Welcome to Dream Home Financing

Dream Home Financing
About Reverse Mortgages
 
A reverse mortgage enables older homeowners (62+) to convert part of the equity in their homes into tax free income without having to sell the home, give up title, or take on a new monthly mortgage payment. The reverse mortgage is appropriately named because the payment stream is reversed. Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you. Below are some common questions asked by consumers about reverse mortgages.
This may help you to find more Reverse Mortgage Lenders

 
 
 How Much Money Can I Get?

The amount of funds you are eligible to receive depends on your age (or the age of the youngest spouse in the case of couples), the appraised home value, interest rates, and in the case of the government program, the lending limit in your area. In general, the older you are and the more valuable your home (and the less you owe on your home), the more money you can get.

Does My Home Qualify?

Eligible property types include single family homes, 2-4 unit properties, manufactured homes (built after June 1976), condominiums, and townhouses. In general, cooperative housing is ineligible. However, some lenders have developed private programs that lend on co-ops in certain states.

What are My Payment Plan Options?

You can choose to receive the money from a reverse mortgage all at once as a lump sum, fixed monthly payments either for a set term or for as long as you live in the home, as a line of credit, or a combination of these. The most popular option chosen by more than 60 percent of borrowers is the line of credit, which allows you to draw on the loan proceeds at any time.

My Understanding is that the Unused Balance in the Line of Credit Option Has a Growth Feature. Does that mean I am earning interest?

No, you are not earning interest like you do with a savings account. The growth factor, which is equal to roughly the interest that you are being charged, takes into consideration that your home has appreciated in value over the past 12 months and that you are one year older.
See below to find more Reverse Mortgage Lenders

 
How Can I Use the Proceeds from a Reverse Mortgage?

The proceeds from a reverse mortgage can be used for anything, whether its to supplement retirement income to cover daily living expenses, repair or modify your home (i.e., widening halls or remodeling a bathroom), pay for health care, pay off existing debts, buy a new car or take a dream vacation, cover property taxes, and prevent foreclosure.

How Does the Interest Work on a Reverse Mortgage?

With a reverse mortgage, you are charged interest only on the proceeds that you receive. Most reverse mortgages charge a variable interest rate (although fixed rate products are entering the marketplace) that is tied to an index, such as the 1-Yr. Treasury Bill or the London Interbank Offered Rate (LIBOR), plus a margin that typically adds an additional one to three percentage points onto the margin to create the total the rate youre charged. Interest is not paid out of your available loan proceeds, but instead compounds over the life of the loan until repayment occurs.

Are There Any Special Requirements to Get a Reverse Mortgage?

As long as you own a home, are at least 62, and have enough equity in your home, you can get a reverse mortgage. There are no special income or medical requirements.

What If I Have An Existing Mortgage?

You may qualify for a reverse mortgage even if you still owe money on an existing mortgage. However, the reverse mortgage must be in a first lien position, so any existing indebtedness must be paid off. You can pay off the existing mortgage with a reverse mortgage, money from your savings, or assistance from a family member or friend.

For example, lets say you owe $100,000 on an existing mortgage. Based on your age, home value, and interest rates, you qualify for $125,000 under the reverse mortgage program. Under this scenario, you will be able to pay off ALL the existing mortgage and still have $25,000 left over to use as you wish.

If, however, you only qualify for $85,000, then you would need to come up with $15,000 from your own savings to get the reverse mortgage. Even then, all the money from the reverse mortgage will have been used to pay off the existing mortgage. On the other hand, you wont have a monthly mortgage payment anymore.

If you find yourself in a deficit situation where you dont have enough money to pay off the existing mortgage, you may use funds from a grant or gift from a family member or friend to cover the gap, but you cannot incur a new debt obligation (i.e., loan).

What Is the Service Fee Set-Aside?

Under the FHA HECM program, you are charged a monthly servicing fee that ranges from $30-$35 to manage your account once the loan closes. The SFSA is an estimate of what the total servicing fees will be over the life of the loan, by multplying your life expectancy (converted from years into months) multiplied by either $30 or $35.

Although its not considered a closing cost, the SFSA can equal several thousand dollars, which is deducted from your available loan proceeds. You do not have access to that money, nor do you earn interest.

Will I Lose My Government Assistance If I Get a Reverse Mortgage?

A reverse mortgage does not affect regular Social Security or Medicare benefits. However, if you are on Medicaid, any reverse mortgage proceeds that you receive must be used immediately. Funds that you retain would count as an asset and could impact Medicaid eligibility. For example, if you receive $4,000 in a lump sum for home repairs and spend it all the same calendar month, everything is fine. Any residual funds remaining in your bank account the following month would count as an asset. If the total liquid resources (including other bank funds and savings bonds) exceed $2,000 for an individual or $3,000 for a couple, you may not be ineligible for Medicaid. To be safe, you should contact the local area agency on aging or a Meicaid expert.

Why Do I Need to Get Counseling?

Counseling is one of the most important consumer protections built into the program. It requires an independent third party to make sure you understand the program, and review alternative options, before you apply for a reverse mortgage.

By law, a counselor must review options other than a reverse mortgage that are available to the prospective borrower including housing, social services, health and financial alternatives; other home equity conversion options that are or may become available to the prospective borrower, such as property tax deferral programs; the financial implications of entering into a reverse mortgage; and, the tax consequences affecting the prospective borrower's eligibility under state or federal programs and the impact on the estate or his or her heirs.

When Do I Pay Back My Loan?

No monthly payments are due on a reverse mortgage while it is outstanding. The loan is repaid when you cease to occupy your home as a principal residence, whether you (the last remaining spouse, in cases of couples) pass away, sell the home, or permanently move out. The amount owed can never exceed the value of your home. Furthermore, if the home is sold and the sales proceeds exceed the amount owed on the reverse mortgage, the excess money goes to you or your estate.

Under What Circumstances Should I Not Consider a Reverse Mortgage?

Because of the upfront costs associated with a reverse mortgage, if you intend to leave your home within 2-3 years, there may be other less expensive options to consider, such as home equity loans, no interest loans or grants that may be offered by your county government or a local non-profit to repair your home, or a tax deferral program, if you are having problems paying your property taxes. Also, if you want to leave your home to your children, then you should consider other options, because in many cases, the home is sold to pay back a reverse mortgage.
 
Reverse Mortgage Costs

Many of the same costs that someone pays to obtain a home purchase loan, or to refinance their existing mortgage, apply to reverse mortgages too. You can expect to be charged an origination fee, up-front mortgage insurance premium (for the FHA Home Equity Conversion Mortgage or HECM), an appraisal fee, and certain other standard closing costs.

In most cases, these fees and costs are capped and may be financed as part of the reverse mortgage. Below is a more in-depth explanation of each type of fee.

Origination Fee

The origination fee covers a lenders operating expenses including office overhead, marketing costs, etc. for making the reverse mortgage.

Under the HECM program, which accounts for 90 percent of all reverse mortgages made in the U.S., the origination fee is equal to the greater of $2,000 or 2 percent of the maximum claim amount (i.e., county FHA loan limit). Currently, the FHA loan limit varies from a low of $200,160 (for rural areas) to a high of $362,790 (for high-cost metropolitan areas). Therefore, the 2 percent origination fee generally ranges between $4,003 (2 percent of $200,160) and $7,256 (2 percent of $362,790). (limits subject to change and may not have bee updated here)

Home borrowers are charged an origination fee that may not exceed 2 percent of the value of the home. With either product, the entire amount of the origination fee may be financed as part of the mortgage.

Mortgage Insurance Premium

Under the HECM program, borrowers are charged a mortgage insurance premium (MIP), equal to 2 percent of the maximum claim amount, or home value, whichever is less, plus an annual premium thereafter equal to 0.5 percent of the loan balance.

The MIP guarantees that if the company managing your account commonly called the loan servicer goes out of business, the government will step in and make sure you have continued access to your loan funds. In addition, the MIP guarantees that you will never owe more than the value of your home when the HECM must be repaid.

Appraisal Fee

An appraiser is responsible for assigning a current market value to your home. Appraisal fees generally range between $300-$400.

In addition to placing a value on the home, an appraiser must also make sure there are no major structural defects, such as a bad foundation, leaky roof, or termite damage. Federal regulations mandate that your home be structurally sound, and comply with all home safety codes, in order for the reverse mortgage to be made.

If the appraiser uncovers property defects, you must hire a contractor to complete the repairs. Once the repairs are completed, the same appraiser is paid for a second visit to make sure the repairs have been completed. The cost of the repairs may be financed in the loan and completed after the reverse mortgage is made. Appraisers generally charge $50-$75 dollars for the follow-up examination.

Closing Costs

Other closing costs that are commonly charged to a reverse mortgage borrower, include but are not limited to:

Credit report fee. Verifies any federal tax liens, or other judgments, handed down against the borrower. Cost: Generally under $20

Flood certification fee. Determines whether the property is located on a federally designated flood plane. Cost: Generally under $40

Escrow, Settlement or Closing fee. Generally includes a title search and various other required closing services. Cost: $150-$450

Document preparation fee. Fee charged to prepare the final closing documents, including the mortgage note and other recordable items. Cost: $75-$150

Recording fee. Fee charged to record the mortgage lien with the County Recorders Office. Cost: $50-$200

Courier fee. Covers the cost of any overnight mailing of documents between the lender and the title company or loan investor. Cost: Generally under $50

Title insurance. Insurance that protects the lender (lenders policy) or the buyer (owners policy) against any loss arising from disputes over ownership of a property. Varies by size of the loan, though in general, the larger the loan amount, the higher the cost of the title insurance.

Pest Inspection. Determines whether the home is infested with any wood destroying pests, such as termites. Cost: Generally under $100

Survey. Determines the official boundaries of the property. Its typically ordered to make sure that any adjoining property has not inadvertently encroached on the reverse mortgage borrowers property. Cost: Generally under $450


Service Fee Set-Aside

The service fee set-aside is an amount of money deducted from the available loan proceeds at closing to cover the projected costs of servicing your account.

Federal regulations allow the loan servicer (which may or may not be the same company as the originating lender) to charge a monthly fee that ranges between $30-$35. The amount of money set-aside is largely determined by the borrowers age and life expectancy. Generally, the set-aside can amount to several thousand dollars.

(Note: The servicing set aside is just a calculation and not a charge. The only amount added to your loan balance is the monthly servicing fee, which ranges from $30-$35.) The costs referenced above are just estimates.

Reverse Mortgage Pros VS Cons

 
Payment Option Pros Cons
Line of Credit-You access funds at your discretion. 1) Flexibility-You can access funds as needed.

2) Growth feature-The unused balance grows. This does NOT mean you are earning interest. The growth factor takes into consideration that your home has appreciated in value over the past 12 months and that you are one year older.
1) The funds in the line of credit can be exhausted. If that happens, one option may be to refinance your reverse mortgage to gain access to additional funds.

2) To access funds, you must submit a written request to the loan servicer managing your account.
Term-You receive fixed monthly payments for a set period of time. 1) Funds can be automatically deposited into your bank account.

2) You receive larger monthly advances compared to the Tenure payment option.
1) The amount of funds you receive each month is fixed, so if you need additional funds, you will have to request a payment plan change.

2) Monthly advances are not indexed for inflation.
Tenure-You receive fixed monthly payments for as long as you live in the home. 1) The monthly advances continue for as long as you live in your home, even if the total amount you receive exceeds the value of your home. Despite this, you will never owe more than what the home is worth. 1) The amount of funds you receive each month is fixed, so if you need additional funds, you will have to request a payment plan change.

2) Monthly advances are not indexed for inflation.
Modified Term-Fixed monthly payments for a set period of time, plus access to line of credit. 1) Provides two sources of available funds.

2) Combines Term and Line of Credit Advantages
1) You receive smaller monthly payments because a portion of your equity has been set aside in the line of credit.
Modified Tenure-Fixed monthly payments for as long as you live in the home, plus access to line of credit. 1) Provides two sources of available funds.

2) Combines Tenure and Line of Credit Advantages
1) You receive smaller monthly payments because a portion of your equity has been set aside in the line of credit.


The costs quoted above are estimates and may not reflect recent changes.

News on Reverse Mortages

 

 

Apply Online Now  Free Rate Quote  Advertise with Us

 

 

 
Home | About Us | Advertise With Us | Glossary | Calculators | Request Quote | Loan Options | Privacy Policy Copyright © 2008 | Dream Home Financing LLC
     

 Dream Home Financing is a marketing company that provides mortgage related information. Dream Home Financing does not arrange for or originate loans. The request quote and quick application pages, when completed will be sent to third party lenders for consideration.

 

);