Borrower Qualifications

Finding Out If You Qualify for Remortgage

Almost anyone who meets the basic requirements can get a reverse mortgage. You don’t need perfect credit, you don’t need a down payment, and you don’t need a steady job. In fact, none of those points matter in a reverse mortgage.

Aging gracefully

Though you may feel discriminated against because of your age in some facets of life, reverse mortgages were designed especially for you. In order to receive a reverse mortgage you must be at least 62 years old. No exceptions.

But wait, it gets even better. The older you are, the better you’ll do on a reverse mortgage. Why? Because lenders know that the younger you are, the longer they’ll have to pay you. Lenders use actuarial charts (just like insurance companies) to guess how long you’ll be in your home. The charts aren’t a crystal ball, and they’re not always right, but they give a pretty good estimation. Then lenders calculate your loan based on your age, your home’s value, and whatever the current interest rates are.

Look at Table 3-1 for an example of how your age can work for you in a reverse mortgage. Let’s say our borrower, Nathaniel, owns a home worth $235,000 in Jenkintown, PA, and owes no outstanding mortgage debt. He’s choosing a Home Equity Conversion Mortgage (HECM) reverse mortgage product and wants a lump sum, giving him all his money in one big check. We’ll pretend for our purposes that interest rates don’t change into the future (although in real life, Nathaniel’s initial loan amount would be affected by rising and falling rates). The table shows how much Nathaniel could expect to borrow if he closed the loan at particular ages. Notice that the older our fictitious borrower gets, the more money the lenders are willing to loan him.

How Age Affects Your Loan

Age at time of Total loan amount loan closing available

1. 62 $116,754
2. 67 $126,806
3. 72 $137,401
4. 77 $148,796
5. 82 $160,349
6. 87 $171,433
7. 92 $182,354

The typical age for reverse mortgage estimates is 75, because by then you’re old enough to get a pretty hefty check but young enough to be able to enjoy your new income. When you see examples of reverse mortgage calculations (in this book and in the world at large) you’ll probably notice that the hypothetical borrower is 75. It’s not a magic number, and by no means should it be seen as any sort of limitation, but as far as the lenders go it’s the perfect win-win age.

There’s a disadvantage to this age system, however. If a couple, ages 62 and 75, want to get a loan, you may think they should be able to get a pretty good-sized check since 75 is just about the ideal reverse mortgage age. But that’s not the case. For most reverse mortgage loans, the age used to calculate the loan is that of the youngest borrower (sneaky, isn’t it?). If Nathaniel (age 75) and his youngest brother (age 62) want to live together to save some money, their reverse mortgage will be calculated using his brother’s age, which means a lower loan amount. On the other hand, Nathaniel and his brother may find that they can get a larger sum with a Fannie Mae Home Keeper loan (see Chapter 6) because Fannie Mae uses a combination of borrower ages to determine the available funds.

No matter what your age, if you are interested in getting a reverse mortgage, find out what your options are from your originator

Read more...

Home Equity Conversion Mortgage

By far the most prevalent of the three main options, the Home Equity Conversion Mortgage (HECM, sometimes pronounced heckum; Take a look at some of the main points of an HECM loan:

The loan is calculated based on the age of the youngest qualified borrower.

Eligible homes include most single-family, condos, townhouses, and manufactured homes built after 1976 (ask your originator about HUD guidelines and requirements for manufactured homes).

Lending limits (the amount you can borrow, also called the principal) are lower than other options, yet you can often get a higher principal than you would with others because of lower interest rates.

Loans top out at $312,896 in high-home-value areas, $172,632 in lower-home-value areas (based on 2005 county lending limits).

Interest rates can be based on monthly interest adjustments or annual adjustments (you won’t pay anything until the loan is due, it just accumulates).

Your money is easily accessible and payment options are very flexible.

Read more...

Common misconceptions about reverse mortgage

Seniors often tell us that they were considering a reverse mortgage until a friend or relative said something like, “Reverse mortgage?! Don’t you dare! They’ll take your house! Stay away!” We’d like to say that these fears are completely unfounded; unfortunately, they stem from a very old version of reverse mortgages (which are no longer done) that, in hindsight, weren’t such a hot idea. Today’s reverse mortgages are safe, effective, and definitely in the best interest of the borrower. It’s a whole new generation of loans.

Although they were revamped and vastly improved in the past 20 or so years, people still tend to think of them as a poor choice for seniors. We’re here to fix that. Take a look at the misconceptions below, and the truths that follow:

The lender gets your house. This is by far the most widely misunderstood fallacies about reverse mortgages. In fact, you keep ownership of your home. The lender has no rights to your home and can’t foreclose on you as long as you keep up with your taxes and insurance. Part of the confusion about this area stems from the fact that many reverse mortgage borrowers choose to sell their homes to pay off the loan when they move. And it makes perfect sense — what do you need with that house if you’re not living there? But remember, you’re selling to another regular buyer, not the lender.

You’ll have no estate left. This one is sort of up to you. If you own anything when you die, you’ll have an estate left. If you spent all your money on pinball machines and then donated everything else to charity, you won’t. Many seniors are concerned that a reverse mortgage keeps them from leaving anything to their children. The fact is, the way you pay off your loan is up to you and your heirs. It’s also up to you to decide who you want to leave your estate to. Unless you form an emotional bond with your lender and leave your estate to them, your family or whomever you name in your will is the inheritor of your estate. Of course, they need to pay back the loan, but it’s up to them how they carry out that responsibility.

You won’t qualify because of poor credit. If you have bad credit, or even moderate credit, you may have been turned down for a loan in the past. It’s embarrassing, frustrating, and inconvenient. Reverse mortgages work differently: You can never be denied a loan because of bad credit — it’s not even a consideration in your approval. The originator or lender runs a credit report, but it’s only to make sure you don’t owe the government any money (usually in back taxes). If you do, you have to use a portion of your reverse mortgage money to pay back those debts before you can start spending on yourself.

You have to be debt free. While you are required to own a home in order to get a reverse mortgage, you do not have to own it “free and clear.” One of the benefits of a reverse mortgage is that it can help pay off your remaining forward mortgage, leaving you without house payments for what may be the first time in your adult life. Here’s how it works: The lender determines how much it can let you borrow and then deducts the amount you still owe from your available funds.

That money pays off the first loan, and then you’re free to do

what you wish with the rest of the money.

Only desperate people get reverse mortgages. At one time, this may have been true. However, today’s reverse mortgage borrower is more likely to get a loan out of want, rather than need. In fact, a growing number of people who have no immediate need are taking out these loans because they like the security of having a financial cushion, or are planning for future expenses. Take a look around and ask yourself if you could use several thousand dollars. Who doesn’t? Don’t let an antiquated stigma keep you from getting the money you want or need.

Read more...