Where do you see yourself in 5 years? A cute apartment in a senior housing community with a pool? A fancy newly built one level townhome? A trendy hip condominium downtown? Once you know the kind of lifestyle you want, you'll be able to determine if it makes sense to own or rent.
If you want to own your next home, financing will need to be part of your planning. When you start your financial planning, I hope you'll take into consideration all of your options. The more information you have, the better choices you'll make.
The Financial Tool Isn't Good or Bad
Once in a while when I bring up the option of Reverse Mortgages with my clients, I'm met with a strong negative reaction. I might hear a story about an uncle who used a reverse mortgage, and it turned out badly. They'll then be very quick to tell everyone they know why Reverse Mortgages are evil. Unfortunately, there are a few real estate agents who attend my classes that have the same opinions. "Stay away from Reverse Mortgages!" "Reverse Mortgages are bad for everyone!" That's like saying no one should ever have a peanut because a small group of people who are allergic have bad reactions to peanuts when they eat them. It's just not true. Reverse Mortgages are neither good or bad. A reverse mortgage is simply a tool that can be utilized to help you meet your lifestyle and financial goals. I'm not an advocate for or against reverse mortgages. I'm an advocate for you to have as many options available to you as possible. So, let's see if we can take some of the mystery out of the reverse mortgage.
Talk with an Expert
The first step in getting good information is to go to an expert. I like to look for people who specialize (you might have guessed that since I have a specialty!). There are loan officers out there that offer a little of everything, Department of Veteran Administration loans, Conventional loans, and they may dabble in reverse mortgages. If I want to know about reverse mortgages, I go to someone who only does reverse mortgages. There's a kind of sophisticated expertise you develop when you specialize, and I'm a big believer that if you really want to understand the nuances of any particular area, you go to the specialist.
What is a Reverse Mortgage?
When you buy a home and take out a conventional mortgage, you make monthly payments to the lender until the loan is paid off. A reverse mortgage works in reverse. The lender pays you money so you can use the equity in your home now. You turn the equity you have in your home into cash without having to sell your home. There are no monthly payments on that money until your no longer occupy the home as your principal residence, you die, you fail to keep property insured, you fail to pay association dues or taxes, or you turn 150 years old. The most common in Minnesota are Home Equity Conversion Mortgages (HECMs) which are federally insured, and are an FHA product.
Reverse Mortgages are generally for those that are 62 years of age or older. If there is a spouse that is not yet 62 years of age, they are called a non-borrowing spouse. Talk with a reverse mortgage loan officer to understand if this will affect your eligibility.
If I take out a Reverse Mortgage, Who Owns the House?
The person (people) on the title to the house doesn't change. Similar to a regular mortgage, there is a lien on the property, but you own and occupy your home the same way as if you didn't have a reverse mortgage.
A Reverse Mortgage is a Non-recourse Loan
When it comes time to sell, if the house is worth less than the balance on the reverse mortgage there is a shortfall. A Non-Recourse loan means the lender will not ask you or your heirs to make up that shortfall.
A Reverse Mortgage When There's Already a Loan on the House
You may be paying for a Home Equity Line of Credit or making monthly payments on a regular mortgage now. That does not disqualify you from a reverse mortgage. A Reverse Loan Officer can look at your current situation and help you determine if you would qualify.
Beth Paterson's Biography
Beth Paterson, Certified Reverse Mortgage Professional (CRMP),
Executive Vice President, NMLS #342859, Reverse Mortgages SIDAC,
a division of Greenleaf Financial, LLC, NMLS #173899
Specializing in reverse mortgages since 1999, Ms. Paterson has used her expertise, knowledge, and experience to help more than a thousand seniors maintain their security, independence, dignity and control. With their focus on customer service, her company has 100% Customer Satisfaction. Known an expert in the field, Ms. Paterson has been consulted for and quoted in numerous articles. Her Blog articles, found at Beth’s Reverse Mortgage Blog, have received national recognition for providing the facts on reverse mortgages. Additionally Ms. Paterson is the author of books including Understanding Reverse Mortgages...Financing For Seniors May Be Right Under Their Roof, a book written to help educate and simplify information on Reverse Mortgages. As the reverse mortgage industry representative, in 2012 Ms. Paterson was appointed to Lt. Governor Prettner Solon’s “Own Your Future” advisory panel for guiding a statewide public awareness campaign to encourage Minnesotans to plan for the care they will need as they grow older as well as how to finance their long term care needs. In 2005 Ms. Paterson started Savvy Senior Sources for guiding your way through resources A to V. She has hosted and produced a TV show, Savvy Senior Sources...Talking With Experts which was on local cable access and is on You Tube, the Savvy Senior Sources Chanel.