480-600-5972 Desert Equity Lending, LLC  AZBK 0906989  NMLS 173369

What is a Reverse Mortgage?

A reverse mortgage allows you to access a portion of your home's equity to payoff your existing mortgage and other debts (eliminating monthly loan payments), set money aside for future use, or put cash in your pocket via monthly payments and/or cash at closing.

The first reverse mortgage was written to Nellie Young of Portland, Maine by Nelson Haynes of Deering Savings & Loan in 1961. Haynes designs this unique type of loan to help the widowed wife of his high school football coach to stay in her home after losing her husband.  The reverse mortgage still serves the same purpose, provide home owners with a financial option to use the equity in their home to help cover the rising costs of living/housing expenses and "age in place", but has evolved into a very powerful financial instrument.  Today there is more protection for homeowners and their spouses and has helped millions of families better plan for retirement.

The most common and only reverse mortgage insured by the U.S. Federal Government is called a Home Equity Conversion Mortgage (HECM).  Jumbo reverse mortgages are also available for homes with values greater than what HUD will insure.  As of January 1st 2019 the HECM proceeds are limited to a max value of $726,525.  If the home's value is greater than $726,525 we can explore jumbo options to access more equity. 

 

The amount of equity you can access will depend on three things: the age of the youngest borrower (or eligible non borrowing spouse), the interest rate, and the appraised value of the home.  An eligible non borrowing spouse refers to a spouse under the age of 62 living in the home.  There have been added protections for eligible non borrowing spouses allowing them to continue to live in the home with no mortgage payment for the rest of their lives but won't have access to any of the monthly payments or funds set aside by the borrower should the borrower pass.  Once an eligible non borrowing spouse turns 62 they can be added to the mortgage through a refinance in order to access the funds.

 

Here are some basic requirements to keep in mind when considering a reverse mortgage.

Borrower Requirements

  • Be 62 years of age or older

  • Own the property outright or paid-down a considerable amount

  • Occupy the property as your principal residence

  • Not be delinquent on any federal debt

  • Have financial resources to continue to make timely payment of ongoing property charges such as property taxes, insurance and Homeowner Association fees, etc.

  • Participate in a consumer information session given by a HUD- approved HECM counselor

 

Property Requirements

The following eligible property types must meet all FHA property standards and flood requirements:

  • Single family home or 2-4 unit home with one unit occupied by the borrower

  • HUD-approved condominium project

  • Manufactured home that meets FHA requirements

 

Financial Requirements

  • Income, assets, monthly living expenses, and credit history will be verified.

  • Timely payment of real estate taxes, hazard and flood insurance premiums will be verified

 

Payment Options

There are more options for adjustable interest rate mortgages, you can elect one of the payment options or a combination of the options:

  • Cash at close - elect to take a portion, all, or none of the proceeds at closing 

  • Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.

  • Term - equal monthly payments for a fixed period of months selected.

  • Line of Credit - unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted. 

For fixed interest rate mortgages, you will receive the Single Disbursement Lump Sum payment plan.

Costs

  • You can pay for most of the costs of a HECM by financing them and having them paid from the proceeds of the loan. Financing the costs means that you do not have to pay for them out of your pocket. On the other hand, financing the costs reduces the net loan amount available to you.

  • The HECM loan includes several fees and charges, which includes: 1) mortgage insurance premiums (initial and annual) 2) third party charges 3) origination fee 4) interest and 5) servicing fees. The lender will discuss which fees and charges are mandatory.

  • You will be charged an initial mortgage insurance premium (MIP) at closing. The initial MIP will be 2%. Over the life of the loan, you will be charged an annual MIP that equals 0.5% of the outstanding mortgage balance.

  1. Mortgage Insurance Premium
    You will incur a cost for FHA mortgage insurance. The mortgage insurance guarantees that you will receive expected loan advances. You can finance the mortgage insurance premium (MIP) as part of your loan.

  2. Third Party Charges
    Closing costs from third parties can include an appraisal, title search and insurance, surveys, inspections, recording fees, mortgage taxes, credit checks and other fees.

  3. Origination Fee
    You will pay an origination fee to compensate the lender for processing your HECM loan. A lender can charge the greater of $2,500 or 2% of the first $200,000 of your home's value plus 1% of the amount over $200,000. HECM origination fees are capped at $6,000.

  4. Servicing Fee
    Lenders or their agents provide servicing throughout the life of the HECM. Servicing includes sending you account statements, disbursing loan proceeds and making certain that you keep up with loan requirements such as paying real estate taxes and hazard insurance premium. Lenders may charge a monthly servicing fee of no more than $30 if the loan has an annually adjusting interest rate or has a fixed interest rate. The lender may charge a monthly servicing fee of no more than $35 if the interest rate adjusts monthly. At loan closing, the lender sets aside the servicing fee and deducts the fee from your available funds. Each month the monthly servicing fee is added to your loan balance. Lenders may also choose to include the servicing fee in the mortgage interest rate.

Counseling

Our experienced local team will help guide you through the many factors to consider before deciding whether a HECM is right for you and to help you be able to make an independent, informed decision of whether this product will meet your specific needs HUD requires HECM borrowers meet with a HECM counselor to discuss program eligibility requirements, financial implications and alternatives to obtaining a HECM. 

 

Getting Started

The process is simple and easy.  We just need some basic information in order to provide and initial estimate and one of out team members will walk you through everything line by line and answer any questions you have before taking the time to complete the mortgage application.  Contact us today.