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...

Knowing when you shouldn’t get a reverse mortgage

As a rule of thumb, reverse mortgages are designed for people who plan to live in their homes for at least five years (but more likely 8 to 12 years). Some senior homeowners are over optimistic about their current living situations, believing that they can continue living in their homes indefinitely, even though their doctor or concerned family has other ideas. Others aren’t patient enough to wait a few years to make the loan worthwhile before picking up and moving to Cancun. Of course, if you’re on the elder end of the borrower spectrum and need the funds from a reverse mortgage despite the fact that you may only hold the loan for a couple of years, don’t let that five-year timeframe keep you from seeking out the loan. Again, only you and your lending professionals know what’s right for you, but you’ll probably want to think twice about getting a reverse mortgage if any of these apply to you:

Your home is damaged beyond the point of repair. Reverse mortgages are great for revamping a few rooms, or making a home more accessible, but they don’t work miracles. Unlike the shows you may have seen on TV, you won’t be able to tear down your home and build a new one if there are major structural or foundation problems. Dangerous electrical or plumbing may also be an issue. Sometimes it’s better to cut and run. You may be able to purchase a new home with the Home Keeper for Purchase, but don’t expect anyone to let you stay in a house that’s crumbling.

You’re young and have plenty of money. Just because you’re 62 doesn’t mean you need to run out and apply for a reverse mortgage. The lenders aren’t going anywhere — there’s no rush. In fact, as we noted earlier, the younger you are, the less money you’ll get from your loan. If you can live off your nest egg for a few years, wait to get your reverse mortgage. Not only will you save money, you’ll get more money as well.

You think you’ll want to move out in the next couple of years. Reverse mortgages get less expensive the longer you have them. Moving out too soon means you’ll pay more for the privilege of having a loan, which is less money you’ll have for your fun and extravagant lifestyle or for the needs you took the loan out for in the first place. If you stay longer, you win. A reverse mortgage isn’t usually the best short-term solution.

You are ill and don’t believe you’ll live as long as the lender predicts. Just like moving out too soon, it doesn’t make sense to take out a loan that you know you’ll never be able to fully enjoy. Keep in mind, however, that sometimes need overrides financial considerations and the reverse mortgage is still your best choice. The loan may allow you to live out your last years more comfortably than your could otherwise manage. Make sure your counselor explains the pros and cons, and don’t be afraid to tell him or her about your condition. They need to know all the facts.

You have a spouse or other person living in your home who doesn’t qualify for a reverse mortgage. The loan becomes due and payable when the borrower (or last remaining borrower) permanently leaves the residence. That means if you get the loan when you’re 65 and your spouse is 57 and you die or move out for any reason, your spouse will be responsible for paying off your mortgage, which often means selling the house. If you can’t add all residents to the mortgage, you may want to wait or seek out a different option.

Read more...

Remortage How to Keeping Your Options Open ?

There are some cases in which a reverse mortgage just isn’t right for you. There are a few main alternatives that counselors often suggest when a reverse mortgage is too costly, or your profile doesn’t fit with the needs of a typical reverse mortgage borrower. If your counselor feels that one may be a better choice for you, take his or her advice to heart. You can always reconsider when your situation changes.

Waiting: In many cases, waiting a few years to get a reverse mortgage really pays off. Since the lender calculates your loan partially based on age, the older you are, the more money you will most likely receive. Interest rates play a big part in determining your loan amount as well — when rates are low, you can probably expect a more out of your reverse mortgage. In a low interest rate market, you can figure on an extra $8,000 to $15,000 for every five years you wait, depending on the value of your home. If you can afford to hold off for five years (or more) it’s definitely worth it. For example, if you’re 65, own a $200,000 home, and are considering an HECM loan, you could probably get about $10,000 more out of your loan if you waited until you were 70. On the other hand, higher interest rates will produce less available funds. If rates seem to be rising, you may want to jump on current rates before they get too high. Either way, don’t wait too long — you want to have time to enjoy your newfound financial independence.

State loans: Some state loans, like the Deferred Payment Loan (DPL), work like a reverse mortgage — they give you money and you pay it back when your leave your home permanently. But there’s a catch . . . the DPL can only be used for a specific purpose, usually to repair something dangerous or unlivable in your home, whereas a regular reverse mortgage can be used for anything your heart desires. Another option is property tax deferrals that allow you to forego paying your property taxes for a while. These vary by state; some let you defer your payments forever, some only for a set timeframe. Both of these state loans offer very low interest and very low closing costs (if any). Check with your counselor to find out if other state loans exist in your area.

Selling your home: This is often the obvious answer to your problems — sell your home, use the money to buy something smaller or simpler to maintain or easier to maneuver around, and live on the excess money from the sale of your house. If you think you’ll be moving soon anyway, selling your home is usually the way to go. This assumes, of course, that you want to move, and that your home is worth enough to buy a new home with the equity. If you live in an average town in the Midwest and think you can buy a condo in San Diego with your equity, you’re in for a big surprise. Housing prices vary greatly across the country, so do your homework if you plan to retire in another area.

Another non-traditional alternative to selling your home is to work out an agreement in which someone (usually a family member or friend) buys your home and rents it to you for a nominal fee. They get the benefit of the home’s appreciation, and you get to stay in your home, collect on the sale of the house, and reduce your payments. Still, some people prefer not to mix family and money, and for good reason. Be sure to discuss this kind of arrangement in detail, and involve a real estate professional if appropriate.

Sharing space: Your financial situation might be such that you don’t need a huge sum of money for any big vacation or fancy new bathroom. You just need money for the essentials or to supplement your Social Security. Your counselor could bring up the idea of sharing a home with a friend or relative in a similar situation. Do you have a sibling or sewing club friend who is also in need of a little monthly help? Invite them to live in your spare bedroom, charge them a fair rent, and meet your monthly requirements. You may also consider moving in with an adult child. This is an ideal situation for some families, but it can be a huge lifestyle change and is not a decision to be taken lightly.

Refinancing with a forward mortgage: Okay, maybe the idea of having a new payment to worry about doesn’t thrill you, but if you can reduce your payments, a forward mortgage may help cushion the savings or retirement income you’re living off of today. ARMs (adjustable rate mortgages) always have lower interest rates, which means a lower monthly payment.

Keep in mind that because forward ARM interest rates change frequently (usually once per year) what may have been a great interest rate last year can suddenly skyrocket next year. If you’re uncomfortable with an unpredictable interest rate, an ARM may not be the best choice for you.

Home Equity Lines of Credit can also be a good option, offering another way to use your equity now. Downsides are that they sometimes have a higher interest rate over the long term; they have a minimum monthly payment (that’s you paying the lender); and some have a balloon payment built in, which forces you to pay more after a certain time period.

Public assistance: Many people think of public assistance as a negative, and would often rather protect their pride than get the help they need. Don’t be one of those people. Public assistance is nothing to be ashamed of, and can give you all kinds of breaks on daily expenses. There are meal delivery programs for those who can’t cook anymore (whether it’s due to inadequate funds or mobility), prescription drug benefits, medical assistance, transportation for those who can’t drive, in-home helpers, and many, many more opportunities for help. Several resources aren’t being utilized by enough people. You’ve paid for these public assistance programs through taxes all your working life. This is the time to reap the benefits of your own tax dollars.

A great resource for all types of help is the Area Agency on Aging. They can give you information about some of the options listed here, plus reduced energy bills, tax support, and more. Contact them at 800-677-1116 or online at www. eldercare.gov. Another great resource is a Web site called www.BenefitsCheckup.org. BenefitsCheckup is sponsored by the National Council on the Aging and works by creating a profile of you and your needs and matching it to all the programs out there that may be able to help you. All you have to do is fill out a questionnaire and let the Web site do the work. Your results will include information about each organization and how to contact them to apply for benefits.

Of course, with hundreds of thousands of individual circumstances, your counselor may be able suggest another alternative that’s tailor made just for you. The point is: You have options. Just because you’re reading up on reverse mortgages doesn’t mean you’re locked into a loan. Before you meet with your counselor or your originator, keep an open mind to all options so you find what works best for you.

Read more...

Reverse Mortgage Is Right for You ?

Reverse Mortgage Is Right for You

Human needs can be broken into categories, with some areas carrying more weight than others — like a what-you-need pyramid. At the base of the pyramid, you may place things like food and shelter, and toward the top, less tangible items such as self-esteem and independence. Reverse mortgages can address all of the essential human needs when the mortgage is taken out responsibly and in your best interests. It can help pay for your basic needs, while affording a sense of peace and financial independence that only comes with the security of money in the bank.

As great as that sounds, reverse mortgages aren’t a magic solution for every household. Before you start buying up toys and timeshares, create a detailed budget of what you need per month. The things you need depends on how loosely you use the term, but you can consider the things you need as the non-extravagant items that get you from day to day. Food, medicines, health care, a safe place to live, electricity, water, gas, car payment, insurance, taxes — these are all needs that you’ve probably become accustomed to. Include everything from toothpaste to home repairs to your pet’s medications . . . anything you wouldn’t be willing to forego.

Preparing a needs budget

To account for your needs, simply look to your wallet. Each of your essential needs has a price, and knowing what you spend your money on is an easy way to focus in on your true needs versus your want-to-haves. Start paying attention to every item or service you pay for, and write it all down in a specially designated notebook or pad that you can carry with you. After a few weeks, take a hard look at your list and circle the expenses that you simply aren’t willing to give up. These are the things you personally need. Now consider what your needs alone are costing you per month. It can be a shock to see how quickly it adds up! Check out Table 2-1 for a sample needs budget. Notice that the list of needs isn’t strictly food and shelter, but also costs that have become associated with this imaginary senior’s standard of living.
Table 2-1 Sample Needs Budget

Need Cost per month

Phone bill $39.99
Electric bill $22.00
Cable bill $45.00
Water bill $10.00
Car insurance $115.00
Gasoline $40.00
Groceries $150.00
Prescriptions $67.89
Pet food $12.50
Pet medication $35.00
Hair cut and/or set $45.00
Life insurance $60.00
Daily paper $15.00
Postage stamps $7.35
Weekly lunch with sister $60.00
Internet connection $9.95
Club membership $35.00
Housekeeper $50.00
Total $819.68

You can see how quickly these things add up. Now take an honest assessment of your own list. Determine if you can pay for all of these needs now. If not, figure out how much more money you need to meet your expenses. Don’t forget to consider cutting back on your expenses to meet your budget.

However, even when you live on a tight budget, your expenses may be more than you can handle. Many people find that their pennies are pinched so tightly they’ve got “one cent” permanently imbedded in their thumbs, and yet their monthly expenses still come up higher than their monthly income affords. A reverse mortgage can change all that, giving you the extra padding you need to keep your life running normally, without giving up your necessities. If the things you need have become the things you’re struggling to get, a reverse mortgage may be able to give you the economic boost you need to make ends meet.

Paring down your needs

When you look at what you spend each month, or even each week, you may be shocked by how much money goes flying out of your wallet. You spend $5 here and $2 there, which all seems perfectly harmless until you realize that you’ve spent $150 in one month on ceramic toothbrush holders and yet another pair of slippers.

We would never tell someone not to buy the things they really need. By all means, if your feet are cold, buy more slippers. But first, take a peek under the bed and see if you can save yourself a few bucks by using what you already have. We know a woman who moved out of her home after 10 years and found 38 pairs of nearly identical sunglasses throughout her house — she just kept buying new ones each time they were lost. At $10 a pair, that’s $380 down the drain.

You may be surprised at how much you can save by simply eliminating one small thing. While this is by no means a complete list, here are some simple suggestions to get you thinking about how you can reduce some of your expenses:

Try going to the movies less frequently. If you can’t forego having a weekly movie night or several nights a week dedicated to movies, try renting or hit the matinees (and don’t forget to ask for the senior discount!).

• Consider getting your hair done every 12 weeks, rather than every 6 weeks.
• Assess whether you really need to go shopping for junk at the bargain store every weekend.
• Experiment with different, less expensive brands at the grocery store.
• Sniff out the bargains. Check out whether you can find a similar item somewhere else for a better price.

Keep track of your things. If you find yourself repurchasing things because you lost the original . . . for the sixth time, perhaps you can devise a way to make sure the items you lose most often have a special place of residence.

Pare down to basic cable (who really watches all those channels anyway?) and you could save about $400 per year.

Make coffee at home every morning instead of going out to a café and you could save around $900 per year!

Hopefully, this list gets you thinking about your spending habits — perhaps you don’t need more money, just less spending! Many seniors need to make every dollar count, especially since newly retired people may not be used to living on such a fixed income. It takes some planning and careful spending to make any income, including a reverse mortgage, work for your budget.

If you can afford your current lifestyle by budgeting a little tighter, you may not need a reverse mortgage for your daily living. Mortgages cost thousands of dollars in fees, interest, and little incidentals. You may be able to skip all that hassle and expense by simply watching your wallet a bit closer. If you think you’ll need access to more money in the future (your income is running out or you’re expecting big medical bills) you may be able to wait a few years and still save yourself some money. On the other hand, if you need a little extra so that your necessities don’t have your wallet running on empty, a reverse mortgage may be just the thing.

Read more...

Poor Credit Loans Payment Options

You know how lottery winners get to choose whether they want their money in installments or one lump sum? Well you may feel like you won the lottery when you decide how you want your reverse mortgage funds to arrive. Each loan has its own set of payment options (that’s payment to you, from the lender). Listed here are the main payment options, along with which loans offer them. As you read down the list, think about which one would fit best in your lifestyle.

Tenure (HECM and Home Keeper): If you like the security of having stable, steady monthly checks deposited in your bank account, monthly tenure payments may be for you. The biggest advantage of this option is that no matter how long you have the loan (stay in your home), the lender continues to pay you — even if you’ve gone beyond what the lender originally agreed to lend you, and even if you live 30 years longer than anyone expected. The downside is that fixed monthly payments don’t allow for sudden large expenses and don’t adjust for inflation down the road.

Term (HECM and Home Keeper): A monthly term payment has the security of getting equal monthly checks like the tenure plan, but you decide how long you continue to receive payments. The shorter the term, the more money you get per check. For example, if a lender sets your principal at $100,000 and you want to receive it over eight years, that’s about $1,041 per month. If you decide instead to get your payments over five years, you’re looking at $1,666 per month. That’s a sizeable difference! But remember, once that term is over, you’re out of money.

Lump sum (HECM, Home Keeper, and one Cash Account option): Have you always dreamed of rolling around on a pile of money? Choosing a lump sum means you get the entire amount of the loan in one big check. It’s up to you how you want to budget it per month, and it’s up to you to make sure it lasts as long as you plan to live in your home. If you have a very large expense that you absolutely must pay in full, a lump sum could do the trick, although a better option is often a line of credit (see the next bullet).

Line of credit (HECM, Home Keeper, Cash Account): A line of credit (also called a credit line) works very much like a savings account. You have access to the entire loan amount, but since you have to send in a form to get it, people are often more mindful of how their money is spent than they may be with a lump sum. In addition, depending on the loan, you can earn interest on the money you haven’t yet borrowed.

Combination (HECM and Home Keeper): Can’t decide? Maybe a combination of payment options is your best bet. You can choose how much you want to receive upfront (through a lump sum, line of credit, or both) and designate the rest to a monthly payment. Or work backward — figure out how much you need per month, multiply that by the number of months you expect to stay in your home, and leave the rest in a line of credit. The combinations are virtually endless because they’re tailor-made for you.

Read more...

Remortgage Getting Paid

Of course, what you’re really interested in is the money. This is one time in your life when it’s perfectly okay to be focused on material things. After all, that’s what a reverse mortgage is all about — lending you the money you need to buy the things you want. This is also the easiest part of getting a reverse mortgage: The lender determines how much you can borrow and you simply pick your payment option and start receiving money. No sweat. Still, there are some things you need to know about payments, your current financial issues, and the country’s financial issues before you make a decision.
Figuring out how much you can get

Without sitting down with an originator, there’s no way to tell you for sure what you can borrow from a reverse mortgage. We wish we could give you a simple formula, but there just isn’t one.

Your age: Generally, the older you are, the better off your loan situations because the lender figures it won’t have to work on your loan as long as if you were a spring chicken.

Your home value: More equity equals more money available to borrow.

Your area: Higher home values in the area means higher loan values for you if you choose an HECM or Home Keeper (which both use county medians to determine your loan principal).

Interest rates: This is the one factor where less is more — the lower the interest rates, the higher the principal.

If you can wait a few years to get your loan, it will be worth it in the increased principal. Most people who wait at least five years are pleasantly surprised to find their loan amount has gone up . . . to the tune of a few thousand dollars. Don’t wait so long that you can’t enjoy the cash flow — that trip down the canals of Venice will probably be a lot more fun at 68 than at 98 — but don’t rush out and get a loan on your 62nd birthday if you don’t really need it yet.

Also, each loan has its own system of determining loan value. For example, no matter what your home is worth, Fannie Mae’s Home Keeper bases the amount available to you on a scale as compared to the national lending limit ($359,650). On the other hand, the Cash Account has no set limit. It bases its principal solely on your age, home value, and interest rates.

You can get an estimate of what each loan may be able to offer you using online reverse mortgage calculators. The NRMLA calculator (find it at www.reversemortgage.org) is a good indicator because it breaks down the entire loan, from what your estimated costs are to how much you get per month. However, they don’t show you what you could get with a Cash Account, only HECM and Home Keeper. For a side-by-side comparison of all three loans, visit www. financialfreedom.com and take a spin on its reverse mortgage calculator.

Read more...

Figuring Out the People in Your Mortgage: Appraiser

Unlike the counselor and originator (who hold meetings at their office), the appraiser comes to you. No matter which reverse mortgage product you decide on, an appraiser is required to come out to your home and give it the once over to determine its value.

Depending on home values in your area and the last time you had your home appraised, you may be pleasantly surprised to find out what your home is worth in today’s market. Keep in mind that appraisals are largely subjective, and although they follow a certain protocol, appraisers have to simply use their best judgment to set your home’s fair market value.


The appraisal visit is nothing to worry about, as long as you’ve kept up your home maintenance over the years. Either way, it couldn’t hurt to do a bit of sprucing up; clear your yard of any debris, clean your home the way your would if very special company was coming over, and fix any little things that you’ve been putting off if you can reasonably afford to do it. Also, gather up your home records — if you’ve ever had work done on the home (and who hasn’t?) try to find those statements. The appraiser will be impressed by a home that’s well-kept, but they won’t be impressed by receipts for granite countertops. Don’t start waving your credit card statement under the appraiser’s nose to prove how much you spent refurbishing the master suite. The money you put into a home never fetches an equal value when it’s appraised.

Since you can’t sway the appraiser’s evaluation with cookies or compliments, the best thing you can do during the process is sit back and let him or her work. Be ready to answer questions, but don’t hover or even follow the appraiser from room to room. If you need something to do, make a list of all the fabulous things you can do with your reverse mortgage income.

Read more...