Want to stay in your home but need some cash? A reverse mortgage may be just the ticket.
A reverse mortgage allows a senior to borrow against the equity is his or her home. Repayment of the loan is deferred until the borrower dies or must vacate the home.
Many reverse mortgages are FHA approved. These are known as Home Equity Conversion Mortgages (affectionately called “HECM”). The rules are: the borrower must be at least 62 years old and the value of the home must fall under the government limit set for that region. The borrower has to go through credit counseling as a condition of qualifying for the mortgage.
Disclosures for HECM reverse mortgages are standardized. Lenders must calculate the Total Annual Loan cost for the borrower to give them a yardstick for comparison of mortgages. As a general rule, the older the borrower, the larger the loan can be.
If the value of the home is greater than the max value allowed for a HECM mortgage, a borrower may have to go outside of the federally subsidized loan program to a private lender. These reverse loans usually charge a higher interest rate.
A HECM has become more difficult to qualify for in recent years. Lenders will soon have to require a financial assessment from borrowers to make sure the borrowers can pay ongoing costs on the property, such as property taxes and maintenance. Lenders also have to assess an ongoing premium for mortgage insurance.
There are, of course, scams aplenty with reverse mortgages. One popular scam has a company selling an elder a reverse mortgage to fund an annuity. Another popular scam occurs when a borrower dies, and the lender attempts to foreclose on the property without giving the family the option to purchase the home for 95% of its appraised value.
A reverse mortgage is an option that may work well for some seniors. Like every other financial consideration, it is Buyer Beware.
Hammerle Finley Law Firm. Give us a call at 972-784-0293. We can help.
Virginia Hammerle is a Board Certified Civil Trial Attorney by the Texas Board of Legal Specialization and an Accredited Estate Planner by the National Association of Estate Planners & Councils. She can be contacted at [email protected]. The information contained in this article is general information only and does not constitute legal advice. ©2016