Are you over the age of 62 and currently late on your mortgage payment?

Here is something that I bet you didn’t know — according to a data provider that I use, there are currently 499 seniors in Arizona who are over the age of 62, have a loan-to-value ratio of 60% or less and they are currently late on their mortgage payment by either 30, 60 or 90 days.

When digging a little deeper into the “senior debt problems” that we have in our country, you don’ t have to look very far to see that credit card and bankruptcies among the senior population is rising.  According to the National Consumer Law Center:

An increasing number of older consumers are experiencing problems with debt, often by using credit cards to pay for groceries, prescription drugs, major home repairs, loans to children or grandchildren, and other necessities.  The average credit card debt of Americans over 65 increased by 89 percent between 1992 and 2001, from $2,143 to $4,041.  Elders between 65 and 69 years old saw the most staggering rise in credit card debt—217 percent— to an average of $5,844.1  One study of individuals who file chapter 7 bankruptcy found that seniors (65 or older) on average have nearly four times as much credit card debt as filers under the age of 25.

So.

If you are a senior living in Arizona and are currently late on your mortgage payment, be aware that having good credit is NOT one of the criteria for qualifying for an FHA-insured reverse mortgage.

Is the FHA reverse mortgage program right for you?

If you are late on your mortgage payments, are over age 62 and have equity in your house… It just might be.

Many seniors are searching for more information about reverse mortgages and with the FHA-insured HECM Reverse Mortgage, FHA has done a nice job of putting some information out on their website about it.

Here is an parahprased list of the top 10 things HUD wants seniors to know about the HECM Reverse Mortgage program:

Top Ten Things to Know if You’re Interested in a Reverse Mortgage

1. What is a reverse mortgage?

A reverse mortgage is a type of FHA-insured loan that allows seniors to turn their home equity into cash.  The equity can be paid to you in various ways (a lump sum, in payments or a line of credit) and you don’t have to pay it back until you no longer live in the home as your principal residence.

FHA’s reverse mortgage program provides these benefits and is also federally-insured so you won’t have to worry about any bank failures impacting your payments.

2. Can I qualify for a HUD reverse mortgage?

The FHA reverse mortgage program requires that you live in your home, have equity in your home and are age 62 or older.  Credit scores, income or assets are not taken into account when qualifying for a reverse mortgage. Prior to closing, you will also need to attend a counselling session with an FHA approved counselor (aproximately an hour) who will be available to answer any questions you have about a reverse mortgage.
3. Can I apply if I didn’t buy my present house with FHA mortgage insurance?

Yes. It doesn’t matter what kind of mortgage you currently have on the house – or no mortgage at all.
4. What types of homes are eligible?

First, you must live in the property as your primary residence.  Second, your home must be a single family dwelling or a two-to-four unit property. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved. It is possible for individual condominiums units to qualify under the Spot Loan program.

5. What’s the difference between a reverse mortgage and a bank home equity loan?

In order to qualify for a home equity loan, you will need to have sufficient income, assets and credit scores.  With a reverse mortgage, you can qualify as long as you are 62 or older, live in the property and have significant equity in the property.

If you select the “line of credit” option with a reverse mortgage, both a reverse mortgage and a home equity line of credit will allow you access to your money in much of the same way.

6. Can the lender take my home away if I outlive the loan?

No! You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home’s value.

7. Will I still have an estate that I can leave to my heirs?

When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs. None of your other assets will be affected by HUD’s reverse mortgage loan. This debt will never be passed along to the estate or heirs.

8. How much money can I get from my home?

The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA’s mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.

9. Should I use an estate planning service to find a reverse mortgage?

HUD does NOT recommend using an estate planning service, or any service that charges a fee just for referring a borrower to a lender! HUD provides this information without cost, and HUD-approved housing counseling agencies are available for free, or at minimal cost, to provide information, counseling, and free referral to a list of HUD-approved lenders.

In order to get an FHA-insured reverse mortgage, you will need to work with an FHA approved lender and counselor.  No estate planning services should be needed.

10. How do I receive my payments?

There are five options to receive your money. The most popular choices are probably “tenure” and “line of credit” and the least popular is “lump sum” because getting a lump sum can often lead to a loss of medicaid eligibility.

The five options are:

1. Tenure – equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
2. Term – equal monthly payments for a fixed period of months selected.
3. Line of Credit – unscheduled payments or in installments, at times and in amounts of borrower’s choosing until the line of credit is exhausted.
4. Modified Tenure – combination of line of credit with monthly payments for as long as the borrower remains in the home.
5. Modified Term – combination of line of credit with monthly payments for a fixed period of months selected by the borrower.

For better or worse, there is quite a bit of mis-information about reverse mortgages in general and like it or not, more and more people are asking the question of “is a reverse mortgage right for me?”

Here are 5 of the most common myths about reverse mortgages:

Top Five Myths About Reverse Mortgages

Myth 1. – The bank takes the house OR the borrower can lose the house.
With a reverse mortgage, the borrower retains title to the home throughout the life of the reverse mortgage.  The borrower cannot, as a result of the reverse mortgage be forced out of his or her home, as long as property charges, such as taxes and insurance, are paid and the home is maintained in reasonable living condition.

Once the last borrower permanently moves out of the home, the loan must be repaid. Most properties secured by reverse mortgages still have equity when a maturity event occurs and therefore the borrower or his/her heirs choose to sell the home to repay the loan and preserve this equity for the benefit of the borrower or his/her estate.

Myth 2. – The home must be paid off or be debt-free to qualify for a reverse mortgage.
Reverse mortgages convert home equity into cash. As long as there is sufficient equity in the property, the homeowner may be eligible for a reverse mortgage. In fact, many seniors use a reverse mortgage to pay off an existing mortgage in order to eliminate a required monthly mortgage payment.

Myth 3. – When a reverse mortgage becomes due, the bank sells the home.
The borrower is in control of the home and retains title, not the bank or lender. So while it’s common for the borrower or the heirs to sell the home to repay the loan, it’s a decision the borrower or his heirs make. The borrower or the heirs might also refinance the home in order to repay the loan.

Myth 4. – It’s cheaper to move to a smaller house.
While this strategy might be right for different reasons, seniors need to analyze their costs carefully before making this assumption. The process of selling a home and moving into a new home can be expensive. The typical real estate commission of 6% on a $300,000 home would be $18,000. Add moving costs, and the undertaking to find a new home and the decision is not as simple.

Myth 5. – Children want the home or don’t feel comfortable with a reverse mortgage.
Seniors are encouraged to talk with their children about reverse mortgages. Many baby boomers are faced with trying to plan for their retirement and pay for their children’s education. Often, the children of many seniors are happy that their parents have a financial solution available to help them live more independently and financially secure.

Source: Financial Freedom

Lately, we have been talking to more and more people who are interested in learning more about the FHA Reverse Mortgage program.

With more people turning 62 every day, the number of people who are getting a reverse mortgage is expected to increase substantially over the coming years.  What are the top 10 reasons that seniors get a reverse mortgage?  According to AARP:

Top 10 Reasons Seniors Get A Reverse Mortgage

1. Pay off mortgage (20%)
2. Home repairs/improvements (18%)
3. Improve quality of life (14%)
4. Everyday expenses (10%)
5. Emergencies/unexpected (9%)
6. Pay off non-mortgage debts
7. Health or disability (5%)
8. Property taxes/insurance (5%)
9. Financial help to family (2%)
10. Investments, annuities, or long-term care insurance (1%)

Maybe it is because the baby boomers are starting to enter their retirement years, maybe it is because FHA is doing a better job of marketing the FHA reverse mortgage program to seniors, I don’t know… but according to the latest statistics from National Reverse Mortgage Lenders Association, as of June 2008, FHA-approved Mortgage Lenders have originated Reverse Mortgages for 73,875 for homeowners age 62 and older.  In the month of October, the total number of people who got an FHA-insured reverse mortgage was up 6.6% from September to 10,121.

Clearly, the FHA-insured reverse mortgage program is growing as America’s demographics shift toward their “golden years”.