Reverse Mortgage 2020

#ReverseMortgage2020

The landscape for Reverse Mortgage 2020 has changed dramatically. Hence, we decided to write a reverse mortgage guide detailing EVERYTHING about reverse mortgages.  We’ll talk about the HUD HECM, aka FHA HECM etc. Also, we will discuss private reverse mortgages.  We are pro reverse mortgage, but we’ll talk about the potential downside of this program as well as the plus side of reverse mortgages.  In short, this will be detailed reading about the reverse mortgage program.  First, let’s talk about what a reverse mortgage is.

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What Is A Reverse Mortgage?

A reverse mortgage is a special type of loan that allows you to access a portion of your home equity. Naturally, like every mortgage, this type of loan has ALOT of guidelines.  The two most basic guidelines are that you have to be age 62 or older to qualify and there is an equity requirement. That said, there is a new Reverse Mortgage at Age 60 Program  (only available in some states).  Beyond the age requirement, there is an equity requirement that changes with every passing year.  The older you get, the more you can borrow (interest rates also factor in).   One of the most attractive parts is that there is no monthly payment required.  This is applicable for as long as you live, or for as long as you live in your home.  You still own your home if you do a reverse mortgage. Hence, you will still need to have homeowner insurance and pay property taxes.

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What Are the Reverse Mortgage Options for Seniors in 2020?

When it comes to the reverse mortgage options available in 2020, there are really only two options.  The options are:

1. An FHA HECM
2. Private Reverse Mortgages, aka Jumbo Reverse Mortgages

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HUD Reverse Mortgage, aka FHA HECM or HUD HECM

HECM is an acronym for home equity conversion mortgage and is more commonly know as a reverse mortgage.  For many years ranging from the late 2000’s up to now, the HUD reverse mortgage was virtually the only reverse mortgage on the market.  It probably comprised about 90% to 99% of the reverse loan transactions that were funded.  However, the market has shifted because HUD / FHA has made some changes. 

At one point in time, one could borrow about 52% – 76% of the appraised value and even more during the mid to early 2000’s.  Also, there were ZERO income requirements.  However, the amount you can borrower is now more conservative.  There are some light income requirements and a basic financial assessment now.  These two factors combined prompted a need for more options.  Luckily, there are more private reverse mortgage options, but we’ll expand on that later.

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Reverse Mortgage 2020 – Benefits of Reverse Mortgage

No financial product is perfect for everybody.  However, reverse mortgages have helped WAY over 1,000,000 homeowners improve their quality of life during retirement.  In some cases, doing a reverse mortgage can actually help people retire by eliminating their mortgage payment.  

Not withstanding, here’s a list of basic pros of reverse mortgage:

• There are no monthly payments to the bank for life (or until you move out permanently).
• Loan proceeds from a reverse mortgage are not taxable.
• You retain ownership of YOUR home.  Further, you remain on title, just like you would with a traditional mortgage.
• Since you still own your home, you can still leave it to your kids (or whomever you wish).
• This loan is non recourse.  In plain English, that means that you don’t have to worry about leaving your estate a debt they cannot resolve.  They will either get a home with equity, OR if the home happens to be underwater, they walk away.  There’s no strings attached for them.  In a case like this, they are not on the hook for that debt.
• You can do whatever you want with the proceeds of the loan.  The only exception is if you don’t pass the financial assessment.  In a case like that, you’d have to set some of the loan proceeds aside for a LESA.  A LESA is an acronym for Life Expectancy Set Aside.  Basically, the servicer will pay your taxes and insurance with a portion of the money that is set aside to pay taxes and insurance.  The amount that is set aside is based on the life expectancy for your age.
• If you don’t need or want to use all the loan proceeds, you can get a line of credit.  Your unused line of credit grows based on your loan’s interest rate plus another 0.5%.  This is pretty cool for people that don’t need to use all the loan proceeds at closing.  Your available credit automatically grows.  And, it is a much better growth rate than if you put money in a savings account.
• You will have several choices in terms of HOW you get the loan proceeds.  We’ll go over the reverse mortgage payment options later in this article.

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Reverse Mortgage 2020 – Downside of Reverse Mortgage

As stated previously, there is no perfect financial vessel.  Most things in life aren’t perfect.  That said, we’ll highlight the potential downside of reverse mortgage.

• The biggest downside is that the balance WILL grow if you don’t make a payment.  For most, the fact that there is no payment is the best part about a reverse mortgage loan.  The ramification of this is that the loan balance grows.  This may not matter to the borrower if they intend to live in the home for life.  If you don’t think you’ll live there forever, remember that the balance will grow over time.  
• Your kids will inherit a home with less equity than if your home was free and clear. This doesn’t matter to all, but to some it is an issue and we thought it was worth mentioning.  
• The closing costs can be more than a regular mortgage.  However, there are now private reverse mortgages that have much lower costs and even no cost options.  
• If you do need to move out of your home with a reverse mortgage for good, the loan becomes due.  If you’re not working, it may be harder to qualify for a regular mortgage if you need one of those.
• Most of the time, reverse mortgages have a variable rate.  This may not be bad in and of itself.  Shoot, people that have remained on variable mortgages over the last 10 years have done better than those on fixed mortgages. When you do a regular loan, if your rate goes up, your payment goes up. That doesn’t happen with a reverse mortgage, BUT it does make your loan balance grow faster. Ultimately, this really impacts your heirs (or the borrower if they sell the home before they pass away).

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FHA Reverse Mortgage Rules

So, what are the basic FHA Reverse Mortgage Rules?  Keep in mind, this is not going to be a comprehensive, all inclusive set of reverse mortgage rules.  It would take hundreds of pages do that. You would be bored if we did that.  Plus, much of the rules wouldn’t apply to you.

Here are the basic FHA reverse mortgage rules:

• The home must be your primary residence.
• You must be 62 years old or older to qualify.
• If married, just one spouse has to be aged 62+.
• The borrower cannot be delinquent on any federal debt.  This would include things like federal income taxes or student loans.
• Not every property qualifies.  Here is a quick list of the types of homes that qualify; SFR, Condo (HOA has to be FHA approved), townhomes, owner occupied 2-4 unit homes, single wide manufactured homes built in the 2nd half of 1976 or newer, double wide manufactured homes, and modular homes. Mixed use properties can qualify in some cases as well.
• A counseling session must be attended prior to processing your reverse mortgage.
• There are no minimum reverse mortgage credit score requirements, but you must pass a financial assessment.
• There is not a debt to income requirement like a regular loan.  There is only a residual income requirement.  This makes it MUCH easier to qualify.

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Reverse Mortgage Counseling Requirements for Reverse Mortgage in 2020

Every person that chooses to do a reverse mortgage has to do a counseling session.  This reverse mortgage counseling session has to be done before a lender or broker can process a reverse mortgage application.

The cost of this reverse mortgage counseling requirement is normally around $150.  Some counseling agencies charge a little less and some charge more.  Further, some FHA approved agencies have grant money available.  In cases like this, the counseling is free to the borrower.  Also, sometimes some agencies will allow you to pay for the counseling at closing.  Otherwise, the agency will gladly take your debit or credit card to pay for the counseling.  Reverse mortgage counseling can be done face to face or over the phone. If you get free counseling, it tends to take longer to get an appointment.

Many reverse mortgage applicants ask their loan officer which counselor to go to. However, a loan officer is not supposed to tell you which counselor to visit. They are supposed to simply provide a list, and then the homeowner chooses themself.

The following people can attend the reverse mortgage counseling:

• The borrower and non-borrowing spouse MUST attend.
• POA (power of attorney)
• Trustees
• Anyone on title.
• Financial Advisors.

When counseling is complete, you will get a counseling certificate.  The certificate is:

• Good for 180 days.
• Must be signed by the counselor.
• Must be signed by the borrower and dated on the same day as the counselor or anytime thereafter.

Once you have done the counseling, you can officially move forward with a reverse mortgage. However, some states have different requirements. For example, in CA there is a one week waiting period. You must wait one week before your loan officer can order the appraisal.

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Reverse Mortgage Payment Options in 2020

When you do a reverse mortgage, there are several reverse mortgage payment options that you can choose. The payment options you have depends on the type of reverse mortgage you do (FHA vs Private Reverse Mortgage). Here are the basic payment options you have with an FHA HECM / HUD HECM:

1. Lump Sum payment – You have the option to take 1 lump sum payment at closing.
2. Line Of Credit – You can leave all of your money or a portion of your money in a reverse mortgage line of credit to use when and how you see fit.  The nice thing about a line of credit is that your available credit grows based on your note rate plus 0.5%.  The line of credit is also guaranteed to never be cut down or shut down for as long as you live or for as long as you live in your home.
3. Tenure – You can also receive fixed monthly payments for as long as you live or for as long as you live in your home.
4. Modified Tenure – You’ll also have the option of selecting a monthly payment that’s lower than your standard tenure payment, but will also have a line of credit for you to use at a later date.
5. Term – Another reverse mortgage payment plan option is one that allows you to choose a set length of time or dollar amount for your monthly payment.  Note, if you select an option that allows for a larger monthly payment than your allotted tenure payment, then it may not continue until you pass away.
6. Modified Term – You have the option to receive a payment monthly for a fixed period of time and for a fixed dollar amount and a line of credit for as long as you remain in your home.
7. Partial Lump Sum – You will also have the option of taking just part of your benefit as a lump sum payment.  The remaining monies are distributed using one of the other aforementioned payment plan options.

In terms of the payment plan options available for a reverse mortgage, the program is extremely malleable and can be customized to suit your needs based on your financial objectives.

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Reverse Mortgage Limits 2020

As far as the reverse mortgage limits 2020 go, they will be $765,600.

This reverse

mortgage limit is also known as the HECM Max Claim amount. Don’t confuse this with the actual amount of money you can borrow. It is simply the maximum appraised value that is considered for an FHA reverse mortgage. The maximum loan amounts actually start at about $362,000 for a 62 year old. The amount you get increases as your grow older. You get just a little bit more each year (keep in mind that interest rates also play a key role in the amount you get). On the other side of the age spectrum, at 92 plus you get about $564,000.

So, what if you are 62 years old and owe more than $362,000? What if you have a mortgage balance that is more than $564,000 at age 92? Well, if your home is worth more than FHA’s max appraised value of $765,600.00, then you might be able to take advantage of a private reverse mortgage (aka Jumbo Reverse Mortgage).

Private Reverse Mortgage Options & Jumbo Reverse Mortgage Lenders

In the reverse mortgage 2020 landscape, there is a huge need for programs that cater to homeowners that don’t fit in the HUD HECM mold. This is especially true because real estate prices are at or near all time highs in many areas.

Up until about 2015, there was only one lender that offered one of these private reverse mortgage options. Then, in 2015 or 2016 another lender entered the private reverse mortgage arena. In 2017, 2018, and 2019 three or four more lenders entered the jumbo / private reverse mortgage landscape. Right now, there are a total of six lenders that offer a private reverse mortgage option or jumbo reverse mortgage option. For the most part, they are all very similar. For example, the jumbo reverse mortgage loan to value is very similar among all the lenders. However, some will lend ever so slightly more or less than others. Most have the same rules, or similar rules. However some are slightly different. Below, we’ll talk about each one very briefly. If you are in need of a private reverse mortgage option, your best bet is to talk with a broker that’s aligned themselves with several jumbo reverse mortgage lenders. If you work with one of the jumbo reverse mortgage lenders themselves, you’re stuck with just their guidelines. However, if you work with a broker, he or she can align you with the private reverse mortgage lender that suits you best. Check out our jumbo reverse mortgage calculator page to find out how much you can borrow.

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Reverse Mortgage 2020 – Jumbo Reverse Mortgage Lenders

As we previously mentioned, consider working with a broker if you need to use a private reverse mortgage option. Actually, even if you want an FHA HECM, you’re probably better off going with a broker. They can pair you with the best fit for your needs and qualifications. Below is a list of the six different jumbo reverse mortgage lenders. They all lend roughly the same percentage of the appraised value. However, some have different rules and requirements.

Jumbo Reverse Mortgage Lender #1 and 2

AAG / FAR – Of the 6 lenders that currently offer a Private Reverse Mortgage Option, FAR (Finance of America Reverse) was the first to launch theirs in 2014. This jumbo reverse mortgage lender’s product is called HomeSafe. Currently, they are 1 of 2 lenders that offer this product for 60 and 61 year olds. All the rest only do it for homeowners that are aged 62 plus. They also will allow you to exclude spouses that aren’t of age and / or for a bevy of other reasons. However, they will MAKE sure you know both you and the non borrowing spouse know that the excluded spouse has different rights than the borrower themselves.

Later that year or perhaps in 2015 AAG launched their jumbo reverse mortgage option. Not long after, these two lenders formed a partnership of sorts with the Jumbo Reverse Mortgage. That said, AAG and FAR are NOT the same entity. They simply share this one product. Homesafe has lump sum disbursement options and Line of Credit options.

Private Reverse Mortgage Option 3 (Temporarily suspended as of 03/31/2020)

RMF (short for Reverse Mortgage Funding) launched their private reverse mortgage option in 2018. What set them apart is that they were the very first lender to start offering this type of loan to folks aged 60 and 61. Jumbo Reverse Mortgage lender RMF named their product Equity Elite. However, when they first launched it, it was name Equity Edge. Brokers love RMF because they are easy to work with in terms of underwriting, processing, etc.

Also, RMF has one of the lowest interest rate options amung the jumbo reverse mortgage lenders. They go all the way down to 4.99%, which is really good.

As of 03/31/2020, RMF has temporarily suspended their non FHA version of the reverse mortgage.

Jumbo Reverse Mortgage Lender #4 (Permanently suspended)

One Reverse is another company that offers a private reverse mortgage option. One Reverse’s option is called HELO. They are a little more conservative in terms of the LTV they offer, but not much. They also have a 640 credit score requirement, which is also more conservative than some of the other jumbo reverse mortgage lenders.

On the plus side, when a broker uses their private reverse mortgage option, they will actually cover $175 towards your appraisal. Every other lender will have you, the homeowner, pay for the appraisal in full up front. Frankly, that’s the norm when you do a loan. If an appraisal is required, it’s the borrower’s responsibility to pay for it prior to the inspection. (NOTE, One Reverse has terminated all reverse mortgage operations).

Quicken announced that they’d stop their One Reverse Mortgage operations for good in late 2019. They intend to focus on their Quicken and Rocket Mortgage brand.

Private Reverse Mortgage Option #5

Longbridge launched thier jumbo reverse mortgage option in 2018. Their Jumbo Reverse Mortgage option is called Platinum. Initially, they stood out because they did not reduce the percentage you could borrow for condos. Most of the other lenders did. However, that has also changed. Longbridge is currently 1 out of 3 lenders that offer a line of credit for the private reverse mortgage option.

Jumbo Reverse Mortgage Lender #6 (Temporarily suspended as of 03/31/2020)

Liberty Home Equity Solutions launched their private reverse mortgage in 2019. It’s the newest option, but we’ve worked with Liberty for some time, and they are amazing two work with. We’re sure to have more info on their private reverse mortgage very soon. Also, Liberty’s jumbo version allows for homeowners aged 60 and 61 to do a reverse mortgage. Of course those aged 62+ can do it too, but it’s just exciting to see several options for folks younger than 62. 62 years of age is the entry point for the FHA reverse mortgage.

It’s refreshing to have all these companies launching new reverse mortgage products and tweaking existing products. For a LONG time, Generations Jumbo was the only option and it was conservative and had rates that were high……..almost 9% in fact.

As of 03/31/2020, Liberty has temporarily suspended their non FHA version of the reverse mortgage.

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Reverse Mortgage Glossary

Reverse Mortgage Glossary

Benefit – The amount of Principal Limit / Funds available to be dispersed to the borrower.

Counseling – 3^rd party counseling is a requirement to do a HECM/Reverse Loan. The counselor’s job is educate the older homeowner in regard to RM’s, to inform them of the alternative options available to their given situation, and to assist in determining which particular HECM product fits their needs.

Durable Power of Attorney – A legal document that enables an individual to designate another person to act on their behalf even in the event the individual becomes disabled or incapacitated.

Expected Interest Rate – Used to calculate how much money the borrower will receive and based on the 10 year LIBOR SWAP rate plus an acceptable margin.

FHA – Federal Housing Administration (a division of HUD) insures lenders against loss in the event that a borrower defaults on their loan.

FHA Case Number – This establishes the FHA connection to the property and this number stays with the property until the loan is satisfied. 

Floor – The lowest an interest rate can go.

Forward Mortgage – A traditional mortgage where the borrower makes monthly payments and pays the balance down over time.

Fully Indexed Rate – The note rate that is based on the margin and the index added together

Growth Rate – The rate at which the unused line of credit grows.  On a HECM, it grows at the note rate plus 1.25%.

HECM –  Acronym for Home Equity Conversion Mortgage which is just the FHA version of the Reverse Mortgage.

HECM 60 Fixed – The FHA reverse mortgage that has a note rate that is fixed for the life of the loan.  MIP can vary dependent on the utilization.  If 60% or below, MIP is .5% of appraised value or MCA (whichever is lower).  If above 60% utilization, MIP is 2.5% of Appraisal or MCA.

HECM 60 LIBOR – The FHA reverse mortgage that has a note rate that is adjustable monthly.

HECM 60 Annual – The FHA reverse mortgage that has a note rate that is adjustable yearly

HUD – Department of Housing & Urban Development.  Works as a lending facilitator and helps borrowers by offering counseling services to potential mortgage clients.

Initial Interest Rate – The actual interest rate on the loan, changes monthly (or yearly on the annual), and is based on the 1 month LIBOR or 1 year LIBOR plus an acceptable margin.

Index – Part of the fully indexed rate.  This is usually a published rate such as the 1 month LIBOR or 1 year LIBOR used on the HECM LIBOR and HECM Annual (respectively).

Incompetent – The inability of a senior to make rational legal, medical or healthcare decisions as determined by a licensed professional or physician.

Irrevocable Trust – A trust that cannot be changed or canceled once it is set up without  the consent of the beneficiary.

Leased Property – The ownership of the land where a structure resides rests with another party not the owner of the structure.

LIBOR – Most common index used on adjustable rate mortgages.  Stands for London InterBank Offered Rate, and is the daily referenced rate based on the rate banks offer to lend unsecured funds to other banks in the London wholesale money market.

Life Estate – The ownership of land for the duration of a person’s life and a legal arrangement where the “life tenant” during his life or her life retains use, possession, and maintenance of the property.

Line Of Credit (LOC)- A reverse mortgage benefit option that allows the borrower to make draws against the equity of their home.  The benefit on this option also has the opportunity to grow larger over time. On the HECM, the unused portion of the LOC grows at the note rate plus 0.5%.

Lump Sum – A reverse Mortgage benefit option in which the borrower receives a large sum of cash upon the closing of the loan.

Manufactured Home – Housing units built in factories and transported to the sites for use.

Max Claim Amount – MCA = the amount of home value used in calculating the Principal Loan Limit on the FHA HECM. It is the lesser of the appraised value or the lending limit for HECM’s (limit is $625,500).

Mobile Home  – Housing units built in factories rather than on site produced prior to the 1976 HUD code enactment. 

Modular Homes – Homes built in factories in multiple modules or sections then delivered to their intended site of use and assembled. Modular Homes are considered Single Family Homes.

Mortgage – The document that ties the home as collateral for the note or loan.

Mortgage Insurance Premium – A monthly payment paid by the borrower for mortgage insurance.  On a HECM this is added to the Principal Loan Balance.

Non Recourse Loan- A mortgage in which the borrower is protected by the fact that the home is the only asset that can be used to repay the note.

Note – The terms and conditions of the loan per the terms of the note for the loan.

Note Rate – The actual rate of the loan per the terms of the note for the loan.

Origination Fee – The charge for originating the loan.

Pre-Payment – Payment of the mortgage loan before the scheduled due date.

Principal Loan Balance  – The amount used at settlement to pay liens and settlement charges.  When the loan is official, this will accrue interest and grow as servicing fees, any monthly draws, any monthly advances, interest, and monthly mortgage insurance accrue.

Principal Loan Limit – The gross amount a borrower will qualify for with a reverse mortgage.

Principal Limit Lock –  Locks in the clients benefit and is secured from when the client signs application and extends to 120 days past the opening of the FHA case number. The client will receive the best of market from the day they sign or the day they close.

Planned Unit Development (PUD) – A project or subdivision that includes common property that is owned and maintained by a homeowners association for the benefit and use of the individual PUD unit owners.

Rate Cap – The maximum amount an adjustable rate mortgage can adjust up or down.  On a HECM there are no periodic caps on the monthly LIBOR (lifetime cap 10% over start rate) and the annual LIBOR adjusts 1 time per year (lifetime cap 5% over start rate and 2% per year).

Rescission Period – Federal law provides a 3 day “right of rescission”. This is the option for the client to cancel the contract for the loan without penalty within 3 business days (including Saturdays).

Recording Fee – The fee to record all of the mortgage documents with the county where the property is located.

Repair Set Aside – A portion of the principal loan limit withheld until necessary repairs have been completed as a condition of closing the loan.  Once the repairs have been completed and approved, this portion of the Principal Loan Limit will become available to the borrower.

Reverse Mortgage – A mortgage in which the borrower makes no payments and the interest is added onto the balance of the mortgage.  The balance will grow until the borrower fully satisfies the loan.

Revocable Trust – A trust in which any of its provisions can be changed, or the trust itself can be cancelled at any time by the grantor.

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Reverse Mortgage 2020 – Suggested Reading About Reverse Mortgages

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