Reverse Mortgage FAQ – Part 2

Posted on by Janis Layman

Reverse Mortgage Seattle Lynnwood Edmonds Shoreline WashingtonThis is the second in a three part series of frequently asked questions about Reverse Mortgage.  You can find Part 1 here and Part 3 here.  If you have questions that are not currently listed, please don’t hesitate to contact me directly.

Can I get a Reverse Mortgage even if I have an existing mortgage?

You may qualify for a reverse mortgage even if you still owe money on an existing mortgage. The existing loan will be paid off first with the reverse mortgage funds, then the remainder of the funds will be given to you.  This scenario would apply as long as the amount of the reverse mortgage is larger than the existing loan.  For example: if you owe $100,000 on an existing mortgage and you qualify for $125,000 under the reverse mortgage program, under these circumstances you would still have $25,000 left over to do with as you wish AND you would no longer have a mortgage payment.

Another scenario would be one where the mortgage on your house is more than what you qualified for under the reverse mortgage program.  In this situation you would have the option to make up the difference with your own funds between the amount of reverse mortgage you qualified for and the existing loan.  This would allow you to no longer have the burden of a monthly mortgage payment.  Working with a reputable reverse mortgage lender will ensure the most accurate information regarding how an existing mortgage would affect a reverse mortgage and what will be right for you.

What is Reverse Mortgage Counseling? 

Prior to being approved for a reverse mortgage, HUD’s Federal Housing Administration (FHA) requires each borrower to participate in a counseling session with an approved agency. These not-for-profit agencies are funded by the federal government and work closely with both the FHA and lenders to ensure a smooth process.  The goal of this session is not to steer a potential borrower in one direction or another, but to make sure they clearly understand all aspects of a reverse mortgage.  Read more about what to expect during reverse mortgage counseling here.

Why not get a home equity loan instead of a reverse mortgage?

Reverse mortgages do not need to be repaid as long as you remain in your home. This allows for a lot of flexibility if you are on a tight or limited budget, or would like to use your funds from a reverse mortgage for specific purposes such as retirement income.

On the other hand, attaining a home equity loan (or a second mortgage) requires you have sufficient income to cover the debt—plus, you must continue to make monthly payments on both any existing mortgage and the new home equity loan. With a reverse mortgage, you do not make monthly mortgage payments and the federally insured loan protects you from foreclosure.

Do I have to pay taxes on the cash payments I receive?

The cash you receive from a reverse mortgage is not subject to individual income taxation. But, since you hold the title to your home, you are still responsible for property taxes, insurance, utilities, maintenance, and other home-related expenses. Interest on reverse mortgages is not deductible on income tax returns until the loan is paid off in part or whole.  Find a whole lot more information about what reverse mortgage holders are still responsible for after obtaining the loan here.

Who is a Reverse Mortgage not right for?

Reverse mortgages are not right for everyone, which makes it even more important that you work with a reputable lender.  A reverse mortgage may not be in your best interest if you intend to leave your home within 2-3 years, if you own multiple homes or investment property, or if you intend to leave your spouse off the loan.  Even if you fall into any of these categories, discuss your situation with a lender before eliminating reverse mortgage as an option.

Janis Layman is a Reverse Mortgage Specialist serving the Seattle, Lynnwood, Edmonds, and Shoreline areas of Washington.  Contact Janis and learn if reverse mortgage is right for you.

Reverse Mortgage FAQ – Part 1

Posted on by Janis Layman

Reverse Mortgage Seattle Lynnwood Edmonds Shoreline WashingtonThis is the first in a three part series of frequently asked questions about Reverse Mortgage.  Find Part 2 here and Part 3 here.  If you have questions that are not currently listed, please don’t hesitate to contact me directly.

Are There Any Special Requirements to Get a Reverse Mortgage?

In order to qualify for a reverse mortgage, you must own your home, be at least 62 years old, and have some equity in your home.  In early 2015 the FHA implemented new rules requiring lenders to consider credit and income for each applicant, similar to a traditional mortgage, the purpose being to minimize possible defaults due to the inability to pay property taxes and homeowners insurance. But unlike a traditional mortgage, if potential borrowers do not meet this criteria, there are still options through a Fully-Funded Life Expectancy Set-Aside, which is an amount drawn under the HECM that is reserved for payment of property taxes and insurance by the lender; or a Partialy-Funded Life Expectancy Set-Aside which works the same as the Fully-Funded option except a smaller reserve is drawn when borrowers meet credit requirements but not income requirements. The amount of both of these reserves is determined by the age of the borrower and the value of the home.

How Much Money Can I Get?

In general, the older you are (or the youngest borrower in the case of married couples) and the more valuable your home, the more money you can get.  Other factors also come into play, such as: the appraised home value, interest rates, and the amount of equity in your home.

Does My Home Qualify?

Eligible properties include single-family homes, 2-4 unit properties, modular homes, condominiums, and townhouses.  This home must also be your primary residence.

What are My Payment Plan Options?

Funds from a reverse mortgage can be received as fixed monthly payments for a set term or for as long as you live in the home, as a line of credit which allows you to draw on the loan proceeds at any time, a lump sum, or a combination of all these.  Reverse mortgage can also be used to purchase a home wrapping the purchase the home with a reverse mortgage loan.

How Can I Use the Proceeds from a Reverse Mortgage?

Their are no restrictions as to how the proceeds from a reverse mortgage can be used.  Whether it is to supplement retirement income, to cover your living expenses, to repair/modify your home, to pay for medical expenses, pay off existing debts, or simply do something for nice yourself, no one can tell you how you must spend your money.

Janis Layman is a Reverse Mortgage Specialist serving the Seattle, Lynnwood, Edmonds, and Shoreline areas of Washington.  Contact Janis and learn if reverse mortgage is right for you.

How to Incorporate a Reverse Mortgage into Retirement Planning

Posted on by Janis Layman

Reverse Mortgage Seattle Lynnwood Edmonds Shoreline WashingtonDo you remember two and three decades ago?  When we worked hard, saved for retirement, invested in our 401k’s, paid down our mortgages…all while dreaming of the years we’d finally be able to retire?  It was an optimistic time and so many did everything right.  Unfortunately many of those same dedicated individuals faced trouble during the economic downturn less than a decade ago.  With lay offs and investments gone sour, soon-to-be retirees had to tap into their 401k’s to stay afloat, potential pensions went stagnant, and they watched their retirement dreams dwindle.  Retirement and financial planners have been picking up the pieces ever since, trying to determine how these hard working Americans can still enjoy the golden years they deserve.  And what they are discovering is that one of the largest assets of many retirees – their home – has been grossly overlooked as a retirement tool.  Reverse mortgages were only considered a last resort and were rarely discussed, let alone considered part of an upfront retirement plan.  Well, things have changed – a lot.

In a recent article for Wall Street Journal, retirement expert Wade Pfau says this:

Let me explain why reverse mortgages can help. Retirees have a series of expenses they must be able to support to enjoy a successful retirement. These expenses consist of overall lifestyle spending goals, unexpected contingencies and legacy goals. The task is to manage their assets in a way that efficiently meets goals and mitigates retirement risks related to not knowing how long you will live, to market volatility, and to spending surprises that can impact the plan. The reverse-mortgage option should be viewed as a method for responsible retirees to create liquidity from an otherwise illiquid asset, which in turn can create new options that potentially support a more efficient retirement income strategy, such as more spending and/or more legacy.

Intuitively, there are two reasons why opening a reverse mortgage earlier in retirement has the potential to improve retirement efficiencies despite the reverse-mortgage costs for those wishing to remain in their homes.

First, coordinating draws from a reverse mortgage reduces the strain on investment portfolio withdrawals, which helps to manage the sequence of returns risk facing retirees. Retirees are more exposed to investment volatility because volatility has a bigger impact on financial outcomes when taking distributions from the portfolio as compared with when adding new funds to the portfolio. Reverse mortgages provide a buffer asset to sidestep this sequence risk by providing an alternative source of spending after market declines.

The second potential benefit for opening the reverse mortgage early, especially when interest rates are low, is that the principal limit that can be borrowed from will continue to grow throughout retirement. Reverse mortgages are non-recourse loans, and for sufficiently long retirements, there is a reasonable possibility that the line of credit may grow to be larger than the value of the home.

To witness a reverse mortgage completely alter the uncertain course many retirees believe they are on is wonderful.  This is about so much more than utilizing a program that has long been available, it’s about truly helping seniors live out the retirement of their dreams.  The retirement they were once so optimistic about, the one they worked so hard to achieve.

Reverse mortgages are available to many senior homeowners 62 and over.  These loans are insured by the FHA and provide non-taxable income to the borrowers based on the available equity in the home.  The more equity and the older the borrower, the more funds available.  The funds can be accessed via a line of credit, monthly installments, a lump sum, and even can be wrapped into the purchase of a new home.  The borrower can always use the funds for whatever they deem fit.  Working with a retirement planner or financial adviser will help ensure the most strategic use of the loan.

Janis Layman is a Reverse Mortgage Specialist serving the Seattle, Lynnwood, Edmonds, and Shoreline areas of Washington.  Contact Janis and learn if reverse mortgage is right for you.

What Financial Obligations are Reverse Mortgage Borrowers Responsible For?

Posted on by Janis Layman

Reverse Mortgage Seattle Lynnwood Edmonds Shoreline Washington
Reverse mortgages are helping seniors across the Seattle, Washington area live out the retirement of their dreams – and even helping many married couples and individuals purchase a new home to spend their golden years in.  Those with a  reverse mortgage are awarded the freedom to live without a mortgage payment – but they do still have a few financial obligations.  These include:

Property Taxes:

Just as with a conventional home loan, a reverse mortgage homeowner is always responsible for paying their property taxes.

Homeowners Insurance:

Reverse mortgage holders are required to purchase and maintain homeowners insurance.

Utilities:

All utilities will remain the responsibilities of the homeowner.

Home Maintenance: 

The homeowner or their family will be responsible for continuing to maintain and upkeep the home and its grounds.

Part of the qualification process for a reverse mortgage is a financial assessment.  Much of this assessment is to ensure the borrowers are financially stable enough to take care of ongoing obligations.  Because a reverse mortgage uses the equity available in the home to make it’s monthly mortgage payments, if major repairs are needed the homeowners will not be eligible for a home equity loan or similar.  Ultimately, understanding and planning for these expenses is key to being prepared in the years to come.  Working with and asking questions of a reputable reverse mortgage lender, as well as a reverse mortgage counselor, can help alleviate any concerns a homeowner may have.

Janis Layman is a Reverse Mortgage Specialist serving the Seattle, Lynnwood, Edmonds, and Shoreline areas of Washington.  Contact Janis and learn if reverse mortgage is right for you.

 

What Happens to a Reverse Mortgage After the Owners Pass Away?

Posted on by Janis Layman

Reverse Mortgage Seattle Lynnwood Edmonds Shoreline WashingtonOne of the most common myths surrounding reverse mortgage is that once the owners pass away, the heirs will be left saddled with debt or that the bank will own the home.  This couldn’t be further from the truth.  The home will transfer into the estate or a specific person according to the homeowners will, just as any home with a conventional mortgage would.  The major difference is that reverse mortgages are non-recourse loans and backed by the FHA, meaning no one will ever be held responsible for the debt.

Here are the options the heirs have after the owner either passes away or leaves the home permanently.

1.  Pay off the remainder of the loan

Depending on the amount of equity that still exists in the home, the financial situation of the family, and just the overall ability of those involved, this may or may not be a feasible option.  It’s not uncommon for a portion of life insurance to be used in this manner.

2. Obtain a conventional loan.

Many mortgage specialists are familiar with the reverse mortgage process and the right one  will be able to help those in need identify the best route in obtaining a conventional loan and keeping the home.

3. Sell the home

The final option is to sell the home.  When there is not a desire to keep the home, the heirs can sell the home.

One last note, as long as the communication lines remain open, the bank will typically allow up to one year to help with the transition.  This one year is allotted in three month increments.

Janis Layman is a Reverse Mortgage Specialist serving the Seattle, Lynnwood, Edmonds, and Shoreline areas of Washington.  Contact Janis and learn if reverse mortgage is right for you.

 

What Is Third Party Reverse Mortgage Counseling?

Posted on by Janis Layman

Reverse Mortgage Seattle Lynnwood Edmonds Shoreline WashingtonPrior to being approved for a reverse mortgage, HUD’s Federal Housing Administration (FHA) requires each borrow to participate in a counseling session with an approved agency. These third party, not-for-profit agencies are funded by the federal government and work closely with both the FHA and lenders to ensure a smooth process.

The goal of this session is not to steer a potential borrower in one direction or another, but to make sure they clearly understand all aspects of a reverse mortgage, as well as to answer any questions.

Here is what you can expect at your counseling session

The potential borrower will need to schedule an appointment directly with a counseling agency. The lender does not initiate or take part in the session, but can provide you with resources to seek out a counselor. The session will take place in person or over the phone – although the FHA recommends a face-to-face meeting whenever possible.

Prior to your appointment, the counseling agency will provide you with a packet of information to allow you to prepare for the session. During the session the counselor will discuss your immediate and long-term financial needs, your reasons for seeking out a reverse mortgage, address any questions or concerns you may have, and clearly educate you on the process as well as the pros and cons of a reverse mortgage. Again, they are not there to “sell” you on the product, but to educate instead.

Once you have completed the counseling session, you will be provided with a “Certificate of Completion”. This certificate verifies to your lender that you have completed the counseling session and that you understand the essentials of a reverse mortgage. Your counselor will also follow up with you to ensure you have no further needs, questions, or concerns.

About Reverse Mortgages

Reverse mortgage are available to seniors 62 and older, including married couples.  These non-recourse loans allow retirees to live mortgage payment free while tapping into the equity of their home.  How they use the funds is entirely up to them.

The money can be accessed in a variety of ways – including monthly installments, line of credit, and even can be used to purchase a home.  The loan will only come due when the last borrower leaves the home permanently or passes away, at which time the heirs will have several options when deciding what they want to do with the home, but because it is a non-recourse loan no one will every be “saddled” with debt as is a common misconception.

Janis Layman is a Reverse Mortgage Specialist serving the Seattle, Lynnwood, Edmonds, and Shoreline areas of Washington.  Contact Janis and learn if reverse mortgage is right for you.

Tips to Finding a Reverse Mortgage Lender

Posted on by Janis Layman

 

Reverse Mortgage Seattle Lynnwood Edmonds Shoreline WashingtonFinding a reverse mortgage specialist is one of the most important parts of the entire process.  Not only do you want to work with someone knowledgeable and trustworthy, you want to make sure YOU feel comfortable with them.  Here are some tips to finding just the right person.

Where to look?

Reverse mortgages are marketed in every possible way.  Television, radio, mailers, internet, etc.  Although not all of these methods ensure trouble, some of them can be scams.  When seeking a reverse mortgage lender, it’s important to speak with people you trust.  Ask around at your bank or financial institution.  Speak with a financial or retirement adviser.  Talk with neighbors or friends who have utilized a reverse mortgage.  Seek information from the local Chamber of Commerce or Better Business Bureau.   Utilize other resources that may be available in your community.

What to look for?

Working with a reputable reverse mortgage specialist is critical.  The reverse mortgage industry is riddled with scams and flashy sales.  It can be risky to get involved with a lender who does not offer all the details or who is just looking to make a “quick sell”.   A reputable lender and valuable specialist will have strong connections in the community, working closely with a network of professional organizations.

Accreditations and ratings?

Seek out a specialist or lender that is a member of the National Reverse Mortgage Lenders Association (NRMLA).  Members of the NRMLA must conform to a strict code of lending ethic.  Look for a lender that is affiliated with the  Better Business Bureau (BBB), where you can also learn of any complaints against the company.

Follow your gut.

When it comes down to it, always follow your gut.  Just because a specialist may meet all this criteria doesn’t mean they will be right for you.  If you do not feel comfortable or feel your questions are not being adequately answered, there is nothing wrong with seeking out someone different.

Janis Layman is a Reverse Mortgage Specialist serving the Seattle, Lynnwood, Edmonds, and Shoreline areas of Washington.  Contact Janis and learn if reverse mortgage is right for you.

Use a Reverse Mortgage to Purchase a Home in Seattle

Posted on by Janis Layman

Reverse Mortgage Seattle Lynnwood Edmonds Shoreline WashingtonSeniors typically want to be homeowners, often purchasing a new home during their retirement years – some for the very first time.  The reasons they are looking to purchase varies, ranging from downsizing, eliminating burdensome stairs or extensive grounds upkeep, moving closer to family, or possibly purchasing their dream home in a different climate.  Whatever the reason may be, using a reverse mortgage to make the purchase is an option that should not be overlooked.

Prior to congress approving the Reverse Mortgage for Purchase (HECM for Purchase) program, homeowners that wanted to purchase a new home and obtain a reverse mortgage needed to do so through two separate transactions.  The downside of this is obvious.  First, when taking out a conventional mortgage, potential borrowers are held to the various income and credit standards of traditional mortgage lenders.  And second, the borrower is subject to closings costs and the headache of both loans.  Since the initiation of the Reverse Mortgage for Purchase program, seniors wishing to buy a new home and obtain a reverse mortgage are no longer subject to overwhelming standards.  With a Reverse Mortgage for Purchase and all the fees are wrapped into one transaction.

Some seniors are cash rich when buying a home, so the question arises why not wait to take out a reverse mortgage?  Why do it when purchasing?  When using the Reverse Mortgage for Purchase a down payment is required – but for cash rich borrowers, this means they have the opportunity to use their cash as a down payment and potentially purchase a home in a higher price range than they were originally planning AND still live mortgage payment free.  Or, on the other hand, if they don’t wish to shop in a higher price bracket, they can keep some of their cash since the reverse mortgage will cover a portion of the cost of the home.  The other major consideration is variable interest rates in the future, as higher rates will reduce the amount a senior can draw on a reverse mortgage.  Waiting can be a risky strategy if reverse mortgage is something being considered for the future.

Senior borrowers, 62 and over, can use a reverse mortgage for purchase to buy single family homes, town homes, and FHA approved condos as long as it has a certificate of occupancy. The home being purchased will need to be the buyer’s primary residence.  The required down payment will need to come from a HUD approved source.  And the borrower will be the owner of the home – just like with a conventional mortgage.  Click here to learn more about the details of Reverse Mortgage for Purchase.

Janis Layman is a Reverse Mortgage Specialist serving the Seattle, Lynnwood, Edmonds, and Shoreline areas of Washington.  Contact Janis and learn if reverse mortgage is right for you.

Can a Married Couple Get a Reverse Mortgage?

Posted on by Janis Layman

Reverse Mortgage Seattle Lynnwood Edmonds Shoreline WashingtonMaybe you have been looking at reverse mortgage online and as you read and learn, the question keeps arising: ‘what about my spouse?’  This is a perfect starting point for understanding the long term effects of taking out a reverse mortgage as a couple.

Here are a few points to understand:

• As long as both spouses are age 62 or older, they can both be on the loan.  If only one spouse is over the required age, a loan can still be obtained, but the loan will not continue for the ineligible spouse if the borrowing spouse were to pass away or leave the home permanently.

• Always bear in mind that the reverse mortgage amount is calculated from the age of the youngest borrower. The older the age, the more money is available.

• There are a few choices when it comes to the loan that will affect its status depending on who is listed as borrower(s).  If both are on the loan, when one passes away the loan continues as it was originally set up.  The loan will not become due until the other borrower passes away or leaves the residence.

• If both are on the loan, if one spouse needs to leave the home permanently, such as to move into a health care facility, but the other stays in the home, the reverse mortgage will continue as originated.

• If both are on the loan, and one spouse passes away, while it is true the remaining spouse will continue on with the reverse mortgage unscathed, things will change if they remarry. While remarrying will not affect the original borrower, it can affect the new spouse if the borrower were to pass away or leave the home permanently.  Reverse mortgage does not include the second spouse automatically.  Refinancing or adding the new spouse would have to be considered.

If you are married and considering a reverse mortgage, whether traditional or a reverse mortgage for purchase, choose a reputable reverse mortgage specialist to work with. They can lay out all your options and help you see the long term picture of what will happen in all the different possible scenarios.  It is also especially important to make sure everyone feels comfortable and no one is being pressured into a scenario that could potentially end badly if the proper precautions are not put into place.

Janis Layman is a Reverse Mortgage Specialist serving the Seattle, Lynnwood, Edmonds, and Shoreline areas of Washington.  Contact Janis and learn if reverse mortgage is right for you.