Matt Neumeyer, CSA
[email protected]
800.996.5361
www.premierreverse.com
Reverse Mortgage Guide
for Adult Children
Premier Reverse Mortgage, LLC was founded by Matt Neumeyer, a
Certi-fi ed Senior Advisor, on January 13, 2012. After spending many years in the reverse mortgage industry working for others, Matt decided it was time to form a company around his own ideals. Those ideals are part of the Pre-mier Reverse Mortgage logo.
Experience - The reverse mortgage industry is a fairly young one, with growth being recent. You will want someone that focuses on reverse mortgages only and has been through most scenarios. Matt has closed hundreds of reverse mortgages since 2004.
Integrity - Premier Reverse Mortgage is a member of the National Reverse Mortgage Lender’s Association (NRMLA), and Matt follows their code of conduct. Companies offering reverse mortgages that are not members of NRMLA aren’t held to the same professional standards.
Personal Service - A positive of working with Premier Reverse Mortgage is the personal service that one will receive throughout the loan pro-cess. Matt will originate, process, and coordinate the closing of the re-verse mortgage loan. He will be your only contact throughout the process. There will be no frustration about being handed off to a hard-to-reach assistant or processor.
Con
fi
dence is built-in
No specifi c loan strategy is the perfect fi t for every family or every situation, so a reverse mortgage may or may not be right for your parents. Take the time to compare the reverse mortgage with other home equity utilization options, and speak to other close family members who want the best for you parents (and whose fi nancial futures may be impacted).
The reverse mortgage process - from the application and counsel-ing, to the right of rescission and fl exible payment options - is de-signed to make sure that you are making the best decision for your family. Take advantage of the opportunities and safeguards at each step along the way, and you will be able to help your parents age in place confi dently and comfortably.
20.
Table of Contents
Introduction
Eligibility Requirements
Contacting a Lender
Product Choice Proceed UtilizationHealth & Age Concerns Title Issues
Qualifi cation
Reverse Mortgage Counseling: Why, What and How
What You Can ExpectHow to Find an Approved Reverse Mortgage Counselor
The Appraisal: Determining Value for a Reverse Mortgage
How Value is Determined
How to Prepare for a Home Appraisal Repair Issues
Processing and Underwriting
Closing and Funding
Life of Loan Issues
Reverse Mortgage Repayment
Con
fi
dence Is Built-In
3.
4.
5-9.
10-11.
12-14.
15.
16.
17.
18-19.
21.
Refi nance the Debt - If the party repaying the loan wants to retain the property, the debt can be repaid using borrowed funds. The servicer will need to see some kind of evidence of the attempt to take out a new loan.
Sale of the Home - If the party repaying the loan cannot come up with the full loan balance, the home must be sold, and the proceeds used to repay the debt. If the proceeds from the sale exceed the amount of the loan, the balance belongs to the party repaying the loan. If the property sells for less than the outstanding debt, all of the proceeds must be given to the lender and the debt will be considered paid in full. In these instances, you can speak with the servicer about issu-ing them the deed in lieu of foreclosure.
2.
3.
Immediately upon the loan being called due, the party primarily responsible for repayment will receive a 30-day notice from the loan servicer. This person will need to communicate his/her efforts to the servicer within the fi rst 30 days, and he/she will have six months to repay the loan in full. He/she can request up to two, 90-day extensions, that must be approved by HUD.
Th
e loan servicers may initiate foreclosure in rare circumstances,
such as:
Th
e party responsible for repayment does not respond to
the 30-day notice
Th
e 90-day extension(s) expire
Th
ere are no heirs to help pay off the loan
Th
e servicer is willing to work with a surviving spouse or heir, and
extend repayment deadlines, if there is evidence that you are
work-ing diligently to repay the loan.
Reverse Mortgage Repayment
Your parents’ reverse mortgage loan is due at any one of the fol-lowing “maturity events”:
The last homeowner on the loan dies The property is sold
The property is no longer one of your parents' primary resi-dence
The last homeowner on the loan has not resided in the property for 12 consecutive months
The property is allowed to deteriorate, except for reason-able wear
Property taxes or insurance are not paid
The title to the home is altered without permission from the servicer
The lender can also collect repayment if terms of the agreement are violated, such as:
When the loan becomes due, your parents or their heir(s) will owe the amount of money received, the closing fees, plus the interest and mortgage insurance. There are three ways that the loan can be repaid:
1.
Private Resources - If your parents, a surviving spouse, or your parents’ heir/estate has suffi cient funds to repay the loan, a simple repayment can be issued.18.
Introduction
As parents age, the role of caretaker begins to slowly switch. Whether you are adjusting living situations to provide consistent care, or just checking in on them periodically to fi x the television, you are helping your parents with more and more.
If fi nances haven’t come up yet, they will. Whether your parents turn to you for help, or you get involved to make sure they are mak-ing the best decisions, fi nances in retirement can be tricky to navi-gate.
One of the options available to your parents is a reverse mortgage. A re-verse mortgage may also be referred to as a Home Equity Conversion Mort-gage (HECM). You may have heard about this loan option, but be unclear on the details. A lot of people are, sim-ply because the product is relatively new and misinformation abounds. There is all retirement plan, so a re-verse mortgage isn’t for everyone. For example, some people may fi nd a con-ventional HELOC more suitable. But you want to help your parents make the best decisions so they can live out their retirement comfortably and se-curely. This guide, in conjunction with an estimate, will give you all the infor-mation you need to decide if a reverse mortgage is right for your parents.
A Home Equity Conversion Mortgage (HECM) is sim-ply a 'reverse mortgage' in-sured by the Federal Hous-ing Administration.
A Home Equity Line of Credit (HELOC) is a con-ventional home equity loan in which the lender agrees to lend a maximum amount within an a specifi ed time period using the home's equity as collateral.
Eligibility Requirements
Before you get started, you’ll want to make sure your parents
qual-ify for a reverse mortgage. Fortunately, the eligibility requirements
are relatively cut and dry:
Your parents must be at least 62 years old at the time of
clos-ing. If one parent is 62 or older, but the other isn’t, a reverse
mortgage is still a possibility, but we will want to make sure
you understand the consequences of the younger parent
out-living the elder before we proceed with the loan.
Your parents must own a
single-family residence,
FHA
-approved
condominium, townhome,
man-ufactured home*, or up to
four-unit property as their primary
residence.
Th
ey must have equity in their property, but the percentage of
equity vs. debt isn’t a set number. Th
ey will need a minimum
of 35% equity, and even more the closer they are to 62. (If you
aren’t sure if your parents have enough equity, let us know,
and we’ll help you fi gure it out.)
Created in 1934, the Fed-eral Housing Administra-tion (FHA) is tasked with maintaining the quality of housing standards and ensuring a sound home
fi nancing system.
*There are very specifi c requirements to qualify manufactured homes - including mobile homes - for a reverse mortgage, such as being on a per-manent foundation. If your parents’ primary residence is a manufactured home, give us a call and we will help you determine if it qualifi es.
Life of Loan Issues
Any issues you or your parents have during the life of their reverse
mortgage loan are handled by the loan servicer. Th
eir loan servicer
will help with the following:
Sending monthly statements
Advancing funds from your parents’ line of credit, upon request
Sending monthly payments, if your parents choose this payout option
Collecting any voluntary repayments
Sending out the annual certifi cate of occupancy that your parents must sign & return
Your parents are still ultimately responsible for paying their prop-erty taxes, insurance, and any association fees, but their loan ser-vicer will help them monitor those requirements and alert them if they fall behind on payments.
Closing and Funding
When the loan application is approved, the lender will schedule a closing date and time with your parents and a title agent, notary, or attorney (depending on the state). Before signing the closing pa-perwork, make sure you or your parents review the fi nal settlement statement. Once signed, the loan goes into a three-day “right of rescission” period, which gives your parents three business days to cancel the reverse mortgage without penalty.
At the expiration of the right of rescission period the funds will be paid out.
If your parents are using their reverse mortgage to pay of an exist-ing mortgage, those funds will be sent to the lender. If your parents chose to receive fi xed payments, those funds are distributed on the fi rst business day of each month.
Your parents may change their payment plan at any time by simply requesting a new payment plan agreement form. There may be a small, administrative fee for the change, but it may not exceed $20. If your parents do change their payment plan, the change will go into effect on the fi rst business day of the following month.
16.
Contacting a Lender
Product Choice
HUD is the government agency with the mis-sion to strengthen the housing market, protect consumers, help provide affordable homes, and promote inclusive com-munities
The fi rst step in the process of learning how a reverse mortgage fi ts into your parents’ specifi c fi nancial situation is to contact us for an estimate. Beware of reverse mortgage "calculators" that clutter the web and are very inaccurate. Most of the time they are just collect-ing your information to sell to a third party.
We will need to ask you a few basic questions to get a better un-derstanding of the situation. Without knowing what the fi nancial need is, we cannot be accurate on the estimate and our product recommendation.
When reverse mortgages were fi rst creat-ed, the only option was a variable interest rate at one set margin. All lenders were offering an identical product in every way except for service. The Department of Housing & Urban Development (HUD)
eventually allowed an annually adjust-able product and then later, a fi xed rate product.
There are now multiple adjustable rate products and fi xed rate products, each with its own benefi ts and drawbacks. The interest rate from one lender to the next can be 1% different, or more. The interest rate caps on the variable rate loans can be drastically dif-ferent from lender to lender as well. Without knowing how much debt is against the property, and how the proceeds will be utilized, we cannot accurately recommend a product.
Proceed Utilization
Health and Age Concerns
There are many different ways that a reverse mortgage can be uti-lized as part of a sound retirement plan. Let's take a look at some of them:
Eliminating an existing mortgage, thereby increasing monthly cash fl ow
Establishing a term or tenure monthly payment, thereby in-creasing monthly cash fl ow
Setting up a standby line of credit to be used in the future Taking out a lump sum for various needs (e.g. - home pur-chase)
A combination of these options
There are some questions that need to be answered to help deter-mine the best way to utilize the loan proceeds. What are the main goals of taking out the loan? How long will the loan term be for? Is it a primary goal to protect the remaining equity in the home? The only way to get sound advice is to get in touch with us, so we can run amortization schedules for you, projecting out the various options.
It is also important to note that lender compensation can often be based on the amount of money drawn at closing, so it is imperative that you work with a loan offi cer that doesn't prioritize their poten-tial income over what is best for your parents. Doing a low cost re-verse mortgage with a high initial draw can be worse over the long term as interest accrues on the money as soon as it is borrowed.
One of the issues that often make reverse mortgages more complex than conventional loans is the health of the borrower(s). Since the
Processing and Underwriting
While waiting on the completion of the appraisal, the lender will start processing paperwork, including:
Credit report Flood certifi cation
Title report, showing ownership and any liens
A review of the existing homeowner's insurance policy The fi le is then sent to the loan underwriter for approval. The un-derwriter will verify all the information and make sure the details of your parents’ reverse mortgage complies with laws and regula-tions. He or she will also make the fi nal determination on the quali-fi cation rules. If there are any fi nal issues - such as unpaid liens or bankruptcies - they will be dealt with and cleared up here.
The initial underwriting process can take one to two business days. From there any conditions on the underwriting report must be ad-dressed. The time it takes to address the conditions can vary great-ly depending on what the issue is. Once all of the conditions have been addressed and reviewed, the mortgage will be labeled “clear to close.”
mum property standards memorized, they will often cite any defi -ciencies. Some common repair issues include:
A compromised roof Peeling exterior paint Wood rot
Electrical problems Lack of a handrail
Repair issues can cause serious delays. Repairs that involve health or safety concerns must always be completed, and verifi ed by a sec-ond visit from the appraiser, before the close of the loan. Taking care of obvious repairs before the appraisal will save time, and the cost of a follow-up visit.
But a benefi t of a reverse mortgage is that other repairs can be completed after the mortgage is closed, with funds from a “repair set-aside” from your parents’ proceeds. HUD allows this delay for repairs because they recognize that reverse mortgages are sought by seniors who may not have the necessary funds for all the repairs their home needs.
To close the reverse mortgage with the repair set-aside, you or your parents will need to obtain a contractor’s written estimate for the cost of the required repairs. The lender will hold at least 150% per-cent of that estimate from the proceeds of the reverse mortgage. You will have one year to complete the repairs, after which an ap-praiser will be sent to the home to verify, and then the funds will be released. Any remaining funds in the repair set-aside will be re-turned to the proceeds of the reverse mortgage.
14.
minimum age is 62 to qualify and there is no maximum age limit, there can often be health issues that factor into how the loan will be established. Let's review some different scenarios:
Healthy parent (adult child has power of attorney) - While it is often the desire of your parent to have you handle the reverse mortgage process, that is not acceptable to HUD or lenders. You can do a lot of the fact fi nding and initial legwork, and can assist throughout the process. Your parent, the actual reverse mortgage customer, will need to complete the lender application and sign for his/herself. The same goes for the closing.
Limited physically, mentally healthy - The physical limitations can vary greatly; partial paralysis due to stroke, macular degenera-tion, rheumatoid arthritis, etc. If your parent cannot sign a lengthy set of documents for his/herself, a mark (usually initials) can be al-lowed. If that still proves to be diffi cult, a Power of Attorney (POA)
can be used. Your parent will still need to sign a small handful of documents. The rest, including the entire closing package, can be signed by you, the POA. A letter of explanation will be required by the lender and often a doctor’s note.
Power of Attorney (POA) is the written authorization to act on another person’s behalf in fi nancial, busi-ness, medical and legal matters.
Mental incapacity - The most complex situations involve mental incapacity due to stroke, dementia, and Alzheimer's disease. In one of those situations, there will need to be a POA, guardian, or con-servator. Guardianship and conservatorship are issued through the court system and are required when a POA was not in place before the incapacity.
The guardian or conservator will need the judge's permission to move forward with the reverse mortgage. If the POA was in place before the incapacity, you will be allowed to sign the entire appli-cation and closing package for your parents. The lender will require a letter of explanation from the POA. They will also want a doctor's note stating the reason for the mental incapacity, and the date that judgment was made by the physician. They will want to make sure that the customer executed the POA while of sound mind.
Two parents, but only one is healthy - Generally speaking, if one parent is mentally incapacitated, the rules are very similar to the above. The only exception is if the incapacitated parent was never on title to the house, and/or does not live in the property as his/ her primary residence. In those cases, the healthy parent can often move forward without the incapacitated spouse. It also depends on the state and whether community property rules apply.
Non-borrowing spouses - If only one spouse is over the age of 62, a reverse mortgage can be done, but in limited circumstances. The younger spouse must either; not live in the home, or have never been on title to the home (and not live in a community property state). The non-borrowing spouse will have to participate in the loan process and acknowledge the risks involved.
*Note that the rules for non-borrowing spouses are set to change sometime in the second half of 2014.
Title Issues
It is important to speak with a quality reverse mortgage lender when one has questions or concerns about the title to the home. Let's review some common title issues:
Title held jointly with a deceased spouse Title held individually with a deceased spouse Title held jointly with an adult child
Title was recently placed in customer's name Title held in a trust
All of these scenarios should be discussed before an application is ever taken. By addressing them early, the loan will not be delayed signifi cantly. It is also important to know the impact before funds are spent on counseling and the appraisal.
1.
2.
3.
This approach helps the appraiser determine what the house might actually sell for in this market.
How to prepare for an appraisal
Repair Issues
Any homeowner wants to be as prepared as possible for a home ap-praisal, but you want to be especially prepared if your appraisal is going to determine the amount of money available to your parents. Here are three things you can do to make the most of this oppor-tunity.
Get a list of comparable sales from a Realtor - There are two reasons that we recommend this. The fi rst is to educate yourself on the likely value of your parents' home. The sec-ond is to provide the appraiser with some data to get him or her started.
Have copies of receipts ready - Be prepared to offer paper-work on any repairs or upgrades that have been completed in recent years, especially in the kitchen or bathroom. A new roof or upgraded appliances will increase the value of the home.
Clean, and lock up pets - Appraisers work very hard to be unbiased, but they’re human. The fi rst impression of the home’s exterior sets the tone. A clean house seems more likely kept in good repair, and pets can be considered an-noying by some.
You and your parents have to take ownership of the process be-cause you are the only ones that will be able to speak with the ap-praiser before the results are in. We cannot have any contact with the appraiser in order to keep the process impartial.
An appraisal is not an inspection, but the appraiser is required to note any defects that put the home below the FHA’s minimum property standards. Since appraisers don't always have the
mini-The Appraisal:
Determining value for a Reverse Mortgage
One of the biggest factors in determining how much money your parents can get from a reverse mortgage is the value of their home, so an appraisal is a necessary next step. The lender must order the appraisal, and you or your parents will need to be prepared to pay the appraisal fee.
How value is detemined
The sales comparison approach is often completed, at least in part, before the appraiser shows up. He or she will collect public records to fi nd at least three recent, comparable home sales - ideally within the past six months, but required to be in the past year. Compari-sons analyze factors such as:
Style and age of the house Bed and bath count
Lot size
Square footage
Condition and upgrades Finished vs. unfi nished space
Other unique features of the property B L C FF O 12.
Quali
fi
cation
Your parents will soon have to qualify for a reverse mortgage, much like any other type of home loan. The projected implementation date of the qualifi cation rules is roughly the 4th quarter of this year. If you want to avoid the hassle of qualifi cation, you may con-sider moving forward before the rules are in place.
The important part about qualifi cation is working with a lender on the front end that makes it as easy on your family as possible. It can be frustrating when working with a lender that asks for single documents at a time and at varying stages in the process. It would also be counterproductive to spend money on counseling and an appraisal if your parents would not qualify for a reverse mortgage. The qualifi cation rules are less about declining an applicant for a reverse mortgage loan, and more about use of the loan proceeds. If an applicant cannot afford to keep up with the property charges and has no loan proceeds left over after eliminating an existing mortgage, that applicant will likely be declined. If an applicant can-not afford to keep up with the property charges and has loan pro-ceeds, the lender can approve the applicant and set-aside some of the proceeds for paying future property charges. Those are the two scenarios that the qualifi cation rules are attempting to address.
*Note that qualifi cation rules for reverse mortgages are not yet in effect, but will be implemented later in 2014.
Reverse Mortgage Counseling
Why, What and How?
Once the paperwork is in place for your parents’ application, they need to complete a reverse mortgage counseling session with a HUD-approved nonprofi t agency. This is a consumer protection measure required by law, to ensure that the borrowers are making a well-informed decision. Please note that some states require the counseling to be done prior to completing a lender application.
A reverse mortgage counseling session can be in-person or over the phone. The details of the meeting, and its length, will depend on a variety of factors, including the agency you use and your par-ticular situation. In general, an in-person reverse mortgage coun-seling session lasts about an hour, while a phone session make take longer or require multiple calls.
The counselor will discuss some or all of the following: How reverse mortgages work
Financial and tax considerations of a reverse mortgage Payment options for the homeowners
Costs associated with a reverse mortgage The homeowners’ fi nancial situation and goals
These meetings are not generally closed so you should be allowed to accompany your parents. Many counseling agencies encourage homeowners who are seeking a reverse mortgage to share the deci-sion with loved ones, especially heirs.
Possible alternatives to a reverse mortgage Potential impact on government benefi ts and any benefi ts not being utilized that are available
These reverse mortgage counseling sessions are great opportuni-ties to get clarifi cation and answers, so be ready for your meeting. Here are some ways you can prepare:
Review the requirements for a reverse mortgage,
and make sure your parents qualify
Request an estimate to see if your parents qualify
for the amount of money they need
Write down a list of your questions and concerns
Counselors are not fi nancial advisors, tax specialists or lenders, but they can help your family make the best decision for your specifi c situation. At the end of your counseling session, your parents will receive a certifi cate of participation, which is required for the lend-er to ordlend-er an appraisal.
There are several large agencies you can call for an over-the-phone reverse mortgage counseling session, but there are also so many HUD-approved agencies that it is likely there is someone in your area if you prefer to sit down with a counselor face-to-face.
How to
fi
nd an approved mortgage counselor
Ask us for a list of counselors, specifi c to your city HECM Counselor Roster - Search online or call (800) 569-4287 to fi nd a local HECM counselor National HECM Counseling Network - Browse a list of approved agencies in the HECM network Here are a couple of ways to fi nd them:
