There are several options available to senior citizens which allow them to convert their nest egg into a predictable source of income. A few of these alternatives include:

Annuities — investing in fixed annuities can result in the loss of liquidity over the short term, but offer guaranteed payments over a period of 25 years or life, depending on the arrangement. Financial advisors suggest that married seniors purchase an annuity with a joint survivor benefit so that the survivor will receive the principal (or continue the annuity contract) if the purchaser passes away.

Dividend Stocks — this investment can be relied upon to pay a consistent dividend but it generally offers a smaller return than annuities provide. Financial advisors suggest that seniors invest in more stable domestic stocks including IBM, Nucor, McDonalds, PepsiCo and WalMart. In addition, Treasury-Inflation Protected Securities, TIPS, pay out a regular fixed-rate interest payment. TIPS are designed to keep pace with inflation by returning the adjusted principal.

Reverse Mortgages — A Reverse Mortgages, also called an HECM loan, offers a strong strategy for seniors to ensure themselves a steady monthly income. Seniors aged 62 and older can convert a portion of the equity of their home into cash when they sign up for a federally-insured Reverse Mortgage.

Reverse Mortgages work in the reverse order from a typical mortgage. Seniors mortgage their property to the bank and receive a monthly check, line of credit or a one-time cash payment in return, based on the amount of equity that they own. Borrowers are not obligated to repay the loan for as long as they live in the home. When the last surviving borrower leaves the home, the mortgage must be repaid. This occurs when the home’s ownership reverts to the bank which can then resell it.

Financial advisors note that a Reverse Mortgage is a good strategy for seniors who need an increased monthly income but, at the same time, live in a house which is worth a good deal of money. Individuals who have amassed debt are particularly suitable for an HECM loan because the additional monthly payments can prevent financial mistakes, such as tapping into emergency reserves or investments.

Fees and interest rates for HECM loans differ among lending institutions so potential borrowers should shop around for the best deal. Varying costs may include origination fees, mortgage insurance premiums and closing costs. Applicants should compare and contrast among the various lenders. Borrowers with good credit ratings should be able to negotiate for lower interest rates and lower fees.

HECM counselors offer professional counseling to individuals who are considering a HECM loan. The counseling sessions, which borrowers must attend, provide a broad range of information about the loans including eligibility, payment options, borrower obligations, insurance information. The counseling sessions also present assistance in deciphering the various interest rates and closing costs associated with the loan.

]]> http://www.reversemortgageadviser.com/blog/reverse-mortgages/strategies-seniors-maintain-financial-freedom/feed/ http://www.reversemortgageadviser.com/blog/reverse-mortgages/1025/ http://www.reversemortgageadviser.com/blog/reverse-mortgages/1025/#comments Fri, 27 Jan 2012 11:21:46 +0000 Laurie http://www.reversemortgageadviser.com/blog/?p=1025 One of the most important steps that a borrower can do when considering an application for a Home Equity Conversion Mortgage (HECM — also known as a “Reverse Mortgage“) is to shop around for the lender who will offer the best terms and conditions for the loan.

HECM loans are insured by the Federal Housing Administration (FHA) but the FHA does not require that all lenders set identical criteria for credit scores, interest rates or even the closing costs. These variables differ among lenders. The FHA rules state that lenders can set their own criteria for credit scores and other payments as long as these requirements are applied equally to all loan applicants, are considered “reasonable and customary” in the industry and do not violate fair housing laws.

For instance, a lender can charge a slightly higher or slightly lower interest rate based on an applicant’s financial history and credit score. The FHA views this as both reasonable and customary. As long as the lender applies identical criteria to all applicants there would be no question of a violation of the Fair Housing Act.

In addition closing costs vary from lender to lender. The FHA recognizes this and does not intervene unless the lender violates any of the previously-mentioned clauses.

These are, however, areas that give borrowers room to negotiate which allows them to receive the best rates from a HECM lender. Before an applicant begins the process of applying for a Reverse Mortgage he should obtain a copy of his Fair Isaac Corporation (FICO) score. The AnnualCreditReport, operated by the three credit reporting bureaus (Experian, Equifax and TransUnion) provides an individual with one free copy per year of their personal credit report. A good FICO score may improve a borrower’s eligibility for better Reverse Mortgage loan terms and conditions.

The FHA or a Reverse Mortgage Counselor can advise applicants with low credit scores on ways that they can raise their credit score before applying for the HECM loan. These bodies can also provide advice regarding how to present other assets (such as cash reserves) in a way that will improve their chances of obtaining better terms from a Reverse Mortgage lender.

In short, it is the borrower’s responsibility to research available lending institution options. This research can result in information that will allow the individual to receive the best terms and conditions for a HECM loan. The HECM loan has federally-mandated requirements, guidelines and minimums but the FHA does not require HECM lenders to offer the loan to at terms which fall outside market norms.

Reverse Mortgages, also called Home Equity Conversion Mortgages (HECM) are federally insured mortgages which are available to elderly individuals who are prepared to mortgage their home back to the bank. In return for this “reverse mortgage” the borrower collects a percentage of the home’s value from the bank, either through a line of credit, a lump sum payment or monthly payments.

Many advisors agree that, for some seniors, a Reverse Mortgage can offer a good financial investment for their senior years.  This is particularly true for people who want to continue to live in their own house but lack the resources to do so without an additional income source. Individuals who will benefit most from the Reverse Mortgage program include seniors over the age of 72. Older seniors receive a higher percentage of their home’s value as a HECM loan than younger seniors will obtain.

A second benefit of the HECM loan is that the mortgage is insured by the Federal Housing Administration.  Individuals who might otherwise be wary of taking out a mortgage have federal assurance that their loan’s terms will not change and their payments will continue, even if the lending institution experiences problems.

The various options that reverse mortgage borrowers have to obtain their money is something that each borrower should consider before signing on for an HECM loan. Obtaining the loan in one lump sum may result in lower closing costs or the lender may even waive these costs. Conversely, interest rates on a one lump sum payment may be higher than for a line of credit or monthly payments.

In addition, borrowers should examine how the various payment options will affect their tax status as well as any other incoming payments. Receiving a one-time payment may adversely affect a senior’s income tax statement and raise their taxes for that year.  In addition, different types of payment options can have an impact on an individual’s eligibility for supplementary social security, Medicaid or Medicare benefits.

Seniors aged 62 and older who are considering a Reverse Mortgage should list the payment options that they are considering along with the pros and cons of each method of payment. It’s important to remember that borrowers with good credit can negotiate for better interest rates and even lower closing costs when dealing with a lending institution. Reverse Mortgage counselors are able to answer questions and offer advice that will provide different perspectives and allow borrowers to make the decision that is the best for their individual situation.

Reverse Mortgages are available to seniors, aged 62 or older, who wish to obtain a cash payment, monthly payments or a line of credit against the value of their home. The lending institution which holds the mortgage can take possession of the home only when the borrower(s) are no longer living in the home. Borrowers agree to accept responsibility for the HECM mortgage’s origination costs and normal house expenses, including home insurance, upkeep and property taxes. In exchange, the cash that the borrower(s) receive can be put towards normal living expenses, travel or even providing financial assistance to children.

This advice comes with the recommendations that borrowers carefully research the Reverse Mortgage program and the pros and cons of the loan. Individuals who are considering taking out a Reverse Mortgage should consult with qualified professionals who can provide needed guidance for people who are trying to navigate the world of real estate.

The conditions of a HECM loan include a regulation mandating that borrowers participate in a counseling session with an HECM-approved counselor who will provide them with all the information about the loan, its benefits and its obligations. In addition, potential borrowers should speak to other seniors who have taken out an HECM loan, representatives of different lending institutions and perhaps even a real estate lawyer.

In addition, experts advise that potential borrowers make sure that they know their credit profile. Borrowers who have a good credit score can often negotiation better terms for the Reverse Mortgage. Even if the credit history is problematic, borrowers may be able to explain the reasons for the difficulties and reach a deal for better terms for their Reverse Mortgage.

To access a credit score as the first step in negotiating HECM terms, borrowers should click into the AnnualCreditReport which is operated by the three credit reporting bureaus (Equifax, Experian and TransUnion) to obtain a free copy of their credit report. All individuals are entitled to such a free report once every 12 months.  Then the borrower can either use the report to demonstrate responsible credit history or delay the mortgage while he improves his credit score. Either way,  HECM borrowers must know where they stand vis-à-vis their credit history before they apply for a Reverse Mortgage.

In short, 2012 offers many opportunities to make wise real estate choices for individuals who have the correct data and know their Reverse Mortgage responsibilities, rights and options.

Seniors often make huge sacrifices for their children’s and grandchildren’s welfare, but many don’t forsee the complications that parent-care will present for their families. The time to plan for such an eventuality is before a crisis hits.

Two available options can be combined to provide the needed funds for nursing care or senior care. Seniors who have life insurance policies can convert their life insurance policy to a long-term care policy. Individuals aged 61 or older who have a chronic or terminal medical condition can use their policy to pay for their care. This involves no waiting period and the insurance policy converts to provide the family with a cash payout to be used for the senior’s care.

To ensure that this resource is a viable option, the couple can take out a Reverse Mortgage. This mortgage option, insured by the Federal Housing Administration (FHA) allows seniors aged 62 or older take out a Home Equity Conversion Mortgage (HECM) which, in effect, mortgages their home to the lending institution. The regulations of a HECM allow the borrowing individual or couple (if both partners are 62 or older) to remain in their home while receiving monthly payments from the lending institution against the value of their home.

These payments often provide the seniors with the extra funds needed to make payments on an existing or new life insurance or long-term care insurance policy, ensuring their continued care in their home as they age.

The procedure is simple. The senior, together with a spouse, partner or any other individuals who are listed on the home’s deed, meet with a representative of a HECM lending institution to ascertain the terms and conditions of the loan. The lending institution will provide the borrower(s) with an estimate of the worth of the Reverse Mortgage, which the individuals can obtain through a one-time cash payment, a line of credit or monthly payments.

After a meeting with a certified counselor who provides additional information about the loan’s terms and conditions, the borrowers sign for the Reverse Mortgage. The loan enables the borrowers to make the plans that will enable them to remain in their home for as long as possible, easing their worries and the concerns of their loved-ones.

As of December 2011 a Language Line operated by HUD offers assistance to non-native English speakers who are interested in obtaining a Reverse Mortgage but who would like to learn more by speaking with an HUD professional in their native language. The telephone interpretation service offers live, one-on-one interpretation services 24 hours a day. The service serves speakers of more than 175 languages. Interpreters are on call to speak to callers in their own language, translate their questions about the Reverse Mortgage to authorized HUD employees and translate the answers back into the caller’s native language. Languages represented in the HUD Language Line include Spanish, Vietnamese, Tagalog, Arabic, Korean, Russian, Chinese, Portuguese and Farsi.

The FHA announced that it would extend the maximum loan limits for Home Equity Conversion Mortgages from their 2011 levels. The loan limits will remain in effect throughout 2012 at $ 625,000. The value of a Reverse Mortgage is based on a formula which determines the amount that an applicant is eligible to receive. The formula takes into account the borrower’s age, the calculated market value of the house and current interest rates. There are also different maximum rates offered in various counties. A Reverse Mortgage calculator can assist applicants estimate the amount that they may obtain through an HECM loan.

The provision affecting mandated counseling for HECM applicants was revised in August 2011. The FHA mandates that all applicants for a HECM mortgage undergo counseling at which time they will receive a full accounting of their rights, obligations and responsibilities regarding the terms of the Reverse Mortgage. The FHA requires that all owners listed on the home’s property deed, including non-borrowing spouses of loan applicants, attend the counseling session. A certificate attesting to the attendance of all such individuals must be signed and dated by the counselor, all property owners listed on the property deed and any non-borrowing spouses.

In December 2011 the Federal Housing Administration announced that the FHA’s anti-flipping waiver would be extended. However, HECM applicants should keep in mind that Reverse Mortgages are not covered. The anti-flipping waiver is aimed at stabilizing home values and improving conditions for areas of high foreclosure. The FHA will, under this waiver, insure mortgages on homes that are resold after being owned by the seller for less than 90 days. This has been previously  disallowed under FHA regulations but in the interests of improving real estate options in distressed areas, the FHA is now insuring such mortgages on a temporary basis.  However, Reverse Mortgages do not fall under this waiver.

The process of applying for a HECM loan, also termed a “Reverse Mortgage” can be intimidating but pre-application counseling sessions will provide needed information and guidance. Trained counselors will be able to offer any needed advice and direction to assist applicants.

Some seniors may avoid applying for a Reverse Mortgage because they worry that their past credit mistakes may make them ineligible to obtain a HECM loan. However past financial problems do not necessarily preclude approval for a HECM loan. On the opposite side of the coin however, applicants who have a good credit history can negotiate with the lender for the best terms possible.

Borrowers must do their homework before they select a lending institution with which to apply for a Reverse Mortgage. It is imperative that you know your credit history. If you can demonstrate that you pay your bills on time and have not defaulted on loans, you have the tools to request that the lender give you better terms on interest rates.

Take your credit report with you when you begin the HECM loan process. The Fair Credit Reporting Act (FCRA) requires consumer reporting companies to furnish you with a free copy of your credit report, at your request, once every 12 months. This report includes information on where you live, how you pay your bills, and whether you’ve been arrested, sued or have filed for bankruptcy.

Contact annualcreditreport.com by calling 1-877-322-8228 or mailing your request to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281 (you can print the request form from ftc.gov/credit website). Bring your report with you when you meet with a Housing and Urban Development-approved Reverse Mortgage lender to prove that you have a good financial history. Request the lender’s best terms. If you have doubts, meet with other lenders and ask for their best offer.  

If you have a problematic credit history, don’t assume that you can’t obtain a HECM loan. Discuss your options with a FHA-approved counselor and ask the counselor to suggest ways to obtain a Reverse Mortgage. The terms, in such as case, may involve a higher interest rate, but the benefits that the loan provides may be just what you need to get your finances back on track.

If you are 62 or older and considering your financial future, review the pros and cons of a Reverse Mortgage. This information can give you added data that will allow you to make an informed decision about your money management during your senior years.

Taking out a Reverse Mortgage isn’t the best solution for everyone. But it does provide a good option for many seniors who want to maximize the potential of, what is for many, their most important asset — their home.

Many seniors have spent their lives paying off their mortgages on their home so that they will have “security.” Now, as they enter their retirement years, these people feel the pinch of not having enough savings to live on.

The Reverse Mortgage option, also called a Home Equity Conversion Mortgage (HECM) provides the opportunity to use the home as collateral on a reverse loan. The lending institution gives the senior individual (or couple) a loan, using the home to secure the loan. During the ensuing years the couple receives a monthly sum, or line of credit, based on their home’s worth, their age when they took out the HECM loan and several other considerations.

When the senior citizen, or couple, can no longer live in the house, the ownership of the home reverts to the lending institution and the proceeds from its sale go towards paying off the loan.

Seniors who are considering taking out a Reverse Mortgage should be aware of some of the basic FAQs of Reverse Mortgages.

Who is eligible for a Reverse Mortgage?

Individuals aged 62 or older are eligible to apply for a Reverse Mortgage. If a couple applies together, both partners must be at least 62. If only one partner is 62, the loan is taken out on that person’s name only. HOWEVER, at the point that that individual no longer lives in the house, the lending institution takes ownership of the house, even if the other partner still lives in the home.

What are the loan limits for a Reverse Mortgage?

A Reverse Mortgage’s maximum loan limit is $625,500. The loan amount will be based on the appraised home’s value if the house is worth less than $625,500. If the house is worth $625,500 or more, the loan is capped at a $625,500 ceiling.

What fees are associated with a Reverse Mortgage?

There are two upfront fees that a lending institution adds on to a Reverse Mortgage, as mandated by the Federal Housing Administration (FHA). Borrowers pay an “origination fee” which equals two percent of the initial $200,000 of the loan and one percent of the balance. This amount is capped at $6,000.

In addition, loan recipients must pay a Mortgage Insurance Premium (MIP) which equals two percent of the maximum claim amount as well as an annual premium equal to a 0.5 percent of the loan’s balance. The MIP guarantees the loan through the FHA.

Are there any other payments that Reverse Mortgage Recipients must pay?

Recipients of the HECM loan are responsible for maintaining their home, maintaining hazard insurance, and paying all local taxes.

What do I do if I have other questions about the Reverse Mortgage loan?

The FHA requires that loan recipients complete a session with a certified FHA-approved counselor. If a couple applies for a loan together, both partners must attend the session. If one individual applies for a loan but a second person’s name is listed on the house deed, that second person must also attend the session.

At this counseling session you can ask all of your questions about the different aspects of a Reverse Mortgage. The counselor will review the rules and regulations associated with the loan, including payment options, banking issues and any possible complications. The counselor can help many seniors resolve perceived problems before they begin the application process, ensuring a smooth and easy process.

According to the American Association of Retired Persons, “Reverse mortgages can be tremendously positive for borrowers. But you need to fully understand how they work.”

This is good news for new applicants for the HECM loan, also called a Reverse Mortgage. The Federal Housing Administration (FHA) and HUD have essentially agreed that seniors who apply for a HECM loan will have access to the same loan funds as were available through 2011. While some federal loan limits have been changed, the HECM loan remains stable.

There are various Reverse Mortgage options but the HECM loan is the oldest and most popular reverse mortgage on the market today. Seniors above the age of 62 are eligible for a reverse mortgage which is calculated based on the age of the applicant (or applicants, if a couple applies together), the current interest rates and the home’s appraised value. Older seniors with more valuable homes are eligible for the most funds but circumstances vary, making the reverse mortgage option an attractive one for many senior citizens.

The maximum loan limit available through the HECM loan remains at $625,500. If an applicant’s home is worth less than $625,500, the loan amount will be based on the appraised home value. If the applicant’s home is worth $625,500 or more, the loan amount will be based on an appraisal ceiling of $625,500.

The FHA has also placed limits on the upfront fees that HECM loan recipients must pay. An origination fee will equal two percent of the initial $200,000 (the sum that is lower — county lending limit or the home value) and one percent on the subsequent balance. The amount is capped at $6,000.

In addition, loan recipients are required to pay a mortgage insurance premium (MIP) that equals two percent of the maximum claim amount. The Reverse Mortgage recipients must then pay an annual premium equal to a 0.5 percent of the loan’s balance. Loan recipients pay the MIP directly to FHA in exchange for the FHA’s guarantee of the loan.

This FHA guarantee assures loan recipients that they will never owe more than the value of the house when the time comes to repay the HECM loan. In addition, the MIP guarantees HECM loan recipients that if their loan servicer (the company managing the HECM loan) goes out of business, the government will enable the recipient’s continued access to their loan funds.

Loan recipients should also take into account other payments that the loan obligates them to pay. These payments include attorney fees, title fees, property taxes and home maintenance costs. These payments are part of the mandated responsibilities of the homeowner under the HECM guidelines.

]]> http://www.reversemortgageadviser.com/blog/news/992/feed/ http://www.reversemortgageadviser.com/blog/reverse-mortgages/application-information-hemc-mortgage/ http://www.reversemortgageadviser.com/blog/reverse-mortgages/application-information-hemc-mortgage/#comments Sat, 03 Dec 2011 17:29:22 +0000 Laurie http://www.reversemortgageadviser.com/blog/?p=989 If you’ve decided to take out a Home Equity Mortgage Conversion (HEMC) Reverse Mortgage loan, you should prepare yourself for the application process. Lending institutions are aware that borrowers, once they’ve made the decision to take out a Reverse Mortgage, are interested in expediting the process. These lending institutions will make every effort to see the loan approved in as short amount of time as possible. However, some borrowers may find the process to be stressful, especially those who have little or no experience in taking out a mortgage.

Borrowers should be aware that the Federal Housing Administration (FHA) requires lenders to act on the application no later than 30 days after the application has been submitted. However, it is the borrower’s responsibility to ensure that the application includes all the information and details requested on the application form.

This means that the lender is not obligated to act on the application unless the borrower has supplied all credit data, employment history and other financial information. Some borrowers worry that unfavorable information can impact negatively on their loan application, so they refrain from submitting information that they think may impact negatively on their application. However, this information is required for the lender to begin processing the application form. According to the FHA, “Your application will not be considered complete, and the 30 day period will not begin, until you provide to your lender or mortgage broker all of the material and information requested.”

The FHA advises that senior citizen loan applicants who are concerned about how a negative financial history could impact on their HEMC loan request contact an FHA-approved counselor  to obtain advice. Counselors can explain how the loan requirements can be eased in certain circumstances. In addition, counselors can provide suggestions of what the applicant can do to improve the chances of obtaining a Reverse Mortgage.

The FHA mandates counseling sessions with an FHA-approved counselor for all Reverse Mortgage loan applicants. If a couple applies for a loan as a couple, or if a spouse is a signatory on a home’s deed, even though the spouse is not a party to the HEMC loan, both spouses must attend the counseling session.

The counselor will review the rules and regulations of the Reverse Mortgage. If the potential loan applicants are aware that their financial history is problematic or that there are other extenuating circumstances involved in their loan application, they should discuss this with the counselor so that the counselor can address these concerns specifically in the counseling session.

The FHA and Department of Housing and Urban Development (HUD) wants to make the HEMC loan available to all eligible seniors. Potential loan applicants should check out their eligibility and follow the guidelines carefully to ensure their inclusion in the program.