1. What is a Reverse Mortgage?
2. Who Qualifies for a Reverse Mortgage?
3. Does My Property Qualify?
4. How is a Reverse Mortgage Different than a Traditional Loan?
5. Why the Term Reverse?
6. Safeguards with a Reverse Mortgage.
7. How Can I Receive My Cash?
1. What is a Reverse Mortgage?
A reverse mortgage is a loan for homeowners age 62 years or older that allows them to convert some of their home equity and turn it into cash without ever making a mortgage payment. The loan does not have to be repaid until the homeowner sells the home, moves out permanently for more than 12 months, or upon the last surviving borrower passing away.
2. Who Qualifies for a Reverse Mortgage?
For FHA Home Equity Conversion Mortgage (HECM) the Homeowner(s) must be 62 years or older and own their own home. The loan is for primary residences only and the homeowner must have sufficient equity in the home. The client qualifies on age and equity only. Income, employment, credit score and medical history is not a consideration for a reverse mortgage.
3. Does My Property Qualify?
The properties that are eligible for the FHA HECM loan are single family homes, 1 – 4 unit homes (one unit must be owner occupied), HUD approved condominiums and manufactured homes that meet FHA requirements.
4. How is a Reverse Mortgage Different than a Traditional Loan?
- Borrower qualifies on age and equity only.
- The lender makes payments to the borrower.
- Borrower never makes a payment, therefore it is impossible to lose the home by failing to make a payment.
- It is the only mortgage program designed for a specific segment of the population – those over 62.
5. Why the Term Reverse?
Here’s another way to think of it. With a traditional mortgage, you use debt to turn your income into equity. With a reverse mortgage, you use debt to turn your equity into income. You are reversing the deal you used to purchase your home. Back then, you had income and you wanted equity. Now, you have equity and you may want more income. In both cases you use debt to turn what you have into what you want.
6. Safeguards with a Reverse Mortgage.
Reverse Mortgages are non-recourse, which means the homeowner and their heirs will never owe more than your home is worth. If the loan grows greater than the value of the home, the Federal Housing Authority (FHA) collects the mortgage insurance premium and that insurance guarantees there is no out of pocket expense to the borrower or the heirs. The home stands for the debt.
The homeowner continues to hold title either in their name or in a trust. Upon one of the maturity events, which are: if the home is sold, the borrower(s) move out permanently or the last surviving borrower passes away, then the home is handled very similarly to a traditional mortgage loan. The heirs can either keep the home and payoff the mortgage or sell the home and keep all remaining equity.
The closing costs on a reverse mortgage are regulated and capped and disclosed upfront– so the homeowner will not be over charged.
Homeowners are required to receive HUD approved HECM counseling before the loan is submitted to the lender. This protects and allows the borrower to talk to a neutral third party to make sure they understand what a reverse mortgage is.
HUD (Housing and Urban Development) guarantees that the cash advances from the reverse mortgage will always be available to the homeowner even if the lender goes out of business.
No prepayment penalty on any of the FHA HECM loans.
7. How Can I Receive My Cash?
- Lump sum – immediate cash advance at closing.
- Tenure payment – Monthly payment for as long as you live in your home.
- Term – Monthly cash payments for a specific number of years.
- Expanding Line of Credit Account - Unscheduled payments or installments you choose until the line of credit is exhausted.
The best part about how you can receive your money is that you can change your mind at any time as long as you still have money available.
HECM Costs
You can finance most of the closing costs so you do not have to pay for them out of pocket. The HECM loan includes several fees, which are the origination fee, third party closing costs, mortgage insurance premium (MIP), interest and servicing fees.
The origination fee compensates the lender for processing your HECM loan. The minimum amount is $2,500 to a maximum of $6,000 depending on the value of your home. The third parties closing costs include an appraisal fee, title search and insurance, surveys, inspections, recording fees, mortgage taxes, credit checks and other fees. The upfront MIP is 2% of the lesser of your home's value or the FHA HECM mortgage limit for your area. You will also be charged a monthly MIP that equals 0.5% of the mortgage balance. At loan origination, HECM lenders set aside the servicing fee and deduct the fee from your available funds. Each month the monthly servicing fee of no more than $35 is added to your loan balance.
About Jill Gromm
Jill Gromm is an experience mortgage professional providing traditional and reverse mortgages for over eight years and has spent the last three years specializing in Reverse Mortgages. Jill’s mission is to educate the senior homeowner and provide safety, security and peace of mind on every loan. She is a trusted advisor that not only works with each client through the loan process but also keeps in touch with all of her clients afterwards if they have any servicing questions.
Jill’s keys to success is to listen to her clients needs and educate them on all mortgage options to see what is in the clients’ best interest. She gives every client personal and professional service including in-home consultations.
After college, Jill worked for the California Association of Health Facilities, a non-profit association serving California’s long term care providers. Next, Jill worked as a Retirement Program Specialist for the California Public Employees’ Retirement System, CalPERS, for four years. In this position, Jill worked with city, county, and state employees to help them understand their retirement options and how they can make the most money in retirement. She gave seminars around Northern California meeting members in person and over the phone, answering retirement questions and helping them understand how to make the most money in their retirement years. Jill moved to Santa Rosa, California and became a mortgage loan agent in 2001. Jill tied her experience together when she decided to become a reverse mortgage specialist. Using her previous work experience with long term care facilities, retirement planning and now mortgage loans – this was a natural fit professionally and the most rewarding career she has experienced. To further her education, she became a Certified Senior Advisor (CSA).
Jill has had articles published in the NorthBay Biz Magazine, November 2008, issue as a reverse mortgage expert and in the Sunday, May 4, 2008, Press Democrat.
