by: midry
Html View | Print View
Total views: 0
Word Count: 716
Date: Fri, 27 Aug 2010 Time: 2:10 PM -
0 comments
In the year 1961 only a few people had ever heard of a reverse mortgage. That is due to the fact prior to 1961 they didn't exist. Then, a loan originator named Nelson Haynes and his employer Deering Savings & Loan changed everything when they extended a reverse mortgage loan to a widow in Portland Maine. Counting just FHA-insured reverse mortgage loans, originations have increased from just a few hundred in 1990 to more than 110,000 in 2008. For many unlucky senior citizens, taking out a reverse mortgage is not optional. Rather, it is something they have to do simply to have enough funds to pay for such things as rent, gas, meals and prescription drugs. But regardless of why somebody might decide on such a loan, the nest egg of home equity is an excellent way to add to one's income when it is needed the most.
Article Source: DirectoryArticles.com
So how does it all work with this type of a loan? A Home Equity Conversion Mortgage, or HECM, is the technical name for a reverse mortgage. With an HECM a borrower of at least 62 years of age can acheive an income by tapping into his or her home equity. The borrower won't ever be expected to repay the loan unless he or she quits residing in the property as a principle place of residence. You'll find that state and local governments offer reverse mortgages. However, the lion's share are originated under the guidelines of Fannie Mae and Freddie Mac. You'll find that the guidelines for eligibility vary a bit from one reverse mortgage program to another. That said, all reverse mortgages are basically the same in terms of how they work.
By thinking about how a conventional (i.e., forward) mortgage works you can get an idea of how a reverse mortgage works by comparison. In this context, the term "forward" refers to the direction of the payment stream. With a conventional mortgage the stream moves in a forward direction, i.e., from the borrower to the lender. The loan balance gets smaller and smaller with each payment made. Payments are made in a reverse direction in the case of a reverse mortgage. Now the lender makes payments to the borrower and over time the amount owed on the property gets larger. Only in the even that the borrower discontinues occupancy of the home as a principle residence is he or she required to repay the loan. What's more, the borrower holds the title to the home.
Specific eligibility prerequisites have to be satisfied in order to be eligible for the loan. A borrower must be at least 62 year of age or older, with no maximum age. As opposed to traditional loans, credit history is not an issue with reverse mortgages. If, however, you owe a debt to a federal agency and you are past-due then you will need to bring the balance current to be able to qualify. A documentable payment agreement will also suffice. You won't find an HECM loan program is any different in this regard. If the balance on your existing home loan can be paid out of the reverse mortgage loan then you're fine. Otherwise, you need to own your home free and clear. Counseling from an impartial reverse mortgage counselor is required before the lender is allowed to accept a reverse mortgage application. The home to be financed must a single-family residence no greater than 4 attached units, one of which is the borrower's primary residence. Property types classified as manufactured, condo or PUD will not necessarily exlude you from eligibility. If you are good in terms of these prerequisites then you're most likely ready to apply for an HECM.
The age of the youngest borrower and the amount owed on your home will definitely affect how much you qualify for. Other factors include the appraised value and estimated closing costs. You can receive your money in one of 4 forms:
1. Lump sum – borrower receives all of the cash at once.
2. Cash advance – Once a month you'll receive a payment.
3. Line of credit – This option allows for the greatest flexibility with respect to how much and when you get paid.
4. Combination – It's possible to use a combination of all of the above options.
Midry Woodruff is an expert author whose resume includes top-level HUD consulting. Midry's current focus is on topics related to Avon, Indiana and Avon homes.
Rating: Not yet rated
Login to vote
