I have often heard people say that they believe all of the equity in the home has been given away when using a Reverse Mortgage. The initial Reverse Mortgage is generally a fairly small percent of the property's value. I would say most Reverse Mortgages are around 45-70% of a property's value.
Over time the loan will grow, and hopefully the value of the home grows as well. There is a possibility down the road that the loan can be as much as the value of the home, but from the beginning there is a lot of equity remaining.
Helping Senior homeowners to stay at home and maintain a good quality of life
Tuesday, December 20, 2011
Myth - The Reverse Mortgage can only be used for refinances...
This used to be true, but in 2009 the HECM (Home Equity Conversion Mortgage) insured by FHA was approved to be used for purchases...
This allows seniors to downsize without having to utilize all of the proceeds from the sale of their previous home and still have a home with no monthly mortgage payments.
Another option this is being used for is for seniors who have enough savings that they can buy a home with 40-50%+ down and get a Reverse Mortgage for the difference, having no monthly mortgage payments. This can also come into play if the senior wants to keep their existing home as a rental.
This allows seniors to downsize without having to utilize all of the proceeds from the sale of their previous home and still have a home with no monthly mortgage payments.
Another option this is being used for is for seniors who have enough savings that they can buy a home with 40-50%+ down and get a Reverse Mortgage for the difference, having no monthly mortgage payments. This can also come into play if the senior wants to keep their existing home as a rental.
The Reverse Mortgage is expensive...right?
All Reverse Mortgages are expensive…right?
Many people have the assumption that all Reverse Mortgages(RM) have very high initial costs. This is not true.
With a Reverse Mortgage (RM) there are standard closing costs just as with a conventional mortgage. These include title, escrow, appraisal etc. Generally the two most significant costs on an RM on top of these costs are the origination fee and the upfront FHA insurance.
The origination fee has a maximum amount of $6,000 and the FHA insurance is 2 percent of the Maximum claim amount. This would be capped at $12,500 based on current maximum claim of $625,500. So on a deal that has all the maximums, the total closing costs could be around $20,000. This is rare as the FHA insurance would only be that high on properties that are worth $625,500 or more.
In 2010, the “Saver” program was introduced. On these programs, instead of the FHA fee being in the thousands, it can be more like $60. Also on some programs the origination fee can get down to as low as $0. So if you had a Saver program with $0 origination fees, the overall closing costs could actually be a little lower than on a conventional loan. In some cases, there can even be an additional
credit to go towards the closing costs.
So why doesn’t everyone just do the “Saver” program? The drawback on the Saver program is that the client receives less funds than on a standard program. This can make a difference for some who need every penny they can get. For those that do not need all of the funds they qualify for, the “Saver” program is a great option.
The costs involved with an RM are generally not out of pocket costs other than maybe the counseling fee (which can be around $120) and maybe sometimes the appraisal fee (Could be around $500). I always try to have the appraisal fee collected at closing. The other costs would just be added to the loan balance.
The closing costs being paid are really based on the program and funding needs of the client. A client needing maximum income and funds would most likely benefit by the loan with the higher initial costs. A client consolidating existing debt and not needing all the funds they qualify for would benefit by the “Saver” low-cost option.
Many senior homeowners have used the "Saver" option along with a line of credit option as a financial planning tool, utilizing these funds and not touching current investments or deferring Social Security income.
The RM is for senior homeowners (62+) who may have a need for additional income, debt consolidation, remodelling costs, in home assisted living etc...The decision on costs can be secondary to what is the best solution for the challenge.
Many people have the assumption that all Reverse Mortgages(RM) have very high initial costs. This is not true.
With a Reverse Mortgage (RM) there are standard closing costs just as with a conventional mortgage. These include title, escrow, appraisal etc. Generally the two most significant costs on an RM on top of these costs are the origination fee and the upfront FHA insurance.
The origination fee has a maximum amount of $6,000 and the FHA insurance is 2 percent of the Maximum claim amount. This would be capped at $12,500 based on current maximum claim of $625,500. So on a deal that has all the maximums, the total closing costs could be around $20,000. This is rare as the FHA insurance would only be that high on properties that are worth $625,500 or more.
In 2010, the “Saver” program was introduced. On these programs, instead of the FHA fee being in the thousands, it can be more like $60. Also on some programs the origination fee can get down to as low as $0. So if you had a Saver program with $0 origination fees, the overall closing costs could actually be a little lower than on a conventional loan. In some cases, there can even be an additional
credit to go towards the closing costs.
So why doesn’t everyone just do the “Saver” program? The drawback on the Saver program is that the client receives less funds than on a standard program. This can make a difference for some who need every penny they can get. For those that do not need all of the funds they qualify for, the “Saver” program is a great option.
The costs involved with an RM are generally not out of pocket costs other than maybe the counseling fee (which can be around $120) and maybe sometimes the appraisal fee (Could be around $500). I always try to have the appraisal fee collected at closing. The other costs would just be added to the loan balance.
The closing costs being paid are really based on the program and funding needs of the client. A client needing maximum income and funds would most likely benefit by the loan with the higher initial costs. A client consolidating existing debt and not needing all the funds they qualify for would benefit by the “Saver” low-cost option.
Many senior homeowners have used the "Saver" option along with a line of credit option as a financial planning tool, utilizing these funds and not touching current investments or deferring Social Security income.
The RM is for senior homeowners (62+) who may have a need for additional income, debt consolidation, remodelling costs, in home assisted living etc...The decision on costs can be secondary to what is the best solution for the challenge.
Friday, December 2, 2011
Good News - $625,500 extended through 2012
December 2nd, 2011 | by Alyssa Gerace Published in News, Reverse Mortgage
The current maximum claim amount of $625,500 for Home Equity Conversion Mortgages (HECMs) has been extended through 2012, according to the Department of Housing and Urban Development (HUD).
When President Obama signed the Transportation, Housing, and Urban Development (THUD) spending bill into law on Nov. 18, effectively re-raising FHA-insured forward loan limits from $625,500 to $729,750, lenders were left wondering the plight of reverse mortgage loan limits.
Although they had previously been extended through the end of December 2011, the possibility remained that the limits would revert back to their former ceiling of $417,000.
Now, however, it looks like some lenders, especially those in high-cost areas, have gotten an early Christmas present. A Nov. 23 FHA update reminds lenders that the maximum claim amount for HECMs is not affected by the THUD spending bill (HR 2112), and says the limit remains at $625,500 as stated in Mortgagee Letters 10-40 and 11-29.
“This loan limit will remain the same for 2012 and will be included in the pending Mortgagee Letter,” says the update.
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