Articles

Going Forward With A Reverse Mortgage?

February 2018

Considering the amount of advertising and marketing dollars spent on these products, one would think that every neighbor near you has one.  In actuality, it is the opposite.  This is a rarely-used and expensive loan product that needs to be carefully evaluated (with the help of numerous, highly-skilled professionals, including a real estate agent), and gambles on your future health and life expectancy.  As an example, if you live only one year after acquiring this mortgage, was it worth it?

Here are some upfront guidelines. One owner needs to be 62+ years old, and the maximum bay area FHA loan limit is, presently, $679,000.  Can you pass the 2+hour competency phone interview?  It, also, seeks to be sure you understand your loan program and know how to budget.  And, lastly, is your home in decent enough condition to make it through an extremely restrictive appraisal that uses extra-tough FHA guidelines?

If you are already concerned about your overhead and the care of your home, will your reverse mortgage provide you sufficient monthly income for continued maintenance (since you are still the owner), and for paying your property taxes and homeowner’s insurance?    If not, the lender can call the note due and payable.

In reality, the best way to go about aging is to downsize.  Sell during a strong Seller’s market, such as we have now, and scoop up your winnings.  Then find an alternate method of living that is simpler, more economical and provides you a lifestyle that is pleasing.

If you do choose to sell your home, there are easy ways to do it, without getting overwhelmed.  Long-time, skilled real estate agents know how to work with your specific needs and keep things simple.

If, instead, you go for a reverse mortgage, understand that their interest accrues, so the final loan balance at payoff is much larger than the original amount lent.  If there is not enough equity in the property value to fully pay off the loan, cash may need to be added for full reconveyance of the deed.  As this is a non-recourse loan, it means you’ll never be liable for more than the home is worth (although that value is subjective).

There is a fairly well-written 36-page booklet by the National Council on Aging and approved by HUD. Its emphasis is on reverse mortgages, but mentions reverse purchase loans too (to buy a home).  I’m happy to provide you a hard-copy.  Just ask.  (Your lender’s counseling package is approximately 50 pages and this booklet, thankfully, is included in that.)

It’s important to note that few expert lenders exist to guide you, even if they happen to offer these loans, since, again, these products are rarely used.  However, I have found several who I do feel stay well-informed, do them with some regularity, give good financial guidance and actually know their products.

As an fyi, you’ll need to produce your social security card for the lender mid-way through the loan process.  Social Security can mail you one within 2 weeks of applying in person (or apply on-line).

During a normal 21-day loan process (when buying or refinancing), there is a 3-calendar-day “cooling off” period just before closing.  For the 45+-day reverse loan process, the “cooling off” period is 8 calendar days.  Cooling-off periods allow borrowers to cancel their loan.  Reverse mortgage cooling-off periods, however, occur near the beginning, soon after your 2+-hour “competency” meeting.  Once the lender receives a certificate of completion, it begins.  After 8 days, the appraisal is ordered.  Reverse loans truly mean “in reverse”.

The property needs to meet health and safety codes, be in reasonably good condition, and meet local and/or State requirements (using specialty licensed contractors) for smoke and carbon monoxide detectors, plus, properly installed hot water heaters.

Once in place, reverse mortgages are difficult to end.  Soon after the lender learns of the last remaining owner’s move-out or death, the promissory note becomes due and payable.  An appraisal is requested to determine whether or not there’s enough value to fully pay off the mortgage.  Until it is paid off, it is now eroding the final amount going to heirs and beneficiaries.   Alternatively, if you hire a skilled real estate agent, they can send proof that the property is listed, along with timelines for marketing and sale, plus pricing.  Depending on how long and how complicated the settling of the estate will be, and if a sale is delayed due to this, sometimes the best solution is to pay off the reverse mortgage in full ASAP, if you have that option, as it is simplest and cheapest.  Oftentimes, it is difficult to get the lender to provide the full payoff.  So, read the note and deed of trust.  That’s where the loan details are, generally, found.  If there were any amendments to it, read those too.  The title company has none of this documentation, as it isn’t recorded.  Where it is found, if not with the estate’s paperwork, is with the original reverse mortgage lender, even if the servicing contract has been sold to another company.  The promissory note is where you will find the clause regarding calling the loan due and payable, along with timelines.  Some clauses allow 6 months to sell, from date of death, with the ability to extend another 3 months; however, this continues reducing the final estate proceeds too.

In a normal sale of a property, with a normal loan on it, a lender’s fees might mount up to $10,000 to close out the loan on a $1,000,000 home.  With a reverse, I’ve seen as much as $65,000.

If you’d like to chat with me about your circumstances, have me take a look at your property, and help get you to some of my excellent resources, please, contact me, at your convenience.