John Adams on Reverse Mortgages
Fox5 GDA Real Estate Segment w/ John Adams
Reverse Mortgages <– Watch Fox5 Video
TOPIC : FHA REVERSE PROGRAM HELPS SENIORS
SUMMARY: The FHA’s reverse mortgage program enables you to withdraw some of the equity in your home. The Reverse Mortgage is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement retirement income, meet unexpected medical expenses, or make home improvements.
1. A SPECIAL KIND OF HOME EQUITY LOAN
A reverse mortgage is similar to a Home Equity Line of Credit, allowing a senior citizen to tap into the equity they have in their principal residence. The main difference is that no income is needed to qualify and no payments are due until the borrower moves out of the house permanently.
2. LOAN AMOUNT BASED ON EQUITY AND AGE OF BORROWER
FHA uses a complex formula to calculate what portion of your equity you can borrow out. The older you are, the more you can borrow, because your life expectancy is less. That means less interest will add up on the amount you borrow. Likewise, the greater the equity in your home, the more that will be made available to you. And because the current interest rate will affect your final loan payoff, that factor is considered as well.
For example, a 62 year old could borrow about 56 percent of their home’s equity. In contrast, a 90 year old could borrow closer to 75 percent of their equity.
3. MULTIPLE WAYS TO GET FUNDS
The program allows the borrower to obtain a lump sum of cash, or draw out a stream of monthly payments for life, or get a checkbook with access to funds as needed, or a combination of any of these methods.
4. NO MONTHLY PAYMENTS
Unless you choose to, there are no monthly payments due on this loan as long as you continue to use the house as your principal residence. If you move for any reason, the loan plus accrued interest becomes due. FHA looks solely to the house for repayment. The borrower is not personally liable for the debt. If the house fails to sell for enough to pay the debt, the FHA covers the loss.
Remember that like all homeowners, you will still be required to pay for insurance and your property taxes as well as a association fees and utilities.
5. SPECIAL COUNSELING REQUIRED
Because these reverse mortgages are so focused on the borrowers age and equity, and because they are so often misunderstood, the FHA requires that every borrower receive special HUD counseling to cover the costs and benefits of the reverse loan for that individual applicant. Stay away from a lender who might try to charge for Reverse Mortgage counseling. It should be free.
6. HOW DO I QUALIFY?
Because no repayment is required from the borrower, there are no income or debt ratio requirements. You must be 62 years of age and reside in the house as your principal residence. In addition, you must not be delinquent on any federal debt.
7. WHATS THE DOWNSIDE of a REVERSE MORTGAGE?
Because the FHA charges a 2 percent funding fee in addition to all regular closing costs, and because the lender is required to provide free counseling for borrowers, the start-up costs are high when compared to conventional loans. As a result, if you die or move out in just a few years, the balance may be substantial even though you may never have drawn on the funds.
In addition, should you pass away or move to a senior care facity, the FHA will demand payment in full immediately. Unless someone pays off the debt and accumulated interest, the property will be sold to cover the debt. Heirs hoping to inherit the house may be surprised or disappointed, so its a good idea for the family to be included in the decision making process.
Even if the sale of the house doesn’t cover the full debt, the lender looks to FHA for the difference. The borrower and her family are not personally responsible for paying the loan back unless they wish to keep the house.
Its seems fitting to me that the family home that built up equity over the years be the vehicle used to supplement incomes and make repairs in a home owner’s sunset years.
Video Source: www.money99.com