REVERSE MORTGAGE: USE IT TO PURCHASE OR REFINANCE!

Below, a basic article from the Montana "Missoulian" shows that reverse mortgages are becoming popular all over the USA, and that homeowners in states and counties that used to have smaller FHA Reverse Mortgages (because the loan limits were based on county home prices and economics) are now in excellent positions to obtain more needed cash or credit lines from their homes with the new, higher $417,000 nationwide lending limit.

REVERSE MORTGAGE PURCHASES - WITH NO MONTHLY PAYMENT

As of January 1, 2009, Reverse Mortgages may be used to purchase a new (or a replacement principal residence). The purchase Reverse mortgages works this way, generally.

If you currently own a home that is perhaps too big for you, or is older and needs more repair than you want to put into it, and you would like to buy a newer or smaller home, here are the steps to follow.

1. Estimate how much cash you will have after selling your current home.

2. Estimate the price you'd most likely pay for a new home.

3. Give your Reverse Mortgage Specialist this information, as well as your age(s) and the zip code of the new home.

4. Your Reverse Mortgage Specialist will be able to then tell you, based on the price, your age(s), the interest rate, and zip code, how much of a net (amount after costs) Reverse Mortgage you could get on the new home.

5. Take the value of the new home, deduct the amount of the new net (after costs) Reverse Mortgage, and the balance will be what you'll be required to put down on the new home.

6. At the end of the transaction you will have the new home with no mortgage payments - although you will be responsible for taxes and insurance.

7. In addition, since you won't have to use all of your cash-equity out of your old home to purchase the new home, you'll have extra cash to put into savings to use for future needs.

Here's an example of a senior couple who have been able to do this.

1. They sold their current large home for $550,000 and after paying off their current loan and all closing costs, ended up with $285,000 in cash.

2. They moved to another area in their state where housing prices were lower, and where they could live closer to their grandchildren.

3. They were 69 and 67 years of age and selected a home that cost $350,000. Because of the interest rate, their age and the value of the property, they were able to qualify for a net Reverse Mortgage of $210,831 at a monthly interest rate of 2.43%.

They then put down $139,169 from the $285,000 they got on their old house. This left them with $145,837 in cash to add to their savings and investments which they could use any way they pleased.

In addition, there were no credit, income, employment or savings requirements for them to qualify for the loan. And, they will have no monthly mortgage payments - making their social security and other retirement income go further.

It is true that over time they will eat into the money they put down on the new house (their new equity) as interest on the Reverse Mortgage accumulates. Over a 10 or 15 year period, if their home appreciates at approximately 4% a year, the equity will last many years. (Or provide cash-out to them if they sold the new home)

If you would like to explore this option with me, please call me at 703/244-8151 and I will be happy to provide you with detailed information on how much you would get on a Reverse Mortgage, the costs, as well as an amortization sheet showing you just how much you would owe annually, and how much equity you could have left in your property at any given year. Most people will be pleasantly surprised.

But also bear in mind, that if you ever use up your equity and want to stay in the home anyway - that is absolutely your right, and it is written into the program. If, by the time you (all borrowers) have passed on or moved out, and for any reason at all you owe more on the loan than the home is worth, FHA will pay that difference to the lender. Neither you, nor your heirs, would be responsible for that difference, and neither the lender nor the FHA can come after any of your other assets (or inheritance) to pay that difference. This is also written into the documents.

Gloria
703-244-8151

Turning home equity into cash
By BETSY COHEN of the Missoulian

Reverse mortgage: It's a term - and a tool - that is becoming increasingly familiar among the ranks of retirees and lenders.

What is it? It's a viable option for people over the age of 62 who want to stay in their homes but have little or no savings, assets or other cash options to pay their bills.

This is how it works: Senior citizens who own their homes can convert the equity in those homes into cash without having to move out or repay the loan each month, explained Greg Harper, Missoula branch director for the Consumer Credit Counseling Service of Montana.

The money paid to the homeowner, which is usually between 65 percent to 75 percent of the assessed equity, is paid back to the lender when the homeowner sells the home, moves into another living situation or dies and the home is then sold.

Increasingly, more and more seniors are turning to this option, said Peter Bell, president of the National Reverse Mortgage Lenders Association, a nonprofit trade association based in Washington, D.C..

“I think people are cash-constrained in a number of different ways,” Bell said. “And this has become an important tool for people to manage their personal finances.

“The reverse mortgage is used to pay off an existing mortgage (so homeowners have more available money to pay for other living expenses) or to maintain living in the house.”

Federally insured Home Equity Conversion Mortgages (HCEMs) are the most popular reverse mortgages offered, and account for 90 percent of all such mortgages in the United States. In 2008, the number of HCEMs grew by 6.4 percent, amounting to 115,176 loans.

Homeowners in Florida and California lead this emerging trend, according to the Federal Department of Housing and Urban Development, but statistics show Montana homeowners are also riding the swell.

On the ground, it means the Consumer Credit Counseling Service of Montana is busy - very busy - these days, said Tim Robbins, director of counseling for the statewide agency.

“We have been doing counseling for reverse mortgages for four years and we have had a 400 percent increase over the last four years,” Robbins said. “Four years ago, we were counseling between four and six homeowners a month. Now we are seeing about 20 to 25 people a month.”

By federal mandate, anyone who is interested in HCEMs must have third-party counsel before a reverse mortgage is approved. The law not only helps seniors make informed decisions with the help of an objective third party, but it helps protect seniors from predatory lending practices, Robbins explained.

In Montana, the bulk of such counseling takes place in the eight offices of Consumer Credit Counseling Service.

“What we are experiencing is pretty typical of the national trend,” Robbins said. “Reverse mortgages nationally have doubled every year for the last three to four years.”

Several factors are helping to push this once-obscure fiscal tool into the limelight, said Bell, whose D.C. organization keeps track of the niche lending sector.

“There is a snowball effect for people,” he said. “Once they know someone who has gone out and got it, the person who has it becomes the convincer to help the reluctant one move ahead.”

Of course, there are more tangible reasons.

In November, housing legislation cut fees on reverse mortgages while raising the amount that homeowners can borrow against.

In Montana, borrowing caps were once determined county by county, and generally the amount people could borrow against their equity was around $200,000, even if there was more equity in the home.

Today, that limit is $417,000 nationwide, Robbins said.“To have a national limit has really changed things,” he said. “It's given people more options.”

Robbins expects reverse mortgages will only get more popular as people live longer in general, and as more baby boomers - many of whom may be financially strapped in their sunset years - hit retirement age.

It's telling that the watchdog of American aging, the AARP, is tracking the trend on its Web site, www.aarp.org, where there are numerous and current articles that explain the world of reverse mortgages.

“Reverse mortgages are a good tool for certain people,” said Mary Harris, a certified public accountant with the Missoula firm Boyle Deveny & Meyer.

In recent years, more of her clients have asked Harris about the lending option.
“It really works if you don't have other assets to work with,” Harris said. “It actually can be something that can be very useful, something that will allow people to have a good quality of life.

“For a lot of people, their home is their single largest asset, and with a reverse mortgage you don't have to have your mortgage paid off to do it.”While the option has its allure, there are several caveats. “People are using it as a last resort,” Harris said. “This is not a good option for people who want to keep their home debt-free because a reverse mortgage is a debt.”

In all his years as a counselor at Credit Counseling Service of Montana, Harper said he's learned to immediately tell people that reverse mortgages are most helpful to homeowners who have no other financial options.“It can be a very expensive loan up front,” Harper explained. “This isn't the best option if it's for a short-term deal.”

The other, perhaps most important caveat? “Talk to your family and heirs about this,” Harper said. “They are going to be a party to this even if they don't think they are. The ownership of the property is something you will them - and they have to deal with that and the debt that comes with it.”

Copyright © 2009 Missoulian