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Health & Fitness

ARE YOU A GOOD CANDIDATE FOR A REVERSE MORTGAGE? CONSIDER YOUR AGE, FUTURE, AND FINANCES BEFORE APPLYING

Carmen Jones-Burke and Ponciano Allen, certified housing counselors at national nonprofit Consumer Credit Counseling Service of MD and DE, examine when a HECM is a wise choice for seniors who hope to cover their expenses and remain in their homes.

Reverse mortgages that are backed by the Federal Housing Administration Home Equity Conversion Mortgage program are widely known as “HECMs.”  Used responsibly, these loans make it possible for older adults to afford expenses while they remain living in their homes. There is even a HECM for Purchase program that enables borrowers to buy a new home. However, HECMs don’t fit every situation and can be expensive, complicated, and may involve risk, so seniors are required to obtain HUD-approved reverse mortgage counseling before they obtain one.  Carmen Jones-Burke, who works as a reverse mortgage counselor for national 501(c)(3) nonprofit Consumer Credit Counseling Service of MD and DE (CCCS), says, “During sessions, we help clients weigh all their options and understand how reverse mortgages work.  This information helps them decide if a HECM is the right choice for them. That’s crucial, because this decision will affect them and their family for years to come.”

How can you tell if you’re a good candidate for a HECM?  CCCS reverse mortgage counselor Ponciano Allen says there are many factors. “A good candidate is someone who’s at least 62 years of age or older who plans to stay in their home and maintain it as their primary residence. But that’s not all -- they also generally need to have enough equity in the home to obtain the reverse mortgage and pay off any existing mortgages if necessary. Finally, they must be able to maintain the taxes, insurance, and maintenance on their property.”

Why don’t we take a closer look at each of these factors, starting with age?  To qualify for a reverse mortgage, all of the owners of the home must be at least 62 years of age or older.  Jones-Burke notes, “If an assortment of family members own the home, those who are younger than 62 will need to Quit Claim Deed or remove themselves from the deed for the senior borrowers to qualify for a HECM. This can be done as part of the HECM process.”

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Under a reverse mortgage, borrowers have six payment options to access the available funds, such as a single lump sum draw, monthly payments, a line of credit, or a combination of these.  Any existing mortgages, property liens, and outstanding federal debt must be paid before funds are made available. The money received can be used to supplement retirement income, finance a home-improvement project, pay for healthcare costs, or any other purpose the borrower chooses. However, Allen cautions, “If homeowners leave the home for more than 12 months or the home is no longer their primary residence, then the reverse mortgage becomes due and payable.” 

Jones-Burke says reverse mortgage borrowers need to consider this factor.  “HECM loans can be expensive short term loans.  For this reason, it’s important to evaluate how long you will realistically stay in your home.  What will you do if health or other conditions make it necessary to move in with a family member or to a long-term care facility? None of us wants to think about these possibilities, but the only true constant in life is change.  Therefore, though a HECM can meet an immediate need, it’s important to first consider any potentially less costly short term alternatives.”

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Jones-Burke also cautions against using a reverse mortgage as a quick fix if you’re in debt. “If you’re cash poor and have a lot of equity in your home, a HECM may help you become more financially secure. When it’s part of a plan, it can work. But if it’s the only plan, you may encounter serious problems down the road.  Once you pay off what you owe, you still need to have enough left over to keep up your property and pay your homeowner’s insurance premium and property taxes.  If you are not able to meet these expenses, you could lose your home.”

Allen agrees. “Because the home is the collateral for the reverse mortgage, the lender wants to make sure your homeowner’s insurance is current and active and that you repair any damages that may occur to the property.  Delinquent taxes can cause a tax sale or cause an additional lien to be placed on your property. A reverse mortgage can be foreclosed on if the taxes and insurance aren’t kept current.”

Borrowers often wonder how much money they can receive from a reverse mortgage.  Lenders consider: 1) The borrowers’ age, 2) interest rate, and 3) the home’s value.  Jones-Burke says, “The older you are and the lower the loan rate, the better. Reverse mortgages are funded based on a certain percentage of the property’s value, called the ‘principal limit’ -- not its full value. For example a 62 year old borrower who fully owns a home worth $100,000 may be able to qualify for a $52,600 loan at a loan rate of 5.06% or lower.  A 90-year old borrower in the same situation may be eligible for $66,000.”

Jones-Burke and Allen believe the CCCS reverse mortgage counseling program helps clients determine if a HECM is appropriate option for them.  Jones-Burke says, “We conduct a complete financial interview to help clients evaluate their options and goals and discuss the types of challenges they may encounter if they take one on.  We show them how HECMs work and offer loan comparison illustrations.  We also help them review other available options -- not just if they qualify for a reverse mortgage.  It’s about more than just issuing the certificate that verifies the counseling was completed. Our goal is for them to leave the session armed with information and additional resources.”

Allen adds, “The CCCS reverse mortgage counseling program is unique because we don’t treat clients like a number.  We provide thorough, personable counseling from the heart, and we keep each and every client’s best interest in mind.”

Consumer Credit Counseling Service of MD and DE provides reverse mortgage counseling by phone and at its offices in Catonsville and Dover. All of its counselors are trained and certified. To schedule a CCCS reverse mortgage counseling session, call toll-free 1-866-731-8486 or visit the agency website to learn more.

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Consumer Credit Counseling Service of MD & DE, Inc. (CCCS) is an accredited 501(c)(3) nonprofit agency that helps stabilize communities by creating hope and promoting economic self-sufficiency to individuals and families through financial education and counseling.  CCCS MD State License #14-01

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