| Since the Reverse Mortgage for Seniors program is all | | | | secondary mortgage vehicle. |
| the rage these days, let's take a look at what is | | | | To ensure that you enter into a reverse mortgage |
| required to qualify for and to obtain a reverse | | | | with your eyes fully open and to ensure that you are |
| mortgage. In the United States, a person must be at | | | | not taken advantage of or scammed, there is a |
| least 62 years of age and own their own home to | | | | Federal requirement that you must obtain financial |
| qualify for a reverse mortgage. While most | | | | counseling from a source that is approved by the |
| condominiums do qualify, there are some types of | | | | Department of Housing and Urban Development |
| co-op apartment arrangements which do not. Also, | | | | (HUD). Do not discount this counseling. It is very |
| lower value properties, such as smaller mobile homes, | | | | valuable and can usually be obtained for free or at a |
| probably will not qualify either. | | | | very low cost. It is best that you get such counseling |
| In a traditional mortgage, there is a great deal of | | | | from an independent source, such as the American |
| emphasis on the creditworthiness of the borrower. In a | | | | Association of retired Persons (AARP). |
| reverse mortgage, that is not the case since the | | | | While there are obvious cash flow benefits to be |
| borrower will not be counted upon to pay off the loan. | | | | derived through a reverse mortgage, there are also |
| Even a pending bankruptcy may not slam the door on | | | | some drawbacks. One big one is the amount of up |
| a reverse mortgage; however, it will probably slow the | | | | front costs associated with a reverse mortgage when |
| process down somewhat. The amount of equity you | | | | compared to a traditional mortgage. A loan origination |
| have in your home is the critical factor for a reserve | | | | fee of 2% is typical and the FHA reverse mortgage |
| mortgage. It is that equity that will be 'funding' the | | | | insurance is another 2%. These are in addition to the |
| payments into the future and you can be assured that | | | | normal closing items such as appraisals, surveys, title |
| the lender will get necessary appraisals and surveys, | | | | searches, etc. that one would expect. On a $200,000 |
| etc. to be certain of the real value of your home. | | | | mortgage, this would add up to a hefty $8,000 on the |
| The amount of a reverse mortgage loan is determined | | | | front end, plus all of the other traditional closing costs. |
| by several factors including the Federal Home | | | | The AARP is attempting to initiate a program with the |
| Administration (FHA) or Fannie Mae (FNMA) appraised | | | | government that would minimize the upfront costs, but |
| value of the home, its location, and the age of the | | | | that is not yet in place. Anyway, as a result of these |
| borrower. Fannie Mae has a limit of $200,000 for | | | | high closing costs, you should not consider a reverse |
| reverse mortgages closed under its program, but there | | | | mortgage option if you plan on living in the home for |
| are proprietary loan products from commercial lenders | | | | less than five years or so. |
| which can carry higher limits. | | | | A senior citizen should carefully evaluate the |
| Unlike a traditional mortgage, there are no second or | | | | requirements of the reverse mortgage and consider |
| third mortgages allowed in a reverse mortgage deal, | | | | other, more conventional options, such a home equity |
| unless there is an increase in the value of the home | | | | line of credit or a second mortgage before moving |
| after the reverse mortgage is taken out. This is | | | | forward to obtain a reverse mortgage. In any event |
| because the home equity is planned to be drawn | | | | the financial counseling required for reverse mortgages |
| down to cover the payments (or "loan advances" as | | | | will serve to help you with these kinds of decisions. |
| they are sometimes called) and there may not be | | | | Do you homework before committing to any sort of |
| adequate equity remaining to pledge toward a | | | | refinancing option. You'll be glad you did! |