• Age Requirement: There is a minimum age requirement of 62 years or older. If one spouse qualifies and the other does not meet the age requirements, obtaining the Reverse Mortgage line of credit is still possible, but more information will be needed to assess eligibility.
• Clear Property Title: If there are existing liens on the property, they must be paid off. This may be done with funds obtained from the reverse mortgage, or by another means. The lender for the reverse mortgage will become the primary lien holder.
• Insurance & Taxes: It is the responsibility of the borrower(s) to keep all real estate taxes paid and current. In addition, all homeowners insurance and other associated fees and assessments must be kept current.
• Property Condition: The Borrower(s) must keep the property in a good condition.
• Occupancy: The property is the collateral that the reverse mortgage is based upon. Therefore only primary residences qualify for a reverse mortgage. Vacation homes or other investment properties do not qualify.
• Upon the death of the borrower: The reverse mortgage becomes due and payable. If a husband and wife have a joint reverse mortgage, the conveyance of the mortgaged property does not proceed until the death of the surviving borrower. When the last borrower dies, the heirs have the option of satisfying the HECM (Home Equity Conversion Mortgage) debt and will be required to pay the lesser amount of either the balance of the mortgage or 95% of the appraised property value.

• The borrower will remain the owner of your home.
• There are no monthly mortgage payments required.
• The borrower is protected if the housing market declines.
• There are several options of disbursement to choose from.
• Your Social Security & Medicare benefits will not be affected.

Each reverse mortgage borrower must undergo a financial assessment. This is conducted by the lenders and is done for the purposes of assessing whether or not the potential borrower can afford to maintain living expenses and keep current with the payment of all homeowners insurance, property taxes and other fees over the loan period. All income sources are reviewed including pensions, social security benefits, investment income and other sources. Bank account statements and tax returns are also used in these assessments. Credit scores are also reviewed and if there are issues, there is room for explanation of extraordinary circumstances when determining credit worthiness for reverse mortgage loan approval.

After compiling income streams and projected expenses, the residual income amount is determined. This is the amount of money that is leftover after all expenses are paid in a month. It is compared with the established amounts which are based upon the size of the family and the region of residence to determine whether or not the borrower(s) have a high enough residual income to pass the assessment for eligibility.

Failure to pass the financial assessment can result in a decline on the loan application. If the borrower(s) pass the assessment, they may move to the next step to get the loan. In cases where the borrower(s)’ cash flow is inadequate to meet the eligibility for loan criteria, the majority of loan proceeds can be placed in a special fund called “Life Expectancy Set-Aside” to be used for the sole purpose of paying homeowners’ insurance, property taxes and other associated real estate fees until the funds are exhausted.

It may seem like its a complex process but its not, here at Reverse Mortgage in Rancho Cucamonga, we are dedicated to ensure that you are first educated on every aspect of this loan process, and then we will guide through every step of the way, structuring your loan in a way that will be the most beneficial for your specific scenario.

Proprietary Reverse Mortgage: There are currently only two companies that are offering the Proprietary Reverse Mortgage and these are Finance America Reverse Mortgage located in Tulsa, OK and the American Advisers Group of Orange, CA. Proprietary reverse mortgages are different from HECMs in that there are variances in the regulations, but they are similar in the protection clauses benefiting the borrowers. They are privately insured by the participating companies. Proprietary types are generally preferred when the borrower has a home with a higher value. It offers the possibility of higher loan amounts with the cap being $625,000. Mandatory counseling is a requirement that all borrowers must satisfy prior to eligibility.

Home Equity Conversion Mortgage or HECM: The United Stated Department of Housing and Urban Development regulates this type of reverse mortgage. This loan is not administered by the government, but it is insured by the Federal Housing Administration, a component of HUD. It is issued by a mortgage lender. This is the most common type of reverse mortgage issued and it also requires mandatory loan counseling for the borrower(s). HECM loans charge an insurance fee of 1.25% annually on the total balance of the loan. In the event that the lender cannot make the payment, the insurance guarantees that the borrower will be paid. If the home value is not adequate to pay off the loan balance, the government is responsible for paying off the balance so both borrower and lender are protected by the insurance.

This is one of the most frequently asked questions and the answer is that there are several different payment options. Each has been configured to meet additional financial needs and increase cash flow under a variety of different circumstances. It is generally up to the discretion of the borrower, which payment options are used.

• Modified term line of credit: Under this payment option, the borrower may set up a specific time period for receiving a fixed amount of funds on a monthly basis as a line of credit. This type of loan is especially beneficial if the borrower will have higher expected expenses for a period of time.
• Modified tenure line of credit: The modified tenure line of credit is used when the borrower desires to establish a set monthly amount for the duration of the time that he or she occupies the home.
• Line of credit: This is the total amount that is established and may be accessed as funds are needed. The process for accessing line of credit funds includes a written request submitted by the borrower to the company administering the loan. Line of credit loans accrue interest on unused fund balances, but these proceeds do not go to the homeowner, rather, they enhance the value of the line of credit.
• Single disbursement lump sum: This loan payment option allows the borrower to withdraw smaller amounts of the loan in order to maintain a higher level of home equity.
• Term payment: Borrowers may opt to establish a fixed monthly payment amount for a specific time period. The value of the home does not affect the established payment amount, even if there is a decrease in its value. This payment type is a good option where there will be a gap in income streams for a specific period of time and it helps to cover any temporary financial deficits on a monthly basis.
• Tenure payment: With the tenure payment, the borrower may establish a fixed monthly amount for the duration of time that he or she lives in the primary residence. The payments continue until the borrower either permanently vacates the home or passes away, even if the balance of the loan becomes higher than the value of the home.
• For purchase option: The For purchase payment option is used when a borrower wishes to purchase a smaller residence to downsize. The old home is sold and the new home is purchased with the proceeds from the sale and any other income sources, including reverse mortgage funding. When this option is used, no monthly mortgage payments exist for ownership of the new home.

The borrower of a reverse mortgage is required to complete a loan counseling session. In most cases, this must be by a third party independent agency and generally a list of appropriate agencies is provided. The borrower sets up the counseling and completes the session. This can be scheduled online. A packet of preparatory materials is supplied for the borrower.

The purpose of the loan counseling is to ensure that the borrower has a full understanding of the reverse mortgage loan processes, benefits, requirements and potential disadvantages. It helps in determining the circumstances of the client’s situation along with the established financial needs. It also explains the features of the reverse mortgage along with all tax and other financial implications of the reverse mortgage.

Detailed information about monthly expenses and income amounts are reviewed and discussed as well as eligibility requirements, borrower responsibilities and how much the borrower may be eligible to receive. At the end of the counseling session, the counselor asks the borrower relevant questions that help to establish that there is a full understanding of the entire reverse mortgage process. Upon successful completion of the counseling, the borrower will fully understand the pros and cons of reverse mortgage.

The counseling is helpful for many retirees who are on the fence about whether or not this is a good option for them. There is no obligation to proceed after completing the counseling. It is a useful tool that helps both the lender and the borrower to make the final decision about whether or not to proceed.