In today’s tricky economy, sometimes it can be challenging trying to finance retirement; especially when you decide it’s time for either yourself or a loved one to move to senior housing. A Place for Mom has contacted a Reverse Mortgage Specialist to help educate seniors about the pros and cons of reverse mortgages.
We have to be creative when it comes to retirement financing these days. Many seniors and families felt the financial blow of the mid 2000s with the economic recession, housing crisis and hit to the stock market. Preparing for retirement as a baby boomer involves a little finesse and education.
Today reverse mortgages have become an option for helping to finance care. Sue Winters of 1st Reverse Mortgage USA answers some basic questions about reverse mortgages to help demystify the reverse mortgage process and help you decide whether they may be right for you or your family. Read the question and answer below to get a little reverse mortgage education.
Sue Winters: My team and I work with homeowners age 62 and older, their families and trusted advisors, to educate them on reverse mortgage, the pros and cons. We help the evaluate whether a reverse mortgage would help them achieve their financial goals and meet their needs during their retirement years. While a reverse mortgage isn’t for everyone, it is an effective finance tool that allows a homeowner to convert their equity in to tax-free funds to supplement income, pay off debt, cover medical care and prescriptions, and overall improve quality of life.
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SW:A reverse mortgage is a government insured loan program that allows senior homeowners to convert a portion of the equity in their home into usable cash.
There are no tax consequences, you do not forfeit any of your rights as the homeowner, you or the heirs of your choosing decide when or if the home is to be sold, and when the loan is repaid 100% of the remaining equity belongs to you, your heirs or your estate.
The concept is simple. You have spent years building equity in your home by paying off (or paying down) your mortgage, and through the appreciation in your home’s value. A reverse mortgage simply allows you to withdraw a portion of that equity, use it any way that you like, stay in your home for as long as you like, and when you are ready to sell your home, or you have passed, the loan is repaid.
SW: Traditional mortgages are based on the homeowner’s ability to make monthly payments and for this reason things like credit, employment, income and other assets are considered in the qualification process. A reverse mortgage does not require any form of monthly repayment and therefore none of those factors are considered. There are three basic requirements to qualify for a reverse mortgage:
You must also not be delinquent on any federal debt and YOU MUST participate in a consumer information session given by a HUD- approved HECM counselor.
You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.
SW: A reverse mortgage known as a Home Equity Conversion Mortgage is an FHA insured mortgage program specifically for homeowners age 62 years and older. It is easy to qualify for and provides access to one’s equity without being required to make a monthly mortgage payment (you are still required to maintain your property taxes and you homeowners insurance). Because it is a federally insured loan there are many safeguards in place to protect senior homeowners. HUD (The department of Housing and Urban Development requires all applicants for a reverse mortgage to complete a reverse mortgage counseling session with a HUD approved counseling agency before they make application for the loan. The counseling process protects against predatory lending and ensures the homeowner completely understands the program before proceeding with the loan. A reverse mortgage is a safe and effective home financing tool when utilized by well-informed consumers.
SW: The cons of a reverse mortgage is that it is a loan and there are costs associated with obtaining a reverse mortgage. The costs are very similar to other types of federally insured (FHA) loans and include the FHA mortgage insurance premium, origination fees, appraisal, title insurance, escrow services and other fees particular to the home state of the property. The other fact to consider is that since no monthly payment is required, the mortgage balance will continue to increase over the life of the loan. That is referred to as a declining equity loan. So while your home may be increasing in value from year to year, your mortgage balance is also increasing. When inquiring into a reverse mortgage, the consultant you are working with can prepare detailed information to show you how your loan may look in the future considering that no payments are being made and the home’s value is increasing.
The most important thing that an older homeowner can do when considering a reverse mortgage is to work with a reputable reverse mortgage professional who is local to them and available to meet in person and to explain in detail the various options, the pros and cons and what to expect not only during the application process but to be available after the loan closes. It is important to choose a Reverse Mortgage Lender who’s only focus is reverse mortgage and also to find someone local to you who understands the specifics of lending in your state. Talk to your friends and trusted advisors (i.e. attorney, financial planner, accountant, realtor, etc.) for a referral that you can trust. Avoid out of state solicitors and brokers who do not focus on reverse mortgage as their primary business.
Read A Place for Mom’s article about the Benefits and Downsides of Reverse Mortgages. You can find additional information on the HUD website:http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/hecmabou or at our website www.1strmusa.com