The Reverse Mortgage Process
The R P Funding Reverse Mortgage Division consists of highly-trained team members that specialize in the FHA, Fannie Mae Homekeeper and Financial Freedom Cash Account reverse mortgage programs.
Our team is committed to providing the highest level of customer service available.
The federally insured FHA reverse mortgage program (which is also known as the Home Equity Conversion Mortgage) is quite possibly one of the most misunderstood finance options available to seniors today.
Let’s start by explaining: “What is a reverse mortgage?”.
A reverse mortgage is comprised of various components and programs. Let’s start from the beginning.
The Federally-insured Home Equity Conversion Mortgage was instituted in 1989. FHA, HUD and Fannie Mae put together a program to give senior homeowners a way to receive additional income by giving them access to the equity in their homes, without the burden of monthly payments. They designed the program to make sure the needs of seniors would be addressed. The result is one of the safest and most flexible finance options available to seniors today.
The H.E.C.M., which is the most popular reverse mortgage available today, is insured and regulated by the Federal Housing Administration and is viewed as a viable option for seniors looking to increase their standard of living. This new source of income will not affect social security benefits or medicare, and the funds can be accessed in a number of ways. A reverse mortgage allows seniors over the age of 62 to borrow against the equity in their home, without repayment, for as long as they live in the home. Instead of making monthly mortgage payments, you can actually RECEIVE them – That is, the REVERSE of normal mortgages. You can also take a lump sum amount of cash, which can be used for any purpose: Home repairs, property taxes, medical expenses, travel or to supplement your retirement income. It’s up to you. And once again, these funds are NOT taxed.
With traditional mortgage and home equity loans, your income and credit rating is used in the qualification process. A reverse mortgage is available to you WITHOUT any qualifying. That’s right – Your approval is not based on your income OR credit rating, it is based on the equity in your home. However, with the HECM loan, the only area dealing with credit that could become an issue would be if a bankruptcy were present or if there were a judgment on your credit report that could affect the Title to your home.
The cash from a reverse mortgage can be accessed in a number of ways:
The first, and most popular option, is a line of credit. This allows you to take as much as you need whenever you need it. The unused portion of your line of credit is not charged interest. Another benefit of this payment option is the growth feature. This concept can be a bit complicated, so please listen carefully. The portion of your line of credit that has not been used will increase each month. This is due to two factors: Your increasing age and the anticipated appreciation of your home. The FHA reverse mortgage program allows additional access to your home’s equity as you get older and as your home appreciates. This is one of the reasons that the line of credit option is so popular – Easy access to money and an increasing availability of funds in the future.
The second payment option allows a lump-sum distribution of the entire amount. This option should only be used if you have an immediate need for the entire amount of available funds. With very few exceptions, it is not a very good idea to use the money from your reverse mortgage to purchase annuities or other investments.
The third option is a monthly income payment that can be guaranteed for life as long as any borrower maintains the home as their primary residence. This option can also be used for a specific number of years, instead of a lifetime income.
Just imagine – Tax-free income without the burden of monthly repayment. You might be thinking that “This is too good to be true”. But that is exactly how this Federally-insured program works. You can remain in the comfort of your home while it provides YOU with the additional money to make YOUR life more comfortable and enjoyable.
Once again, the Federally-insured FHA reverse mortgage program, also known as the Home Equity Conversion Mortgage, or H.E.C.M. is quite possibly one of the most misunderstood finance options available to seniors today.
Let’s explore some of the misconceptions about the program.
The number one reason more seniors do NOT look into reverse mortgages is that they assume that they will no longer own their property. This is completely false. You will ALWAYS retain ownership, as well as the right to sell the property at any time. It is no different than a regular mortgage. You can live in your home for as long as you wish, OR as long as you live. If you decide to sell your property, the loan balance will be paid back from the proceeds of the sale and you will keep ALL additional funds. If you should pass away, your heirs will have the option of paying off the reverse mortgage. This will allow them to keep the property, just as if you had had a “traditional” mortgage. Should they decide to sell your home, all proceeds over and above the loan balance will go to them. An FHA reverse mortgage is a non-recourse loan. This means that the Federal government insures that you can never owe more than the value of your home, and all remaining equity belongs to your heirs.
Qualifying for a reverse mortgage is very simple. You must be 62 years of age, or older. The home needs to be your primary residence (second homes do not qualify). All liens on your homes, such as first and second mortgages, judgements and property taxes must be paid in full at closing with the proceeds from your reverse mortgage.
The FHA reverse mortgage is based solely on your home. Your income and credit rating will NOT play a role in qualifying for the program. You can still qualify if you’ve declared bankruptcy, as long as it has been discharged. However, in the event your bankruptcy is a Chapter 13 and has not been discharged, you may still qualify and have two options. The first option is to get permission from the court to allow you to proceed with the reverse mortgage. The second option is to arrange for payout of the remaining balance of the bankruptcy.
Three factors are used in establishing how much money you will receive:
The first is the interest rate at the time of closing. The lower the rate – The higher your proceeds. The interest rate can change from the time that you complete your application until your reverse mortgage is ready to close. However, on the FHA HECM loan, the amount of money that you are entitled to (commonly called “the principal limit”) is guaranteed for 120 days from the time the appraisal is ordered. If the rate increases within that 120-day period, it will not affect the amount of money that was disclosed to you at the time of Application. If the interest rate is lower than what was disclosed to you at the time of Application, you will receive the benefit of the lower rate. The primary condition of this guarantee is that the loan must close within that 120-day period.
The second factor is the age of the youngest borrower. The higher your age, the more money you will receive. If you are within 6 months of your birthday at the time of closing, the program rounds up your age automatically.
The third factor is the appraised value of your home. An FHA-approved Appraiser will inspect your home and establish its value. This value will be based on factors such as size, location and condition of your home as well as recent comparable sales in your area.
Your reverse mortgage will allow you to live in your home without any repayment as long as any borrower chooses to live there. The loan will be repaid should you sell the property, if all borrowers have established primary residency somewhere else, if all borrowers have passed away or if you transfer title to someone else. Once again, you maintain ownership of your home. If you, or your family members, decide to sell the home at any time, you or your family will receive all remaining proceeds, after repayment of your reverse mortgage. A traditional mortgage can be used to repay your loan, if your heirs would like to keep your home, by refinancing the outstanding balance of your reverse mortgage.
There are major differences between a reverse mortgage and a traditional home equity loan. While they both allow access to the equity in your home, a traditional home equity loan requires monthly repayment that starts as soon as you close. But first, you will need to qualify. Traditional lenders will want to make sure that you will be able to easily make your new monthly payments, and establish that you are a good credit risk. Due to the fixed income levels of many seniors, this can be a problem.
Our knowledge and experience shines when it comes to processing YOUR reverse mortgage. Our team members specialize in reverse mortgages, and can usually have your loan ready to close in three to four weeks.
Your home may increase in value while you have a reverse mortgage. This appreciation could offset the interest on your reverse mortgage. You will always have the option at any time of selling your home, just as you would with a traditional mortgage. You will receive the remaining equity after repaying the balance of your reverse mortgage.
There are important things to look for when choosing a reverse mortgage company. With traditional mortgages, your decision is based primarily on obtaining the lowest interest rate. Reverse mortgages are a different story, as the interest rate does not vary from one company to the next. And with very few minor exceptions, the fees and expenses are the same as well. Our knowledge and experience will provide the information you need in deciding if a reverse mortgage is the right option for you. We respect the fact that your personal information is just that – PERSONAL. We will NEVER share your personal information with ANYONE outside of our company. We will use our extensive knowledge and experience, in combination with your specific needs, to make sure that YOUR reverse mortgage FITS your needs: Home repairs, pay off your existing mortgage or other debts, purchase a new car, travel or just make your life more comfortable and enjoyable. It is all possible with a Federally-insured reverse mortgage or one of our other reverse mortgage programs.