There has been a lot said about reverse mortgages, true and false. That being said, reverse mortgages have changed and grown through the years. The reverse mortgage of today is not the same as 5, 10 plus years ago. Today reverse mortgages are refined, detailed and the HECM Home Equity Conversion Mortgage is FHA insured. The HECM is the government’s FHA version of a reverse mortgage and is the most popular because of it’s standard regulation, ease of use and popularity among lenders. Most reverse mortgages today are HECM reverse mortgages.
Misconceptions about Reverse Mortgages
Here are some truths about today’s reverse mortgage.
- A reverse mortgage is a mortgage. Just like any mortgage, if you do not follow the terms you risk losing your home.
- One misconceptions about reverse mortgages is that the borrower gives up the title to their homes. Borrowers maintain ownership until the home is sold and their lender repaid, just like a traditional mortgage.
- If a person has the means to repay their lender without selling the home, they may pass on the home to their children or heirs. If not the children or heirs can either purchase the home with a refinance, sell the home and keep the proceeds or do nothing and walk away.
- Reverse mortgage fees are almost identical to taking out a regular FHA mortgage loan. There are costs and the borrower will be expected to pay an origination fee, closing costs, mortgage insurance premiums, and sometimes servicing fees. Borrowers will also be expected to pay interest on any amount they borrow. What many people fail to realize is that these costs are typically rolled into the loan. THERE IS NO OUT OF POCKET COSTS UNLESS THE BORROWER DECIDES TO PAY FEES UPFRONT. Unless a person wants to pay certain fees upfront, they will not be expected to pay these fees prior to taking the loan. Talk to the loan officer about the fees that will be charged. Lenders will be required to disclose all of this information in the application process. There is also mandatory counseling each borrower must take prior to taking on the reverse mortgage that will touch on fee disclosure.
- The application process is similar to applying for a regular loan but a little less. To qualify for this type of loan, borrowers are expected to apply, have their home appraised, and attend a counseling session. The loan process does take a decent amount of effort on the borrower’s part. Fortunately, in many cases, the benefits are worth the effort.
- Applicants for reverse mortgage are REQUIRED to attend an approved counseling session. While this might sound intimidating, these sessions enlighten borrowers and help them understand the loan process. Counseling is required to protect consumers, not to complicate the loan process.
Many seniors are starting to take advantage of a reverse mortgage. The funds received through a reverse mortgage are tax-free and can be extremely helpful to seniors with limited cash. Even after evaluating certain reverse mortgage pitfalls, many consumers choose to further pursue a loan.
A reverse mortgage can provide seniors with the funds necessary to pay large medical bills or simply increase their standard of living. It may even be used to pay off an existing mortgage loan and reduce a person’s monthly expenses. Regardless of the potential reverse mortgage pitfalls, there is no denying that these loans benefit many seniors.
We specialize in helping seniors with HECM for purchase and we guide our clients to obtain a reverse mortgage and help them find a home that will fit their needs and lifestyles. If you would like more information or have questions about this program, please call me, Diego Loya 714-989-6040 and I will be more than happy to assist you.
