Reverse Mortgages

Reverse Mortgages are gaining popularity as a way to convert equity in your home into cash without having to sell your home or incur additional creditors. If you’re 62 or older – a reverse mortgage may be a good way to finance a home improvement, pay off your current mortgage, supplement your retirement income, or pay for healthcare expenses. Please understand, however, when you obtain a reverse mortgage, that you are signing a lien on your property that will have to be paid upon the sale of your home or when you vacate the premises as primary residence.

Using a traditional mortgage, you make monthly payments to the lender. In a “reverse” mortgage, you receive money from the lender, and generally don’t have to pay it back for as long as you live in your home. The loan is repaid when you die, sell your home, or when your home is no longer your primary residence. The proceeds of a reverse mortgage generally are tax-free, and many have no income restrictions.

The Federal Trade Commission (FTC), the nation’s consumer protection agency, can help you understand how reverse mortgages work, the different types available, and how to get the best deal. They offer great advice, and it is important to educate yourself prior to committing yourself to any mortgage.

The following is from the FTC’s website. There are three types of reverse mortgages:

  • single-purpose reverse mortgages, offered by some state and local government agencies and nonprofit organizations
  • federally-insured reverse mortgages, known as Home Equity Conversion Mortgages (HECMs) and backed by the U. S. Department of Housing and Urban Development (HUD)
  • proprietary reverse mortgages, private loans that are backed by the companies that develop them

Single-purpose reverse mortgages are the least expensive option. They are not available everywhere and can be used for only one purpose, which is specified by the government or nonprofit lender. For example, the lender might say the loan may be used only to pay for home repairs, improvements or property taxes. Most homeowners with low or moderate income can qualify for these loans.

HECMs and proprietary reverse mortgages may be more expensive than traditional home loans, and the upfront costs can be high. That’s important to consider, especially if you plan to stay in your home for just a short time or borrow a small amount. HECM loans are widely available, have no income or medical requirements, and can be used for any purpose.

Before applying for a HECM, you must meet with a counselor from an independent government-approved housing counseling agency. Some lenders offering proprietary reverse mortgages also require counseling. The counselor is required to explain the loan’s costs and financial implications, and possible alternatives to a HECM, like government and nonprofit programs or a single-purpose or proprietary reverse mortgage. The counselor also should be able to help you compare the costs of different types of reverse mortgages and tell you how different payment options, fees, and other costs affect the total cost of the loan over time. You can visit HUD for a list of counselors or call the agency at 1-800-569-4287. Most counseling agencies charge around $125 for their services. The fee can be paid from the loan proceeds, but you cannot be turned away if you can’t afford the fee.

How much you can borrow with a HECM or proprietary reverse mortgage depends on several factors, including your age, the type of reverse mortgage you select, the appraised value of your home, and current interest rates. In general, the older you are, the more equity you have in your home, and the less you owe on it, the more money you can get.

The HECM lets you choose among several payment options. You can select:

  • a “term” option – fixed monthly cash advances for a specific time.
  • a “tenure” option – fixed monthly cash advances for as long as you live in your home.
  • a line of credit that lets you draw down the loan proceeds at any time in amounts you choose until you have used up the line of credit.
  • a combination of monthly payments and a line of credit.

You can change your payment option any time for about $20.

HECMs generally provide bigger loan advances at a lower total cost compared with proprietary loans. But if you own a higher-valued home, you may get a bigger loan advance from a proprietary reverse mortgage. So if your home has a higher appraised value and you have a small mortgage, you may qualify for more funds.

Loan Features

Reverse mortgage loan advances are not taxable, and generally don’t affect your Social Security or Medicare benefits. You retain the title to your home, and you don’t have to make monthly repayments. The loan must be repaid when the last surviving borrower dies, sells the home, or no longer lives in the home as a principal residence.

In the HECM program, a borrower can live in a nursing home or other medical facility for up to 12 consecutive months before the loan must be repaid.

If you’re considering a reverse mortgage, be aware that:

  • Lenders generally charge an origination fee, a mortgage insurance premium (for federally-insured HECMs), and other closing costs for a reverse mortgage. Lenders also may charge servicing fees during the term of the mortgage. The lender sometimes sets these fees and costs, although origination fees for HECM reverse mortgages currently are dictated by law. Your upfront costs can be lowered if you borrow a smaller amount through a reverse mortgage product called a "HECM Saver."
  • The amount you owe on a reverse mortgage grows over time. Interest is charged on the outstanding balance and added to the amount you owe each month. That means your total debt increases as the loan funds are advanced to you and interest on the loan accrues.
  • Although some reverse mortgages have fixed rates, most have variable rates that are tied to a financial index: they are likely to change with market conditions.
  • Reverse mortgages can use up all or some of the equity in your home, and leave fewer assets for you and your heirs. Most reverse mortgages have a “nonrecourse” clause, which prevents you or your estate from owing more than the value of your home when the loan becomes due and the home is sold. However, if you or your heirs want to retain ownership of the home, you usually must repay the loan in full – even if the loan balance is greater than the value of the home.
  • Because you retain title to your home, you are responsible for property taxes, insurance, utilities, fuel, maintenance, and other expenses. If you don’t pay property taxes, carry homeowner’s insurance, or maintain the condition of your home, your loan may become due and payable.
  • Interest on reverse mortgages is not deductible on income tax returns until the loan is paid off in part or whole.

Getting a Good Deal

If you’re considering a reverse mortgage, shop around. Compare your options and the terms various lenders offer. Learn as much as you can about reverse mortgages before you talk to a counselor or lender. That can help inform the questions you ask that could lead to a better deal.

  • If you want to make a home repair or improvement – or you need help paying your property taxes – find out if you qualify for any low-cost single-purpose loans in your area. Area Agencies on Aging (AAAs) generally know about these programs. To find the nearest agency, visit www.eldercare.gov or call 1-800-677-1116. Ask about “loan or grant programs for home repairs or improvements,” or “property tax deferral” or “property tax postponement” programs, and how to apply.
  • All HECM lenders must follow HUD rules. And while the mortgage insurance premium is the same from lender to lender, most loan costs, including the origination fee, interest rate, closing costs, and servicing fees vary among lenders.
  • If you live in a higher-valued home, you may be able to borrow more with a proprietary reverse mortgage, but the more you borrow, the higher your costs. The best way to see key differences between a HECM and a proprietary loan is to do a side-by-side comparison of costs and benefits. Many HECM counselors and lenders can give you this important information.
  • No matter what type of reverse mortgage you’re considering, understand all the conditions that could make the loan due and payable. Ask a counselor or lender to explain the Total Annual Loan Cost (TALC) rates: they show the projected annual average cost of a reverse mortgage, including all the itemized costs.

Be Wary of Sales Pitches

Some sellers may offer you goods or services, like home improvement services, and then suggest that a reverse mortgage would be an easy way to pay for them. If you decide you need what’s being offered, shop around before deciding on any particular seller. Keep in mind that the total cost of the product or service is the price the seller quotes plus the costs – and fees – tied to getting the reverse mortgage.

Some who offer reverse mortgages may pressure you to buy other financial products, like an annuity or long term care insurance. Resist that pressure. You don’t have to buy any products or services to get a reverse mortgage (except to maintain the adequate homeowners or hazard insurance that HUD and other lenders require). In fact, in some situations, it’s illegal to require you to buy other products to get a reverse mortgage.

The bottom line: If you don’t understand the cost or features of a reverse mortgage or any other product offered to you – or if there is pressure or urgency to complete the deal – walk away and take your business elsewhere. Consider seeking the advice of a family member, friend, or someone else you trust.

Your Right to Cancel

With most reverse mortgages, you have at least three business days after closing to cancel the deal for any reason, without penalty. To cancel, you must notify the lender in writing. Send your letter by certified mail, and ask for a return receipt. That will allow you to document what the lender received and when. Keep copies of your correspondence and any enclosures. After you cancel, the lender has 20 days to return any money you’ve paid up to then for the financing.

Reporting Possible Fraud

If you suspect that someone involved in the transaction may be violating the law, let the counselor, lender, or loan servicer know. Then, file a complaint with the Federal Trade Commission, your state Attorney General’s office, or your state banking regulatory agency.

Whether a reverse mortgage is right for you is a big question. Consider all your options. You may qualify for less costly alternatives. The following organizations have more information:

Reverse Mortgage Education Project
AARP Foundation
601 E Street, NW
Washington, DC 20049

U. S. Department of Housing and Urban Development (HUD)
451 7th Street, SW
Washington, DC 20410
1-800-CALL-FHA (1-800-225-5342)

Staged Homes Sell Quickly

Sellers who stage their homes sell quickly.  Staging your home does not necessarily mean making the home look straight out of Southern Living.  By highlighting the advantages of the home, removing the objections, broadening the appeal and downplaying the disadvantages, sellers can drastically affect their home's time on the market.  Time is money in real estate - when homes sell quickly, sellers save money.

Highlight the Advantages

First impressions count.  Spruce up your entrance, inside and out.  Make sure it is clean and attractive.  You have one chance to make a good first impression, and it is usually made in the first thirty seconds.  Your entrance sets the tone for the rest of the showing. 

Declutter, Declutter, Declutter.  In case you missed that, declutter.  You can instantly visually expand the living space by streamlining and decluttering.  Remember the rule of three.  No surface should have more than three items on it.  Minimize the furniture in each room to that which is functional.  Float your furniture in groupings.  By moving furniture from the walls, you visually expand your space and make the space look, feel and live larger than it actually is.

Think about why you purchased the home.  Play up those advantages to prospective buyers.  Draw attention to the gourmet kitchen or the large master bath by really focusing your energy on those areas, adding special touches buyers are sure to notice.

Remove Objections

Remove personal items, such as pictures.  You want your home to look homey, but you want the prospective buyers to picture it as their home not yours.  If you have pets, invest in pet odor remover gels.  Arrange pet day care so people can focus on your home, not your pet and you won't eliminate those buyers who are afraid or allergic to pets.

Speaking of odors, invest in odor absorbing gels rather than perfuming sprays or air freshners.  Many people are allergic or offended by certain odors.  The best scent your home can have is freshly baked cookies or banana bread.

Fix any obvious repairs. Each time a buyer notices something that needs to be repaired, it raises the question in their minds, "If this is what I see, what don't I see?" Remove dated items like wallpaper, hardware and fixtures. Freshen the paint. Shine the floors. Make your home as move-in ready as possible.

Broaden the Appeal

Take the time to neutralize your decor, particularly removing non-neutral paints.  Themed items like seashore, vineyard wallpapers narrow the scope of buyers your home will appeal to.  They will instantly raise objections.  Warm, neutral colors play better than cooler shades which tend to make spaces appear more sterile than desirable for homes.

Calming environments resonate with everyone - remove anything that jars the senses.  Greenery and fresh flowers add to appeal.  This doesn't have to be expensive, though - look to your landscape, ask your neighbors if they will share some from their yard. 

Downplay the Disadvantages

Lighting is very important.  Open the blinds, lighten up the drapes, bring in extra lights in particularly small or dark rooms.  Effects lighting can shift the focus from disadvantages in rooms. If your closets are small, declutter them as much as possible.

Particularly in small homes, continuity of paint colors is important.  The fewer shade changes, the better.  If you have slanted ceilings, or awkward spaces, give them a function.  Attractive storage repurposes tight spaces and removes the disadvantage of the lost space.

By decluttering, updating and paying attention to small details, like fresh flowers and effects lighting, you can minimize the time your home spends on the market.  Time is money in real estate, and the quicker you sell your home, the quicker you can get on to the next season in your life.  Let Sandcastle Dreams move you towards that next season with less stress while maximizing your investment return.

Selling Property in Northwest Florida?

Selling a home can be quite intimidating. My job is to help smooth that process and remove as much stress as possible from the transaction. There are many, many resources on the internet for sellers. One of the best I've found is through the U.S. Department of Housing and Urban Development. Their website, found here, offers answers to questions sellers ask across the nation. However, markets vary from location to location, sometimes even within a county. That's when the depth of local experience of a REALTOR pays off.

I've worked in Okaloosa, Santa Rosa and Walton Counties since 1992, through boom markets, through buyers' markets, through seller's markets.  While every set of market conditions has different challenges, they also have advantages.  There is no substitute for real life experience.

I will provide you a Comparative Market Analysis - not only of the competition on the market - but also of homes that have already sold.  This will help you determine the market value for your home in addition to giving you a realistic picture of the time on the market.  Clear expectations reduces the stress of selling your home.  Together, we can weigh your needs and timeline to ensure that you receive the top dollar for your home.  I market my listings agressively, to reduce the amount of time they are on the market.  This benefits us both.  The quicker you can sell your home, the quicker you can get on with the pursuit of your dreams.

In addition to negotiating the best offer for your home, I will guide you through the inspections, contract contingencies to ensure you are prepared and able to close your home on time.

Okaloosa County has rural areas that qualify for Rural Development loans, urban areas that qualify for redevelopment loans, and even brownfield areas that qualify for special redevelopment grants.  There are also special loans for veterans, teachers, law enforcement and emergency responders.  By far, the largest percentages of homeowners utilize Veteran Administration guaranteed mortgages available to military members and veterans.  For every loan type, sellers have different responsibilities.

Home Inspections are highly recommended, they give you, the seller, a measure of added protection to ensure that all items that are required to be fixed are identified well ahead of closing.  A lot of sellers are under the misconception that the bank's inspection covers them.  This is not true.  The bank's inspector is looking for items that affect the homes' value - not necessarily things that will require costly repairs or utilities for the homeowner.  For more information about the bank's inspection, this document answers some questions.  I can help you find an ethical home inspection specialist to help guard your investment and protect you from expensive repairs at the last minute prior to closing, which affects your bottom line and your ability to close.

Important questions to ask any listing agent:  What is your strategy to sell my home quickly? Where will you advertise my home?  What type of feedback should I expect from potential buyers?  How many days did it take your listings to sell?  How close to the initial asking prices of the homes you listed were the homes you sold?  Could you provide references? 

"Thanks for everything including our housewarming gift!" –Rick & Maria

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Sandcastle Dreams Realty
211 Chateaugay Fort Walton Beach, FL 32548
Phone: 850-240-4669 Website: www.sandcastledreaming.com