When was the first Reverse Mortgage Loan Made?
In 1961 the reverse mortgage was inducted to the home mortgage line up. The very first reverse mortgage was made to the widow of a high school football coach who wanted nothing more than to stay in her home after losing her husband. Without income, this seemed improbable. The widow’s name was Nellie Young, the place was Portland Maine. Nellie’s husband was the bread winner, and without income she could no longer afford to age in place. Nelson Haynes of Deering Savings and Loan devised a mortgage that would allow Nellie to access her home equity, which was the majority of her life’s savings, to finance her lifestyle and provide financial stability that expired with the loss of her husband. The reverse mortgage was born.
What Is A Reverse Mortgage Loan?
A reverse mortgage loan is a loan that allows the mortgagor (home owner) to allow the balance of the loan to increase over time, rather than decrease by making monthly payments. The balance of the loan increases because the mortgagor is not required to make regularly scheduled payments. The end goal is to allow the mortgagor to use the existing equity in their home to make the payments, rather than requiring a mortgage payment to be made from a checking or savings account. Reverse mortgages are very helpful with senior citizens who are interested in using their home equity to enjoy greater financial stability as the age in place.
HECM Purchase Loan
HECM Refinance Loan
Reverse Purchase Loan
JUMBO Reverse Mortgage Loan
5 Qualifying Factors for a Reverse Mortgage
There are five main factors that are considered when qualifying for a reverse mortgage. None of these variables plays a role in determining your interest rate. However, these factors are in place to help you maintain a financially healthy lifestyle and to be in a position to sustainably maintain your home.
Age of Applicants
Age of applicant does not determine interest rate. The loan amount is made based on an age and loan to value calculation. In this case, older is better!
The home’s value does not determine interest rate. The home’s value will be used to determine the allowable maximum loan amount.
Amount of Loan
The loan amount does not determine the interest rate. The loan amount is determined based on a simple using the applicant’s age and the home’s value.
The applicant’s credit score does not determine the interest rate for the loan. The lender is obliged to check the credit report for a few disqualifying factors prior to loan approval.
The applicant’s income is used to calculate a sustainable payment. This is called checking the applicant’s
‘ability to repay’ the loa’.
Things Banks Consider for Reverse Mortgages
Three of these five qualifying factors for reverse mortgage loans are quite fixed at the time of the loan application: applicant age, home value and desired amount of loan. The credit and income items are somewhat variable and prove to be most important to determine the longevity of the financial health and ensure the applicant’s ability to afford their day to day living costs. The applicant must demonstrate that he or she has enough stable income to ensure the applicant’s ability to pay for the home insurance, taxes and other costs associated with the upkeep of the home.
There must also be enough income for the applicant to afford basic lifestyle accommodations, without putting the applicant at risk of not having enough income to sustain a financially stable lifestyle. These minimum amounts are put into place to ensure the financial needs of the applicant can be sustained long term. Generally speaking, the applicant has a good idea of his or her financial needs and there are rarely any surprises in the application process here. The main determining factors are age, property value and the desired loan amount.
HECM For Purchase Explained
A HECM For Purchase is very similar to a HECM. The difference being is that a HECM Purchase Loan is used to buy a property and not refinance a property that is already owned. This option is very popular for seniors looking to purchase a retirement home. The same benefits of a regular HECM loan apply. There are no monthly payments on the home for as long as the applicants live in the home.
What is an HECM
HECM For Purchase Example
Let’s say that Larry and Tina live in Minneapolis but are planning on moving from Minnesota to Arizona to retire. After selling their home in Minnesota they realize that based on their age and loan amount they have enough of a down payment to qualify for a HECM Purchase Loan. The Home Equity Conversion Mortgage for purchase rules state that as long as Larry and Tina meet the loan amount based on their age and loan amount requested, Larry and Tina can use a HECM For Purchase loan to buy their retirement home and immediately receive the full benefits of the HECM Loan: they never have to make a payment on the loan for as long as they occupy the home as their primary residence.
Are reverse mortgages a scam?
Reverse mortgages are not scams. Reverse mortgages today are heavily regulated by the government and there are many check and balances in place to protect the applicants from being ‘hoodwinked” into an agreement that was not well explained by the loan officer and counseling agency and understood by the applicant. That’s not to say that there are not bad actors in the field. There are bad actors, and unfortunately some people are taken advantage of in some instances. That’s not to say that happens regularly. It may happen to someone, but the chances of it happening are getting smaller and smaller with each round of regulation that’s put into place to protect seniors from these bad practices. However, just because a reverse mortgage is not a scam, that doesn’t mean that a reverse mortgage is right for you or your loved ones. Please contact our office for more information, attend a seminar or to schedule a face to face appointment to go over the initial steps to learning about reverse mortgages.
What are reverse mortgage disadvantages?
The most well known disadvantage of the reverse mortgage are the upfront costs associated with the reverse mortgage. Because the reverse mortgage adds a benefit to the applicant of not needing to make a payment on the loan, there are fees and insurances that are added to the loan and paid to the FHA upon loan initiation. These fees vary from loan type to loan type. In some cases your Independent Mortgage Expert may be in a position to help cover some of these upfront fees. Another disadvantage is that the loan balance will increase over time. This disadvantage is offset with the delightful dynamic of no payments ever are required.
Reverse Mortgage Seminar
Most loan professionals agree that a reverse mortgage seminar may be the best place to learn the truth about reverse mortgages in a safe, comfortable, non-threatening, no-pressure environment. Reverse Mortgage Seminars range in length from one to two hours, and are typically held in libraries, hotel lobbies, or resort conference rooms. As the first step in obtaining a reverse mortgage is a mandatory counseling session with a certified government agency, the loan professionals hosting the seminars stick to the basics and speak to the group, not to the individuals, although individual questions are welcomed.
The Jake Taylor Team at Pilot Mortgage, LLC offers free Reverse Mortgage Seminars in the Phoenix Metro Area. In our reverse mortgage seminars, you can expect to be one of up to thirty people that are learning about the very basic variables of reverse mortgages. You can expect to learn about how does a reverse mortgage work, who qualifies for a reverse mortgage, government reverse mortgages for seniors and many other basic topics that prove helpful when starting the education process. Call or email us today to learn about a Reverse Mortgage Seminar in your neck of the woods, or should we say desert.
How Does A Reverse Mortgage Work
This is a very frequently asked question and the truth is that the answer is somewhat complex. We highly recommend speaking with a licensed loan officer who can explain how reverse mortgages work. He or she can guide you to a HUD certified reverse mortgage counseling agency to help you begin to learn the basics of reverse mortgages. Step one of the reverse mortgage process is to be educated with a HUD certified Counseling Agency.
A ‘reverse’ mortgage balance grows over time, unlike a ‘forward’ mortgage which balance shrinks over time. The reason the reverse mortgage works this way is because no monthly payments are due from the homeowner. Ever. Because no payments are due, the balance of the loan grows. There are many other variables that make the reverse mortgage work this way, but this is the main reason. Please call or email us to begin the process of learning whether a reverse mortgage loan can be the right loan to help you achieve the financial stability and peace of mind you desire in retirement.
Who Qualifies For A Reverse Mortgage?
Use our calculators to see if you qualify for our government reverse mortgages for seniors. No personal information is asked of you and the answer is immediate. Other than determining your age, your property value and the amount of a reverse mortgage loan for which you qualify, there are a few other requirements in place to protect you and to ensure that you are able to sustain your lifestyle with the reverse mortgage over time.
Before qualifying for a reverse mortgage the lender will calculate your cost of living needs along with your income to ensure you meet the minimum income requirements for health and safety requirements and to maintain the integrity of your home. Although you will not be required to make a mortgage payment, our lender is morally and ethically obligated to ensure your lifestyle will be sustainable as you age in your home.