Reverse Mortgage Radio Show 11-09-17
What are the steps you should take before you get a reverse mortgage? On today’s show, Bruce goes over how to prepare to get a reverse mortgage.
How To Prepare To Get A Reverse Mortgage
KLZ's Ask the Experts proudly introduces Reverse Mortgage Radio, hosted by reverse mortgage specialist, Bruce Simmons. For over 14 years, Bruce has delivered homeowners across the front range from costly monthly mortgage payments, relieving financial stress, while providing additional income for retirement.
Bruce wants you to learn the truth about reverse mortgages, so you can make an informed decision for your retirement years.
This is Reverse Mortgage Radio.
So, the wife looks at her husband, and then back to me, and she says, "I appreciate you taking the time to meet with us today, but I think we want to wait a while before moving forward. We want to chew on all this information you gave us, and we'll probably be ready to do something sometime in the next 12 months.
Have you ever found yourself in this situation? I mean the couple's situation, not my situation. Basically, where you think you might be interested in something, like a reverse mortgage, but you're not sure because you need more information?
Well, that's what we're going to be talking about today, how to prepare to get a reverse mortgage. And the first step is to gather information.
Thank you for joining me. I'm Bruce Simmons. I'm your host of Reverse Mortgage Radio. I'm really glad you could join me today. You can call me any time you want, at (303) 467-7821. (303) 467-7821 is my number, or visit me online at reversemortgageradio.net, reversemortgageradio.net. That's my website, and you can see all kinds of good information there.
You can gather a lot of information there as well. Check out the videos that I have, the customer testimonials, a lot of frequently-asked questions. There's a frequently-asked question page there, a lot of good information there.
But today, what I want to talk about, is how to prepare yourself to get a reverse mortgage. Now, you may be thinking, "Well, I'm not sure I want one.". That's the key thing, is you want to gather the information.
First of all, I'm going to help you out here by explaining what a reverse mortgage is. It's amazing. Sometimes I'll get people call me. Just yesterday, I had a call from a couple. The lady said, "Yeah. My daughter found you on the Better Business Bureau. American Liberty Mortgage is the company I work for, and we're listed on the Better Business Bureau, A plus rating, as well.
She said, "It looked like you would be a good place to call.". And she called me. I said, "Well, do you know anything about reverse mortgages?". "Not really.".
A lot of people do research before they call me. This person didn't, and so I take the time to explain to her about how it works, and all that, and that's kind of what I'm doing here.
A reverse mortgage is an FHA-insured loan that's specifically designed for people who are 62 and over. It allows you to convert a portion of the value of your home into tax-free money that you never have to repay as long as you live in your home.
It is your home. It's still your house, even after you get the loan. The bank does not take title to the house. As such, you have to continue to pay your taxes and insurance. You have to maintain the home, and live there.
If you can do those four things, you could stay there for the rest of your life. The loan only comes due when you permanently leave the house.
However, it is a loan. It's not free money. You're going to be charged interest on the loan. That interest gets added to the loan balance. If you take out a loan, and you pay off ... Now, that's the other thing, too, is you have to pay off any existing mortgages on the home.
That, sometimes, is hard for people to understand. They think, "Well, OK. I've got this loan for $100,000. I've got another $100,000 in equity, so are you willing to give me a $100,000 loan?". Well, no, that's not quite how it works.
We might be able to give you a $100,000, depending on the value of your home, and things, but that $100,000 is going to have to go to pay off the existing loan on the house.
In other words, if you have a loan with Bank of America, that you're making a mortgage payment on, you refinance it with Wells Fargo, well now, Bank of America gets paid off and you're paying wells Fargo.
It's the same way with a reverse mortgage. If you have a loan with Bank of America, and you get a reverse mortgage, well, the reverse mortgage pays off Bank of America. Now you only have the reverse mortgage, but you have no payment, no mortgage payment.
You do have to pay your property taxes, homeowners insurance, and maintain the home, as well as live there. Those are the key things.
Because it is a loan, you're still charged interest. That interest gets added to your loan balance. If you have a $100,000 loan balance to start, 10 years down the road, you might have a $180,000 balance, or a $200,000 balance. I don't know exactly how it would work out. It depends on interest rates and things of that nature.
The government tells us, the lender, how much we can loan you. For example, if you've got a $100,000 mortgage, and we could loan you $150,000, but you don't want any more money. You just want to get out from under that mortgage payment.
We will loan you the $100,000, and that extra $50,000 can be set aside in a line of credit. You're not charged interest on that line of credit, unless you use it, or until you use it. If you never use it, you never are charged interest on that amount.
The whole balance comes due when the last homeowner permanently leaves the home. If you've never touched that $50,000, that's in the line of credit, it never has to be paid back. But the $100,000 that you originally took out, interest is accumulating on that, and so that balance has to be paid back.
Typically, what happens, is your heirs inherit the home. You pass away, the heirs inherit the home. They have six months from the date you leave the home permanently to either sell the house, or refinance it.
At that time, then, let's say the house is now worth $300,000, you owe $180,000. They sell if for $300,000, pay off the $180,000 that's owed, they inherit $120,000 difference. Obviously, there's closing costs involved, but I'm not going to get into that. We'll keep it simple.
So, that's how the reverse mortgage works in a nutshell. There's a lot of variety with this loan. You can use it a number of different ways. You can create a monthly income stream. You can set up a line of credit. You could take it out to pay off a mortgage. There's all these things.
But what I want to talk about today, is how to prepare to get the reverse mortgage. By the way, too, as I'm going through this, if you have any questions at all, feel free to call me. (303) 467-7821. That's my phone number. I'll answer it, or it'll go to my voice mail if I'm unavailable, because I don't take my phone into other appointments. I'm not going to interrupt an appointment that I have with somebody to answer another call. Leave me a message, and I promise I will call you back.
The first step is, in anything, if you're getting windows, if you're learning anything new, is to gather information, and that's part of what this radio show is about. That's what reversemortgageradio.net is about, my website. All of this stuff is to help you make an informed decision, so you can make the best decision for you. That's the key thing, is gather information.
Do as much research as you can online, or whatever. If you want to call me, I can mail you information, if you don't want to give me anything but your name and address. I can email you information as well. You don't have to give me any details. You can send me an email. You can contact me through my website at reversemortgageradio.net, as well. And I'll call you, or I'll send you an email about it.
I've got a consumers' guide that I'm in the process of updating, I promise, because there were some changes at the beginning of October, that are not reflected in that consumers' guide that's on my website.
If you download that, you'll want to call me, and ask me about the changes. The majority of that guide is still accurate, though.
So you want to gather information. Once you gather what you think is the most general information you can get, then you want specific information. You'll call me. I'll gather a little bit of information from you, as far as your name, and address, and phone number, your dates of birth, because that's one of the key elements that determines how much we can loan.
It's based on the youngest homeowners' date of birth. People will tell me their age, or they'll tell me the year they born, but we round up to the nearest age, so the older you are, the more money you get. Some people don't like to hear that, but this is a good thing. Basically, give me your date of birth, and the value of your home, your address. I like to look up to get a good idea of the value of the home, what homes are going for in your area. I can do a search online for that with my title company. And then, how much is owed on the house, what you're hoping to accomplish with a reverse mortgage.
A lot of people don't ask that. That's one of the first things I always ask is, "What is it you're hoping to accomplish if you move forward with this loan? Are you looking to just pay off a mortgage? Are you looking to create a monthly income, set up financial planning, line of credit, whatever the case may be.
Then I like to schedule a time where I can come out and go over the numbers with you, in person, preferably. That's the best way to look at it. It's not a sales call. I'm not going to be there trying to persuade you to do the loan. I don't ever, ever, ever, want to talk somebody into doing this, because if that's the case, two years later, you're going to come back to me and say, "Darn it. Why'd you talk me into doing this?". No. That's not my style. I'm pretty soft on that respect. I don't try to talk anybody into this.
So you gather all the information. You look at a reverse mortgage could work for you. Now we're looking a little deeper. You want to understand your situation. By that, I mean, how long do you plan to live in your home? Is this a home you're going to stay in for the rest of your life?
I closed a loan last week for a couple that ... They're only in their early 60s. He still works. She's retired now, and their home is perfect. There's no steps up to the house at all. It's a patio home, and everything is on one level. There's no steps in the house at all. If something were to happen to them, where they were in a wheel chair, it would be just fine. They've got the wide doorways it could fit. The sinks in the bathroom are set up. They're planning to stay there for a long time, because they're both young and healthy right now, but you just don't know.
So what's your situation? Are you in a house, a multi-level home, a tri-level, that's on three quarters of an acre? Maybe you want to stay there. I did a loan for a gentleman. His wife passed away, and he definitely was going to stay in his home. It was big. It was way too big. It was a two-story house. He had a huge lot, but he had people come in and take care of the yard for him. He loves sitting out in the yard, a beautiful back yard, and it backed up to open field. He had a nice trail, through his yard, to the shed out back, because that's how big the yard was, perfectly manicured, but that's where he lived for 35 or 40 years, I forget, and he was not going to move. They were going to take him out feet first. That's the only way he was going to leave his house.
And I said, "OK. That's fine. If he got to where he couldn't go upstairs, he could get a lift, one of those chairs that you put in that goes up the stairs. You walk to the stairs, and you sit down, and then push a button, and it'll carry you up the stairs.
It was a perfect situation for him. If he needed that, he could do it. Right now, it still provides some exercise for him.
Those are things you want to think about, and that's one of the benefits of going to the counseling. I didn't mention this, but before you're allowed to sign any papers, you have to talk to an independent third party that's approved by HUD. We call it counseling, the reverse mortgage counselor.
They're not there to sell you. Some reverse mortgage people are going to try to put the screws to you. They're going to turn up the pressure, and say, "You need to do this now. If rates go up, you're going to lose all this money.". And I'm going to touch on that here later on in the show. We're going to talk about what happens if you do wait a year and the rates go up, how that affects the amount of money you get, how it affects your situation, whatever the case may be.
But, you have to understand your situation, and have a no-pressure type of person who can ask you these questions, and go over it with you. That's all part of the process. You want to consider, like I said, the size of the yard, the condition of your house. Do you need repairs?
I talk to a number of people who they haven't had the money, really, to keep their house up the way they should. They've got some peeling paint, or maybe it needs some work.
A lot of times, it's just updating. They don't have granite counters or tile floors, things of that nature. The kitchen might look dated from the 80s or the 90s. It's in good condition. It's just dated, and they want it updated, so they might be taking out a reverse mortgage to do that.
But sometimes, there's a lot of things that can go wrong with a house. You had a little water damage and the soffit's all falling down around the edge of the house, or you have the peeling paint. Your deck, maybe needs some wood repaired in it. You've got an old shed that really needs to come down, maybe. It just is not in good condition at all. All of that stuff.
Those are things that you want to consider, and I'll be talking about that next week. What if there are repairs? What if you don't have the money to get them fixed before we close the loan?
And what if the appraiser says, "Well, you need to get these fixed.". What's the situation with that? That's for next week, so tune in next week. Don't forget.
By the way, too, my name is Bruce Simmons, and I'm the reverse mortgage manager with American Liberty Mortgage, right here in Denver. I've been doing reverse mortgages since January of 2003, going on 15 years now, Marie.
I love what I do. Like I said, I've had the phone number (303) 467-7821. That's been my phone number. It rings to an office in my house, that I have forwarded to my cell phone. So don't try to text me at that number. I've had people try to text me at that number, and I never get it because it's actually a land line that's forwarded to my cell phone when I'm out. But, I've had that number since 1999, and I'm not giving it up any time soon.
Even if I were to change companies, which I'm not. I've been with the same company now for six years. All these things are important, too, when you're deciding who to use. You want somebody that's experienced in reverse mortgages.
The other issue that you might consider with your house, is are you in a condo, or a mobile home? Those could be issues. I've done loans for both. A condo, for example, they have to be FHA approved. You may not even know if your condominium complex is FHA approved. The entire complex has to be approved by HUD, so you have to have either the management company, or the HOA board, get approved with HUD.
I was talking to somebody recently, and they said, "You know what? We were approved, but the management company didn't get ... They let it lapse.". Because every two years, they have to jump through all these hoops with FHA to keep it an FHA approved condo.
That's why only about a third of the condominium complexes in the Denver area are approved by HUD. If your condo complex is not approved by HUD, you cannot get a reverse mortgage if it's not FHA approved, I should say.
So, you want to find that out, and you can find that out yourself, if you just Google "FHA condo approvals". And there's a site, it's hud.gov, with a whole bunch of letters and numbers after it, and approval, things of that nature. But what it is, is a little drop-down menu that says you can choose to put in your condo name, the condo ID, if you knew it, your city, state, zip, or county.
Typically, when I'm checking to see if a condo's approved, I just type in the zip code, and I look for the name of the condo, Southmoor Park, or Great Lake area, whatever the name of the condo is, and you scroll down until you find it.
If you don't find it, it's not FHA approved. The problem is, a lot of times you'll see it on there, and it'll say, "Approved.", and then the next column over says, "Expired 2012." Or 2016.
So you've got to be kind of careful of that. Or feel free to call me and I can look up to let you know whether or not your condo is approved. That's very simple for me.
If you're in a mobile home, there's all kinds of rules around mobile homes. You cannot be in a mobile home park. It has to be on land that you own on a permanent foundation.
We have to do a foundation certification, so we have to have somebody specifically come out and do an inspection on the foundation, to make sure that the foundation meets HUD's guidelines. I has to be 1976 or newer. I'm going to go through some of these next week, too, because we're going to be talking about unique situations, and things of that nature.
All of those are things that you want to consider when you're trying to decide, "Should I get a reverse mortgage?". If you live in a mobile home, is the mobile home getting run down, because you know, those will wear out kind of quicker than a typical home.
Now if you are in a manufactured home, that's a different situation. I shouldn't say manufactured, modular. Modular is where they bring the pieces out to the site, and they put them together right there on site.
A manufactured home is where they build it in a factory, and then bring the whole thing out, and then they put it on a foundation. The mobile home is just an old form of a manufactured home.
Everything has to match up. There's tags on things that have to ... It's kind of complicated, but we can do it. I've done a number of them. I'm working on one now up in the mountains.
All right. That's your situation. So you want to gather information, you want to go talk to the counselor, and then understand your situation.
The other thing you want to talk about with your spouse or just with yourself, is your finances. What's your income like? Can you afford to live in this home, even if you get a reverse mortgage? We want to make sure that you can afford to pay your taxes, and insurance, and all your other bills, and still live comfortably.
Because if you can't live comfortably, you might get a financial shock, a furnace goes out ... If we take all the money from the reverse mortgage and pay off your existing mortgage, but yet things are still so tight for you, that you don't have any savings at all, then all of a sudden, you have a furnace go out. Now you've got to finance $5,000 or $6,000 or $7,000 for a furnace. You've got this extra bill. Things are starting to get tight. Then, suddenly you end up in the hospital, and you've got these medical bills.
Well then, suddenly your property taxes come due, and you don't have the money for that, because you had to use most of your budget to cover the other bills that you acquired, and it just is a spiraling thing, and if you don't pay your taxes and insurance with a reverse mortgage, you will lose your home. You will be foreclosed on. There's no cut and dry about it.
Now we work with you to try to make sure that that doesn't happen. If for some reason you do fall behind on your property taxes, for example, the servicer will call you and say, "Hey. What's going on? You didn't pay your taxes. Is there a problem?". You say, "Oh, yeah. I had this. I'm going to pay them at the end of the month.". OK. That's fine.
If you don't then they have to pay them, because they're not going to let somebody else come in and put a lien on your house for the taxes. They'll pay the taxes, and then they're going to work with you to try to work out a repayment schedule, which adds another bill. So, if your taxes are $1200 a year, now suddenly, you have to pay the taxes back over a two-year period. That's another $100 a month you have to pay, or $50 a month, if you're going to pay it back over a two-year period.
Things like that, we would try to work with you, but we want to make sure that you're not going to get in that situation to begin with. So, we check your income, and your credit, and we want to look at things.
A lot of people don't know this, but this goes way beyond a forward, typical mortgage. The typical mortgage wants to see that your homeowners' association dues are paid. So, you live in a town home, or a condo, or just a house, and you have an HOA, $47 a month, or $250, or whatever it is, if you don't pay that, if you haven't paid that on time for the last two years, we're going to see it. Because we have to get a two-year payment history for your property taxes, your homeowners' association, and a 12-month history for your insurance, your property insurance on your house.
If you haven't been paying those on time, especially the HOA ... It's amazing how many people don't pay their homeowners' association dues the way they should. Some people, it's easy to just forget, or especially, you pay it quarterly. "Oh well, I paid it, you know, it was due in June. I paid it in July. What's the big deal? I paid the whole quarter in July".
Well, you're 30 days late. If it was due by June 31, and you paid July 5th, then you're 30 days late, because it should have been paid in June. You can't have those with a reverse mortgage in the last two years.
There's some leeway. I'm not going to get into all the financial assessment requirements, but we check that. We check your homeowners' insurance. If you pay every month, or quarter, we want to see that those have been paid on time, as well as your property taxes.
If you own your home free and clear, but you pay your property taxes late every year, or maybe you didn't pay them at all last year. That's an issue. We're going to have to deal with that, and that could be a problem.
So these are things that you want to understand as far as your credit and income. The other thing is, are you receiving Social Security yet? Maybe you don't want to receive Social Security until you're 70, because you're going to be getting more. A lot of people do that, or some people do, anyway.
Are you receiving a pension? How much money do you have in savings and investments? These are all factors. We try to take a whole picture. We factor in all this stuff when we're considering it, and you should be doing this as you're thinking about a reverse mortgage.
Yeah. It'd be great to get rid of that $800 mortgage payment, but then you're still going to have to pay $300 a month for taxes and insurance, maybe. Don't forget about that. And I make sure I explain all this stuff to people.
Lastly, and I mentioned this earlier, you want to weigh the pros and cons of waiting. The older you are, the more money you get. Well, if you're 65 now, why not wait until you're 70? You'll get a whole lot more money. But in the meantime, you're paying this $800 mortgage payment, Five years of $800 mortgage payments out of your pocket.
If you didn't have those payments right now, that's five years of $800 a month that would be going into your pocket. Keep that in mind. The other thing is the interest rates on reverse mortgages are very, very important. They play a key part in the amount of money you can get.
I ran some numbers this morning just for example, and I'm not even going to get into the interest rates. Somebody 65, and they have a $300,000 home, right now, based on rates today, they could get about $124,000. If the rate went up a half a percent. Let's say they said, "OK. I'm going to wait until the end of next year, and in that time period, the rates went up by a half a percent, that $124,000, now becomes $115,000. So that's about $9,000 less that you would receive.
Now, hopefully, in the next year, your property value's going to be going up. You'll be another year older, which would hopefully downplay that some, but it probably wouldn't counter all of it.
If it went up three quarters of a percent, now it drops down to $111,000, so you're losing $13,000 with a three quarter percent increase. That's how sensitive the interest rates are.
That's something you need to be aware of. I'll never forget ... Well, this was a HUD. Sometimes HUD comes in and changes things on us, too. Just like last October, if you are a listener of this show, you know there were some changes in October, but I remember back in, I think, 2014, HUD made some changes. They reduced the amount of money they allow us to loan to people at that time.
And I've got over 2200 people on a newsletter list that I send out on a regular basis. Well, I was busy. I didn't send out the news ... I did send out the newsletter. I forget. I don't remember exactly. But I had a lady, who I'd been talking to for years. She called me and she was hemming and hawing, and wanting to get her house perfect, and wanted to wait until she paid down her mortgage a little. Well, they reduced the amount of money that ... HUD reduced the amount of money they allow us to loan.
The rule went into effect. She called me like a week later, mad at me because I didn't call her to tell her of this change. Like I said, I've got over 2000 people on my newsletter list, and I've talked to her over the years, and I got busy, and didn't remember to call her. I should have, but I didn't.
And so she was mad at me, because now, because of this change HUD made, she didn't have enough money to pay off the existing mortgage.
These are all factors that you want to consider when you're deciding on, should I do a reverse mortgage now, should I wait? Don't ever, ever, ever let somebody talk you into a reverse mortgage with a threat of loss. "Oh, the rates are going to go up. You're going to have less money.". "OK, thanks for letting me know that, but don't try to persuade me with that, OK? If there's less money, there's less money.".
I'm meeting a lady later today. We met just about three weeks ago, and the rates changed just slightly, so slightly, but she's getting $4000 less in that little time period, with just a very slight change.
So anyways, keep all that in mind. You want to gather the information, talk to the counselor, understand your situation is three, understand your finances is four, and weigh the pros and cons.
That's how you want to prepare to get a reverse mortgage. If it doesn't work for you now, don't worry about it. Don't worry about it. It'll be fine. If it doesn't work out right now, go ahead and wait, but you want to keep that in mind.
Call me with any questions about what we've talked about today, or anything else. (303) 467-7821 is my direct line, or visit me online at reversemortgageradio.net.
My name is Bruce Simmons, and I'm the host of Reverse Mortgage Radio, here, and I appreciate you listening today. Thanks so much. Have a great day.
Call reverse mortgage specialist, Bruce Simmons, of American Liberty Mortgage directly at (303) 467-7821, to begin drawing equity from your home. Bruce will come to you anywhere in the front range for an in-person, no-obligation consultation.
Learn more about reverse mortgages and watch testimonial videos on reversemortgageradio.net, and MLS Number 409914, regulated by the Division of Real Estate.