Reverse mortgages : cash for the rest of your life!

284 Pages·2006·1.387 MB·English

by  Gregory Patti

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Reverse
Mortgages
FOR
DUMmIES
‰
by Sarah Glendon Lyons and John E.Lucas
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Reverse Mortgages For Dummies®
Published by
Wiley Publishing, Inc.
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Copyright © 2005 by Wiley Publishing, Inc., Indianapolis, Indiana
Published simultaneously in Canada
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Library of Congress Control Number: 2005923784
ISBN-13: 978-07645-8446-6
ISBN-10: 0-7645-8446-4
Manufactured in the United States of America
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About the Author
Sarah Glendon Lyonsis a San Diego-based writer with a diverse
portfolio of housing-industry experience. She holds a B.A. in English
Language and Literature from the University of Arizona, and studied
at Australia’s University of Wollongong before joining Hanley Wood
LLC, publishers of over 75 consumer home magazines. As an editor
for Pfingsten Publishing’s Mortgage Originatormagazine, she has
written hundreds of articles for mortgage professionals. Although
she has developed a wide scope of lending insight, her particular
expertise is in the reverse mortgage field. Sarah has been inter-
viewed on the topic of reverse mortgages by leading mortgage
executives and sales trainers, and offers reverse mortgage informa-
tion to originators and consumers around the country. Her perspec-
tive as an unbiased researcher and consultant allows her to provide
readers with both the benefits and challenges of reverse mortgages.
John E. Lucashas been in the mortgage banking industry for over
39 years, actively originating mortgage loans in the Van Nuys, Ca.
area. When the Department of Housing and Urban Development
(HUD) introduced the HECM reverse mortgage in 1989, he worked
with one of the companies HUD chose to participate in the test pro-
gram. His involvement in this process led him to concentrate his
career on reverse mortgages, rather than the typical “forward”
mortgage. John has lectured on the subject of reverse mortgages to
a wide variety of organizations and groups such as senior centers,
realtors, CPAs, financial planners, elder law attorneys, service clubs
and university groups, and is a member of the National Reverse
Mortgage Lenders Association.
John will tell anyone he comes in contact with about reverse mort-
gages, and admits he has a “passion” for the program. He feels
strongly about expanding the public’s awareness of reverse mort-
gages, because he has seen how a reverse mortgage can change a
senior’s quality of life. As a senior himself, he understands the
needs of seniors and is committed to continue originating reverse
mortgages for the foreseeable future.
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Dedication
We would like to dedicate this book to all those who have taken an
active role in their future finances, whether through a reverse
mortgage or by other means. To all those baby boomers who are
planning early, to all those adult children who have set aside the
time to help their parents with this essential decision, and of
course, to all of our senior readers who chose to be in control of
their own financial destiny. We wish you the best of luck!
Author’s Acknowledgments
We would like to thank everyone who made this book possible, all
those who supported our efforts, and our friends and family who
sat patiently by as we toiled away through weekends and holidays.
Thank you to our acquisitions editor Mikal Belicove for your per-
sonal, kind attention to this project. Thank you Jennifer Connolly
for all of your hard work editing this manuscript and for being such
a great source of ideas. Thank you Peter Bell for acting as Technical
Editor and offering your and the National Reverse Mortgage Lenders
Association’s support. Thank you Carole Sparrow, reverse mort-
gage counselor, and Mary Beth Johnson, appraiser, for your time
and efforts providing information and proofing the chapters you
inspired.
Sarah Glendon Lyons:I would especially like to thank Pfingsten
Publishing and Mortgage Originator magazine for the constant
encouragement and interest in this project. Thank you David
Branfman for your legal council and generosity. John Obradovich,
thank you for recommending me as the reverse mortgage expert.
Thank you to my co-author, John Lucas, for your dedication and
commitment to this book. I’m particularly grateful to my parents,
family, and friends who consistently asked about “the book” and
learned more than they ever wanted to know about reverse mort-
gages, all with a smile. To Adam, thank you for waiting patiently
while I worked, and always offering to read over these pages. To
everyone who helped make this book a possibility, my sincere
thanks.
John E. Lucas:I want to thank Sarah Lyons for the opportunity to
participate in the writing of this book. I believe the reverse mort-
gage is a very important program that helps alleviate difficult finan-
cial problems for seniors. In most cases, the reverse mortgage will
change the quality of a senior’s life, sometimes rather dramatically.
Working with seniors and helping them to obtain reverse mortgages
has been the most satisfying portion of my professional career.
Playing a role in the writing of this book has been a privilege.
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Publisher’s Acknowledgments
We’re proud of this book; please send us your comments through our Dummies online
registration form located at www.dummies.com/register/.
Some of the people who helped bring this book to market include the following:
Acquisitions, Editorial, and Composition Services
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Project Editor: Jennifer Connolly Layout and Graphics: Carl Byers,
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CarlWilliam Pierce, TECHBOOKS
Technical Editor: Peter Bell
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Melissa Bennett
Cartoons: Rich Tennant
(www.the5thwave.com)
Publishing and Editorial for Consumer Dummies
Diane Graves Steele, Vice President and Publisher, Consumer Dummies
Joyce Pepple, Acquisitions Director, Consumer Dummies
Kristin A. Cocks, Product Development Director, Consumer Dummies
Michael Spring, Vice President and Publisher, Travel
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Publishing for Technology Dummies
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Composition Services
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Debbie Stailey,Director of Composition Services
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Contents at a Glance
Introduction ......................................................1
Part 1: Understanding the Basics
of a Reverse Mortgage .......................................7
Chapter 1: Figuring Out the Reverse Mortgage Basics .........................9
Chapter 2: Deciding Whether a Reverse Mortgage
Is Right for You ..................................................................................25
Chapter 3: Having the Right Stuff: Borrower Qualifications ..............39
Chapter 4: Repaying Your Loan ............................................................51
Part II: Going Shopping: Product Options ..........63
Chapter 5: Following the Crowd: The Home Equity
Conversion Mortgage .......................................................................65
Chapter 6: Figuring Out the Fannie Mae Home Keeper Loans ...........85
Chapter 7: Jumping into Jumbo Cash Accounts ................................103
Part III: Taking the Plunge ............................119
Chapter 8: Taking the First Step: Seeing a Counselor .......................121
Chapter 9: Working on Step Two: Your Originator ............................137
Chapter 10: Going Forward with Step Three: Getting Appraised ....153
Chapter 11: Sealing the Deal with Step Four: Closing .......................163
Part IV: Giving Advice for Adult Children ........177
Chapter 12: Supporting Your Parents .................................................179
Chapter 13: Knowing the Impact of a Reverse Mortgage
on Your Inheritance ........................................................................197
Chapter 14: Getting Durable Power of Attorney ................................211
Part V: The Part of Tens .................................227
Chapter 15: Top Ten What Ifs When Considering
a Reverse Mortgage ........................................................................229
Chapter 16: Ten Resources for Securing a Reverse Mortgage .........237
Chapter 17: Ten Common Mistakes Borrowers Make ......................243
Appendix: Glossary ........................................251
Index ............................................................257
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Table of Contents
Introduction ......................................................1
About This Book ........................................................................1
Conventions Used in This Book ...............................................2
Foolish Assumptions .................................................................2
How This Book Is Organized .....................................................3
Part I: Understanding the Basics
of a Reverse Mortgage .................................................3
Part II: Going Shopping: Product Options ....................4
Part III: Taking the Plunge ...............................................4
Part IV: Giving Advice for Adult Children .....................4
Part V: The Part of Tens ..................................................5
Icons Used in This Book ............................................................5
Where to Go from Here .............................................................6
Part I: Understanding the Basics
of a Reverse Mortgage ........................................7
Chapter 1: Figuring Out the
Reverse Mortgage Basics . . . . . . . . . . . . . . . . . . . . . . . 9
Understanding Reverse Mortgages .........................................9
Checking out how it works ...........................................10
Being over the hill pays off ...........................................11
Getting rid of common misconceptions .....................11
Knowing what it isn’t .....................................................13
Choosing a Loan Product ........................................................14
Home Equity Conversion Mortgage ............................15
Home Keeper ..................................................................16
Jumbo Cash Accounts ...................................................16
Figuring Out the People in Your Mortgage ...........................17
Counselor ........................................................................17
Originator .......................................................................18
Appraiser ........................................................................19
Getting Paid ..............................................................................21
Figuring out how much you can get ...........................21
Checking out payment options ....................................22
Discovering the effect of the
funds on your finances ..............................................23
Dealing with inflation and interest rates ....................24
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Reverse Mortgages For Dummies
Chapter 2: Deciding Whether a Reverse Mortgage
Is Right for You . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Pinpointing Your Motives .......................................................25
Determining what you need .........................................26
Deciphering what you want ..........................................30
Keeping Your Options Open ...................................................33
Knowing When to Walk Away .................................................36
Knowing when you shouldn’t
get a reverse mortgage ..............................................36
Knowing if you’re ready ................................................38
Chapter 3: Having the Right Stuff:
Borrower Qualifications . . . . . . . . . . . . . . . . . . . . . . . 39
Finding Out If You Qualify .......................................................39
Aging gracefully .............................................................40
Coupling ..........................................................................41
Retaining Title ..........................................................................42
Paying off your current mortgage ...............................43
Staying put ......................................................................44
Living Room: Eligible Homes ..................................................45
Single-family homes .......................................................46
Condos and townhouses ..............................................47
Manufactured homes ....................................................47
Multi-family homes ........................................................48
Second homes ................................................................49
Chapter 4: Repaying Your Loan . . . . . . . . . . . . . . . . . . . . 51
Getting the Loan Repaid ..........................................................51
Figuring out when it’s due and who has to pay it ......52
Contacting the lender ....................................................53
Settling your tab ............................................................54
Understanding the TALC ...............................................56
Knowing When to Repay Your Loan ......................................57
Paying as you go ............................................................57
Moving out ......................................................................58
Moving on .......................................................................59
Part II: Going Shopping: Product Options ...........63
Chapter 5: Following the Crowd: The Home Equity
Conversion Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Getting to Know the HECM .....................................................65
Meeting HECM Requirements .................................................66
Checking out lending limits ..........................................67
Factoring in your age ....................................................68
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Table of Contents
Taking into account your home’s value ......................69
Checking out current interest rates ............................70
Paying Up ..................................................................................73
Investing in Mortgage Insurance Premiums (MIP) ..............76
Cashing In .................................................................................77
Receiving monthly payments .......................................78
Banking on a line of credit ............................................80
Choosing a lump sum ....................................................81
Going with combinations ..............................................82
Chapter: Figuring Out the Fannie Mae
Home Keeper Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Buying a New Home .................................................................86
Making a down payment ...............................................87
Figuring out what you can afford .................................88
Meeting the Requirements ......................................................89
Qualifying homes ...........................................................90
Making necessary repairs .............................................90
Reaching Higher Borrowing Limits ........................................91
Adjusting expectations .................................................92
Considering age .............................................................93
Factoring in interest rates ............................................94
Evaluating the Costs ................................................................96
Getting the Check .....................................................................98
Simplifying with monthly payments ............................98
Building a line of credit .................................................99
Combining your options .............................................101
Chapter 7: Jumping into Jumbo Cash Accounts . . . . 103
Figuring Out Jumbo Cash Accounts ....................................103
Meeting Financial Freedom ........................................104
Understanding Cash Accounts ..................................105
Withdrawing your equity ............................................107
Qualifying for a Jumbo Cash Account .................................109
Loaning in the Lone Star State ...................................109
Checking out eligibility ...............................................109
Taking an Interest in London ................................................110
Paying for Splendor ...............................................................111
Choosing Loan Options .........................................................113
Selecting the standard Cash Account .......................114
Selecting the Zero Point option .................................115
Checking out the Simply Zero option ........................116
Comparing options ......................................................117
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Reverse Mortgages For Dummies
Part III: Taking the Plunge .............................119
Chapter 8: Taking the First Step:
Seeing a Counselor . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Finding a Counselor ...............................................................121
Knowing What to Expect .......................................................124
Making the appointment .............................................125
Discussing your needs ................................................126
Understanding your options ......................................128
Bringing the Whole Gang ......................................................129
Including family and friends .......................................129
Using professionals .....................................................130
Knowing What to Look For ...................................................130
Exploring Other Options .......................................................131
Waiting it out ................................................................131
Thinking forward .........................................................131
Sharing your home .....................................................133
Checking out government loans ................................134
Chapter 9: Working on Step Two: Your Originator . . . 137
Meeting Your Originator .......................................................137
Understanding originating lenders ............................138
Figuring out servicing lenders ...................................138
Looking for the right stuff ...........................................139
Originating the Loan ..............................................................140
Applying for your loan ................................................141
Getting ready for closing ............................................143
Going Behind the Scenes: Processors
and Underwriters ...............................................................144
Giving processors credit .............................................144
Deciding your future: underwriters ..........................145
Finding an Originator ............................................................145
Starting with national associations ...........................146
Asking friends and family ...........................................146
Checking with community centers ............................147
Surfing for originators .................................................148
Paying attention to advertisements ..........................149
Avoiding Predatory Lending .................................................150
Outsmarting a predatory lender ................................150
Staying protected with RESPA ....................................151
Knowing Your Role .................................................................151
Asking questions ..........................................................151
Following up .................................................................152
Getting help ..................................................................152