Purchase Reverse Mortgage or Post Sale Reverse Mortgage?

Seniors sold sign

I often see clients considering downsizing and selling their existing home to purchase a more modest home.

The decision: “Do I sell my existing home and pay all cash for the replacement home and THEN get a reverse mortgage line of credit or, do a reverse mortgage for purchase on the replacement home?

As well as being a licensed loan officer I am a real estate broker and have known in theory that it is risky to pay all cash on the new home and close escrow ASSUMING the replacement home will qualify for a reverse mortgage post sale, but have not had actual examples until, unfortunately, this year where I had several examples.

I did not meet with the individuals in these examples prior to the purchase of their replacement home; they came in post close of escrow to inquire about taking out a RM credit line. The sale of their prior home did not cover the price of the replacement home, causing them to dip heavily into savings accounts to pay all cash. In doing preliminary research on their properties I had to deliver the bad news: their replacement properties would not qualify for a reverse mortgage and they were shocked.

How could a reverse mortgage for purchase process, rather than paying all cash, have protected these folks? The RM for purchase process protects an individual via the real estate purchase contract contingency clause, giving them several weeks or more to go through the loan qualifying process with a loan officer, appraiser and underwriter working on their behalf to determine if the property and they will qualify for a RM. If the property and they receive loan approval they can confidently close escrow knowing their financing will be in place. However, if going through the process it is determined the subject property or they will NOT qualify for a reverse mortgage, the individual can walk away during the contingency period and not lose their earnest money deposit.

It’s wise to see a loan professional well in advance of selling an existing home and looking for a replacement as there are numerous RM pre-approval steps required.

 

Shawna McDonald, License Loan Officer, has completed hundreds of reverse mortgage loans and is approved with 10 reverse mortgage lenders. She is available by appointment. Sierra Foothills Reverse Mortgage 412 E. Main Street Suite N, Grass Valley, (530) 497-3010. Her website is www.SierraFoothillsReverse.com. NMLS #271335 | CalBRE #00585530 Borba Investments Inc. Company NMLS #76801 |Company BRE # 01446165 These materials are not from, and were not approved by HUD or FHA

 

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Clearing Up Common Misconceptions About Reverse Mortgages

SPRING IS HERE !

Misconceptions: The Lender Owns My Home

False. You remain on title as the owner of your home. You can decide to sell at any time. You are responsible for maintaining the home, paying property taxes and insurance, and HOA dues if applicable, all of which are standard clauses in any home loan.

 Misconceptions: My Kids Will Have To Repay My Loan out of Their Own Funds

False. Reverse mortgages are non-recourse loans. Which means that when the home is sold to repay the RM debt any remaining equity after the sale of the home goes to the original owner(s) or if they have passed away, the remaining equity goes to the designated heir(s). If the loan balance exceeds the sale price, there is no debt liability to the heirs, FHA insurance pays the remaining debt liability.

 Misconceptions: You Can’t Get A Reverse Mortgage If You Have a Mortgage

False. A Reverse Mortgage must be in first lien position, which means your existing mortgage will be repaid out of the proceeds of the RM loan, with the difference going to you as either a lump sum or set up as a residual line of credit to be drawn and spent over time at your discretion. If there is no mortgage on the home just a RM credit line is set up.

 Misconceptions: If You Are Not Low Income, You Do Not QualifyFalse. In fact an increasing number of Americans, upon advice of their financial planners, are obtaining Reverse Mortgage lines of credit to safeguard their retirement investments from excessive draws and the tax liability these draws may incur. Reverse mortgage proceeds are not taxable.

Misconceptions: If I Live Too Long I Can Get Evicted

False. You, the homeowner, cannot get evicted regardless of your age, this is a lifetime loan, provided you adhere to the rules of your loan: pay property taxes and insurance, maintenance and HOA dues; these are all requirements of real estate loans in general.

Misconceptions: I Can’t Use the Money at my Discretion

False. It’s your money. Whether you want to remodel or pay for upkeep of your home, pay for your child’s wedding, go on vacation, or leave some or all of the credit line funds untapped and available for emergencies, there are no restrictions on what you can do with your funds.

 

Shawna McDonald Loan Officer, has successfully completed hundreds of reverse mortgages and is approved with 8 reverse mortgage lenders, ensuring clients receive low fees and great rates. Her full service office, Sierra Foothills Reverse Mortgage, is located at 412 E. Main Street Suite N, Grass Valley, (530) 497-3010. Her website is www.SierraFoothillsReverse.com.

The opinions expressed here are solely those of Shawna McDonald, Loan Officer/Real Estate Broker. Copyright © 2016. All Rights Reserved. Shawna McDonald NMLS #271335 CA-BRE # 00585530 DBA Sierra Foothills Reverse Mortgage and Borba Investments Inc, DBA MLS Reverse Mortgage Auburn, CA NMLS #76801 BRE #01456165 ~ HUD approved lender.

Shawna McDonald Opines: Reverse Mortgage Changes Part 2: Safety Net for Seniors in Retirement is Still Here and Going Strong for 2014!

skating 3

“River” Joni Mitchell

“It’s coming on Christmas

They’re cutting down trees

They’re putting up reindeer

And singing songs of joy and peace

Oh I wish I could find a river I could skate away on….”

I don’t know about you, but I always get a bit melancholy around the holidays, (fire up Joni Mitchell’s “River” from her 1971 album “Blue” and I can get a serious melancholy on).  Call it the cost of getting older if you will, I’m newly minted as 61, many of us may have experienced the loss of a loved one during the holidays, (a special person in my life perished in a plane crash), and yet every year we also can chose to adjust the “sight prisms” we see things through so that we see ways to give back to our communities to those less fortunate, celebrate the loved ones and dear friends who surround us in the here and now,  and look to the new year for a promise of re-newed hope and beginnings.

This year has been a challenging one for the HUD supervised and FHA insured reverse mortgage program, and yet what we have to celebrate is that the program still here, viable, and raring to go for 2014, albeit with some changes, and yet still providing an important, I repeat, important, safety net for seniors to allow them to age in place and enhance their retirement experience.

I have completed close to 400 reverse mortgages in my 5 year career in the industry and the feedback I consistently hear from clients is:  “Before we did the reverse mortgage we had more month than money, now that our mortgage is paid off we can go out to eat in a nice restaurant once and awhile and even travel  to see our grandchildren more often”, or for the more affluent, “We may never need the line of credit, but we sleep better knowing it is there, set up, and ready to go if we need it.”

No mortgage program, even the government backed reverse mortgage loan program, is invincible to the collapse of home values experienced in many states. As a multi-stated loan officer I worked with borrowers in many states but in particular in California, Florida, Indiana, and Texas:  I struggled to get loans completed for my clients having to work with the devastated home values that appraisals were bringing in.  So it is no surprise to me that this year HUD swooped in and reduced the formula we loan officers work with so that the dollar formula amount borrowers will qualify for is reduced. It had to happen, I knew it was coming.

And yet, the fabulous “no recourse” feature of this loan is, quite frankly, remarkably still in place, even though, as a result of decreased home values in many states, we saw the FHA insurance fund  somewhat depleted out over the last 5 years, it too is still going strong.  For example: a Floridian that passed away in the last few years, may have left a home whose appraised value was now ½ of what it was when the loan had been funded say back in 2006 when home values were at their peak. Heirs, as is their right under the “no recourse” loan provision of a reverse mortgage, would then notify the lender of the “gap” between the ultimate sales price in today’s market and what was owed on the reverse mortgage.  The lender in turn would look to the FHA insurance pool for reimbursement of the “gap” monies for a full payoff on the loan.

This scenario in some states such as Florida, Indiana, Georgia, Alabama, Louisiana, and even “golden” California,  to name a few,  was repeated over and over as lenders asked FHA to make them financially “whole” and fill in the monetary gap for the difference between the final sold price of the home and the reverse mortgage loan payoff amount.  Thus, in my opinion, this year’s HUD formula reduction on what can be borrowed with a reverse mortgage is a GOOD thing because it decreases the mortgage debt to equity ratio, thereby reducing the likelihood in the future that the FHA insurance fund will be frequently tapped. We want this program around for a long time, and the continued health of the FHA insurance fund will help that goal.

If you would like to know how the new reverse mortgage formula changes affect your qualifying numbers, and  how the next change to the program slated for January 2014  will affect you, (and there is one important change coming in the future), please feel free to contact me, I listen with great care to your retirement goals, and as you’ll see, or have seen, I love this program and the positive influence it has towards and improved retirement experience for my clients.

Shawna McDonald,

Loan Officer, Real Estate Broker

NMLS #271335  BRE #00585530

www.SierraFoothillsReverse.com

www.WineCountryReverse.com

or by phone

Sierra Foothills and Sacramento area:  (530) 497-3010

Sonoma, Marin and Napa Counties (707) 634-7070

skating 2

If you need to get a little melancholy on:

Joni and “River”…

http://www.youtube.com/watch?v=GpFudDAYqxY

In the interest of equal opportunity  if you have no need for melancholy and want to go straight to holiday cheer:

Alvin and the Chipmunks (Who remembers Hula Hoops??)

http://www.youtube.com/watch?v=ZiNmVdFlIL4

or

Peanuts and the Holiday Lights Song

http://www.youtube.com/watch?v=czjSTO9YnsA

Enjoy and music links courtesy of :  www.youtube.com

Shawna McDonald, Loan Officer/Real Estate Broker

Specializing in Reverse Mortgages

www.SierraFoothillsReverse.com

office 2

                                                    

    Office Location: 412 East Main Street, Grass Valley

( Take the Highway 80 Idaho Maryland Off Ramp  and carefully go west out of the round about, office is immediate right)

(530) 497-3010

www.SierraFoothillsReverse.com

NMLS #271335 

BRE #00585530

 

The opinions expressed here are solely those of the author. Copyright © 2013 -20014 · All Rights Reserved. NMLS #271335 BRE # 00585530. Borba Investments Inc, DBA MLS Reverse Mortgage Auburn, CA  NMLS #76801  BRE #01456165 HUD approved lender.                                                                                            png hud logo

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It’s Fall ~ The State of Things in the Reverse Mortgage World

nevada-county-fall-trees_400

Nevada County in All Her Fall Glory                                                                                                  

Fall is here and  the dust has settled on the 2013 HUD required changes to the reverse mortgage program, what just happened?  Is it a good thing, a bad thing, or a little of both?  Let’s take a look at some of the changes and the intended effect on the reverse mortgage program.

HUD (Department of Housing and Urban Development), which governs the FHA insured reverse mortgage program, instituted these changes to fiscally strengthen the program by allowing less money to be borrowed upfront and to  the lessen the chance of default on the payment by the borrower on property taxes and insurance.

1) First-year money draw limit. A homeowner may now withdraw only up to 60% of the eligible sum during the first year unless they have a mandatory obligation, such as a mortgage, which if that loan payoff forces the initial draw above 60%, then in many cases they may draw an additional 10% that first year of the loan. Depending on the reverse mortgage program selected, (line of credit),  the remaining funds will be eligible after 1 year has passed.  This is designed to be a good thing. Limiting the amount of money taken out at the loan’s close is predicted by HUD to reduce the number of defaults on property taxes and insurance because a borrower has spent all their proceeds. This default rate for unpaid property taxes and/or had been climbing and HUD hopes to reduce this trend.

2) Reduced Loan Costs vs. Increased Loan Costs: Despite all the news and television headlines designed in my opinion to “inflame”,  the cost of the reverse mortgage can now be less than it had been previously and it can now also cost more. If a borrower elects to draw up to 60% or less of the available funds at the close of the loan the up front costs are reduced  for the required FHA mortgage insurance. If the borrower draws over 60% of the available funds at the close of the loan the upfront cost of the FHA mandatory insurance has gone up. Each borrowers individual scenario must be carefully analyzed by a licensed loan professional.

I produce INDIVIDUAL personalized loan scenarios thus I am not going to throw out a bunch of figures in this forum, but, having said that, generally speaking for more fee info see the next item for a general fee discussion:

3) Fee changes. Previously, the upfront fee for the mandatory FHA mortgage insurance on a standard reverse mortgage was approximately 2% of the property’s appraised value with a cap at the maximum program recognized home value of $625,500, (these differ a bit for a “jumbo” reverse loan, call me for a quote on that). With the new HUD rules, the upfront fee will be 0.5% of the home’s appraised value for those who take at the close of the loan under 60% of the available proceeds, if more is taken at the close of the loan due to mandatory obligation payoffs (such as an existing home loan) then the borrower pays of a 2.5%  of the home’s appraised value for the upfront mandatory FHA insurance premium. This is HUD’s incentive for borrowers to draw at close of the loan under 60% of available funds therefore  keeping  funds in reserve for property taxes and insurance. Sure, at day 366 following the close of the loan borrowers can access ALL the remaining funds (line of credit program only) and therefore potentially be unable to pay for property taxes and insurance later, so what about that?  Well, see item 4 below:

4) IMPORTANT: Set asides for property taxes and insurance and financial assessment are coming:  THIS IS COMING BY MID TO LATE JANUARY 2014 on reverse mortgage loans that are not started in 2013. In some cases HUD is going to require these types of set asides and in ALL CASES is going to require a financial assessment. If you would like to avoid these impending changes, NOW IS THE TIME to apply for your reverse mortgage. Sigh, I wish I could say the trend were different, by waiting it will get easier and you will qualify for more money, but this is not the trend currently.  If you start your reverse mortgage now I promise to be minimally annoying during the holidays,  here’s a plus: your house will look great for the 1 hour appraisal, so why not get it started now and avoid property tax set asides and a financial assessment? Give me a call, it is my mission in life to give you the best personalized service and aggressive loan cost pricing.

Have fun this month, run through the pumpkin patch, and at the same time, consider getting going on your RM now.

Tolay-Fall-Festival-Sonoma-County-Northern-California-LocalGetaways 2

Shawna McDonald, Loan Officer/Real Estate Broker

Specializing in Reverse Mortgages

www.SierraFoothillsReverse.com

office 2

                                                    

    Office Location: 412 East Main Street, Grass Valley

( Take  Highway 49 to the   Idaho Maryland Off Ramp  and carefully go west out of the round about, office is immediate right)

(530) 497-3010

www.SierraFoothillsReverse.com

NMLS #271335 

BRE #00585530

The opinions expressed here are solely those of the author. Copyright © 2013 -20014 · All Rights Reserved. NMLS #271335 BRE # 00585530. Borba Investments Inc, DBA MLS Reverse Mortgage Auburn, CA  NMLS #76801  BRE #01456165 HUD approved lender.                                                                                            png hud logo