New to Reverse Mortgages? Read this First

A reverse mortgage is a type of mortgage that allows for owners to quickly exchange the equity in their home for cash.  The mortgage does not have to be paid back until the home is sold, or the owner no longer lives in the home as their primary residence.

Typically reverse mortgages are ideal for elderly homeowners.  Since many mature homeowners on a fixed income, using the equity in a home can help with bills, unexpected expenses (such as medical costs) and the upkeep of a home.

The reverse mortgage loan has appeal to a homeowner that has been in their home a long period of time.  When considering a reverse mortgage, it is important to investigate the details of the mortgage.  Upfront costs can be high when the loan is very high, and the pay off time is over a long period of time as opposed to a shorter period of time.

Nevada Foreclosure Rate 3.5 Times National Average

As foreclosures continue to mount nationwide, a watchful eye is being kept on our housing market and economy. New statistics released by RealtyTrac yesterday show that the state of Nevada experienced the greatest foreclosure rate per household in the first quarter of 2007:

Nevada documented the highest state foreclosure rate in the first quarter, one foreclosure filing for every 75 households — 3.5 times the national average. The state documented a total of 11,514 foreclosure filings during the quarter, an increase of 66 percent from the previous quarter and more than double the total reported in the first quarter of 2006. – RealtyTimes

While there are some alarming numbers coming out of other states as well (some 37 of our 50 states saw increasing in foreclosure rates in Q1 2007), this comes as little surprise to most in the wake of all the woes the housing market has been experiencing lately. With subprime defaults increasing and a grim forecast for the near future, many are calling for legislative changes to help keep Americans in their homes.

But don’t be fooled by the raw numbers – while Nevada is experiencing a certain ‘bump’ in the percentage of homes currently in a stage of foreclosure, the situation with regards to foreclosures isn’t as dire as it may seem. Homeownership rates are higher than ever, especially in high growth states such as Nevada.

The ‘subprime effect’, while it has garnered much of the national news in recent weeks, actually has little to do with the rise in current foreclosures:

“Approximately one percent of all homes going into foreclosure are owned by subprime borrowers, and likely closer to 0.5 percent, says NAR Senior Associate Walt Molony. That’s one home in foreclosure out of approximately 200, suggesting that high foreclosure rates are not just a subprime problem but due to a wide range of other causes.”

Moral of the story? It’s not as bad as it looks, but it could be better.

Top 10 Things to Know About Reverse Mortgages

Are you an older American in need of a safe plan that can give you greater financial security? Do you need extra funds to supplement your social security, make home improvements, meet unexpected medical expenses, or more? The U.S. Department of Housing and Urban Development (HUD) has created a federally-insured private loan that may just provide the money you’ve been looking for. It is the Reverse Mortgage and it becoming more and more popular in America. If you’re interested in a Reverse Mortgage it is important know the critical details and whether this type of loan is the right one for you.

A Reverse Mortgage, in 4 Sentences or Less
1. A lot of people do not know about reverse mortgages or what they are, so here is a simple breakdown of the loan. A reverse mortgage allows homeowners to convert parts of the equity in their home into cash payments. The best part about this special type of loan is that there is no repayment required while the home is used as the borrower’s primary residence. You won’t find this feature in a second mortgage or more traditional home equity loans. The Department of Housing and Urban Development provides these great benefits and insures them as well.

Who Qualifies?
2. So far this sounds pretty good, but do you qualify? The Federal Housing Administration (FHA) of HUD has a few requirements for you to be eligible for a reverse mortgage. A borrower has to be at least 62 years old. They have to have a low mortgage balance that can easily be paid off with proceeds from the reverse loan, or they must own the home. They must also live in the home. One other requirement is that you receive some consumer information for a counseling agency approved by HUD prior to obtaining your loan. The Housing Counseling Clearinghouse can be reached at 1-800-569-4287. They will provide you with the name and number of an approved counseling agency in your area.

What Home Types Are Eligible?
3. Many potential borrowers are curious as to what types of homes are eligible. As long as the borrower owns and occupies the home, most types of homes are eligible. Single family dwellings and two-to-four unit properties are eligible. Detachable homes, some manufactured homes, townhouses and FHA-approved condos are eligible. Under the Spot Loan Program some individual condominium units can possibly qualify.

My Loan Wasn’t an FHA Loan
4. Typically there is some confusion regarding whether an FHA financed home is required for a reverse mortgage. The answer is no. It does not matter what type of mortgage you used to finance your home.

How Are Reverse Mortgages Unique?
5. Reverse mortgages are commonly compared to bank home equity loans and second mortgages. The difference between the two is mostly in the requirements. With reverse mortgages the loan pays you over time, and is available regardless of your current income and debt to equity ratio, unlike the other types of loans. With reverse mortgages the amount borrowed is determined by the age of the borrower, the value of the home, and the current interest rate. There are no payments to be made with a reverse mortgage because the loan is not due while you still use the home as your primary residence.

Will I Lose My Home?
6. Many borrowers fear that their home can be taken away from them if they outlive the loan. Fortunately, their fears are unfounded. You can never owe more on the loan than your home’s value so you do not need to repay the loan as long as you maintain the home as your primary residence.

How Much Money Will I Get Per Month?
7. The most important thing most borrowers want to know if how much money they can get with a reverse mortgage. This amount is dependent on a number of factors including the age of the borrower, the appraised value of the home or FHA mortgage limits in the area, and the current interest rate. In general, the high the borrowers age, and the lower the interest, the more one can borrow.

What About My Inheritance?
8. Borrowers tend to worry about being able to leave their heirs an estate. This typically is not a problem. Borrowers will repay the cash received as well as interest and other fees to the lender when the borrower no longer uses the house as their principle residence, or they sell the home. Any leftover equity will belong to the borrower or their heirs. Needless to say, the debt will never pass along to the estate of heirs and no other assets will be affected by the loan.

Should I Use an Estate Planning Service in Conjunction with my Reverse Mortgage?
9. Potential borrowers typically use an estate planning service and wonder whether they should use this service to help find a reverse mortgage. The Department of Housing and Urban Development does not recommend this or any other service that charges a fee for referring a borrower to a lender. HUD will actually provide all this information to you free, or at lower costs than other services. To find a HUD-approved lender or housing counseling agency near you, call, toll-free, 1-800-569-4287.

How Will I Receive My Payments, Monthly or in a Lump Sum?
10. There are typically five payment options, and they are: Tenure, Term, Modified Tenure, Modified Term, and Line of Credit. With the Tenure option the borrower receives equal monthly payments for as long as they continue to use the property as their primary residence. The Term option offers equal monthly payments for a set monthly period. Modified Tenure offers a combination of the Line of Credit option with Tenure, meaning they have a line of credit when payments are needed as well as monthly payments. Modified Term is similar to the Modified Tenure in that it provides a Line of Credit along with monthly payments for a fixed period. Last is Line of Credit, which offers completely unscheduled payments, with payments being made when needed until the line of credit is exhausted.

With all this information you should be able to decide if a reverse mortgage is right for you or your loved ones.