank Offered Rate (LIBOR Index): An index that is used to calculate the interest rate adjustments on HECM adjustable rate loans.

Lump Sum: A single loan payment (draw) to the borrower at closing.

Mortgage: A lien on the property that pledges a promise to repay the loan.

Mortgage Insurance Premium (MIP): The fee paid by a borrower to HUD or a private insurer for mortgage insurance. It guarantees that the borrower will continue to receive their expected loan proceeds. The FHA requires an initial Mortgage Insurance Premium.  The MIP will also be assessed throughout the life of the loan and will be added to the outstanding balance and remitted to HUD on a monthly basis.
Mortgage Originator:  A mortgage loan originator (aka mortgage loan officer, loan officer, LO, etc.) is typically an individual who works with a borrower to complete a mortgage transaction. The mortgage loan originator/officer is usually the borrower’s main point of contact throughout the entire home loan process. 

Non-Recourse Mortgage: A home loan in which a lender may look only to the value of the home for repayment; no other assets may be attached if the loan balance grows beyond the mortgaged home value.  If you sell the home to repay the loan, you or your heirs will never owe more than the loan balance or the value of the property, whichever is less.

Origination Fee: A fee charged to the borrower for processing a loan application. Lenders can charge 2% of the first $200,000 of the home’s value and then 1% of any amount over $200,000. Origination fees are capped at $6,000.
Pre Approval: A pre-approval is a statement from a potential lender asserting that a borrower would be approved for a certain loan amount. Gaining pre-approval means that you as a borrower likely qualify for a certain mortgage according to the lender’s guidelines. 
Recording Fees:  A recording fee is the fee charged by a government agency for registering or recording a real estate purchase or sale or refinance so that it becomes a matter of public record. Recording fees are generally charged by the county (such as in the United States), since it maintains records of all property purchases and sales. The recording fee varies from county to county.
Reverse Mortgage: A loan that allows seniors 62 and older to access a portion of their home’s equity to supplement their retirement income without having to make monthly mortgage payments.

Right of Rescission: A borrower’s right to cancel a reverse mortgage loan within three business days of closing.
Servicer: A mortgage servicer is a company to which some borrowers pay their mortgage loan payments and which performs other services (servicing their loan) in connection with mortgages and mortgage-backed securities. The mortgage servicer may be the entity that originated the mortgage, or it may have purchased the mortgage servicing rights from the original mortgage lender. The duties of a mortgage servicer vary, but typically include the acceptance and recording of mortgage payments; calculating variable interest rates on adjustable rate loans; payment of taxes and insurance from borrower escrow accounts, negotiations of workouts and modifications of mortgage upon default; and conducting or supervising the foreclosure process when necessary.

Set-Aside: Funds for specified uses that are netted out when determining the borrower’s principal limit.
Streamline Refinance: ​The FHA Streamline Refinance is an option for homeowners looking to lower the interest rate and monthly payments on their existing FHA mortgage. This lets borrowers refinance with a process that is “streamlined” to cut down on the time and effort spent.
Total Annual Loan Cost (TALC) Rate: The projected annual cost of a reverse mortgage including all itemized costs.

U.S. Department of Housing and Urban Development (HUD): A federal agency that oversees the Federal Housing Administration (FHA) and numerous housing and community development programs.

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CARING, PROFESSIONAL, PRIVATE. SERVICE AFTER YOU CLOSE.

GOT QUESTIONS?

KATHIE ADLER, SENIOR REVERSE MORTGAGE SPECIALIST - RESIDENT OF LONG ISLAND FOR OVER 50 YEARS CAN HELP!  Member of Sun Suffolk (http://www.SunSuffolk.org )) - and NRMLA (http://www.NRMLA.org )

KATHIE ADLER'S NMLS ID: 65780  - For NMLS Consumer Access Site, go to: www.http://nmlsconsumeraccess.org

Reverse Mortgage Helpline - Answering Your Questions about Reverse Mortgages

Advisors MortgageLindenhurst Branch:  1045 Route 109,  Suite 104, Lindenhurst, NY 11757  

Branch NMLS 301453    

Contact Kathie Adler 631-804-9044

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KATHIE ADLER'S NMLS ID: 65780

ADVISORS MORTGAGE GROUP

1045 Route 109, Suite 104, Lindenhurst, New York 11757, United States