Texas Reverse Mortgage Home Purchase Guide
If you or your spouse are 62+, you can purchase your next home using a Texas reverse mortgage, and never have to make a mortgage payment…. For the rest of your life.
Most people have heard the term "reverse mortgage". Some have a very good idea of how it works, but most don't. One of the goals of this guide is to create clarity about the Texas reverse mortgage. The other goal is make the public aware that seniors, 62 and older, now have the opportunity to purchase a home using a reverse mortgage to fund the purchase and never make a payment on the mortgage. Instead, those vital funds can be used for other important life expenses.
In a nutshell, here is how it works…
- Obtain a Texas reverse mortgage approval letter from an approved FHA reverse mortgage lender. When writing a contract on a home, this will be necessary for the seller to accept the offer.
- Find a home you wish to purchase
- Write a contract on the home
- At closing you will be required to make a down payment between 25% to 50% of the value of the home. You will know the approximate amount of down payment based upon the initial conversation with your lender.
- At closing, the Texas reverse mortgage company funds the remaining balance and closing costs if desired by the borrower.
- You take ownership of the home.
- You then live in the home as your primary residence. For the rest of your life, you are NEVER obligated to make payments on the mortgage.
How a Reverse Mortgage Works………
In many ways a Texas reverse mortgage works just like a traditional mortgage. Using a traditional mortgage to purchase a home, you will make a down payment, and the lender will fund the remaining balance. You are then obligated to make monthly principal and interest payments until the loan term is over (typically 15 or 30 years). A Texas reverse mortgage works similarly, except the lender DOES NOT force you to make monthly payments, and the mortgage does not have a specific end date.
Of course this begs the question, how does the lender make money and when does the lender make the money. Simply put, interest will accumulate monthly on any moneys loaned to you. At the end of the mortgage the lender will get paid the money it loaned to the borrower plus accumulated interest.
What defines the end of the Texas reverse mortgage?
- The last borrower, living in the home, passes away.
- The borrower sells the home.
- The borrower voluntarily vacates the home for at least 12 months.
The best part is the money to repay the lender typically comes out of the actual sale of the property. In the end of the Texas reverse mortgage either the borrower or the borrower's family receives the additional proceeds from the sale - NOT THE BANK.
Continue Report: Easy, no hassle qualifying!!
May 18, 2009: What Not to Concern Yourself With in the Reverse Mortgage
I won't sit here and say don't talk to two or three lenders because I think that is always a prudent thing to do. What I see probably too much of is splitting hairs over next to nothing. The reverse mortgage is an extraordinarily competitive business and lenders have all cut margins to bare bones to get your business.
As such the borrower will see all of the quotes looking pretty much identical. There will be slight variations but that is about it. Too many people are choosing their lender based upon the cheapest price they get in the quote.
This is a big mistake. The reason is the quote is just a quote. It is not a commitment to do perform on these numbers. The quote tomorrow will be different from today. It must because interest rates change on a daily basis and the amount of money available to you changes accordingly.
This rate can go up and if you choose a lender based upon the lowest price it probably will. Many lenders low ball the quote just to get you in process. Then as you get closer to closing the lender lets you know rates edged up slightly and they can no longer do today what they did yesterday.
One should concern himself with the quality of the reverse mortgage lender on the other end of the phone more than the numbers. The numbers will be pretty much the same lender to lender. The quality of the loan officer will not. A good loan officer can save you money and time throughout the transaction by knowing his business.
You've had a lifetime of experience with people. Trust your gut on this one, but go with quality over price in this business.
May 9, 2009: HEMC Expected Rate over 6%
Many people call and ask us, "What percent of the value of the home will I qualify to receive from the lender?" The answer is always the same, "It depends". The reason this always comes out of my mouth is that there is no hard answer to the question. Lenders use an algorithm using multiple variables to determine how much a senior borrower will receive.
The biggest variable in this equation is known as the HECM Expected Rate. This is not the actual interest rate at the time. The actual interest rate and the HECM expected rate are related by the index on which the loan is based. Reverse mortgage loans use two indexes, the LIBOR (London Interbank Offered Rate) and the Constant Maturity Treasury.
The actual interest rate, the rate borrowers are charged on their loans, is based on the one month Libor index and the one year Constant Maturity Treasury. The HECM expected rate is based on the one year LIBOR and ten year CMT.
The HECM expected rate is the variable lenders use to determine how much will be loaned to any particular borrower on the date of closing. This is crucial to watch as this rate continues to move upward. As this rate moves up borrowers get progressively less and less money.
The move stems from Wall Street from where most reverse mortgage money comes from. Investors in mortgage backed securities are looking for greater yields on their money. Putting it quite simply, at the current yields they aren't buying enough which will create a shortage of money for the industry. To eliminate this possibility Fannie Mae is gradually increasing the yield and thereby the rate.
April 21, 2009: Reverse Mortgage and Net Equity
When getting the reverse mortgage many people are not considering long term equity in the home. It is a natural position. They have lived in their home for X number of years and plan on living there until death. After they pass on they have very little regard for the equity in the home. They've made the conscious decision to use this equity for the betterment of their own lives rather than passing it along to the heirs.
Another group exists that is very concerned about the leaving something to the kids. The Texas reverse mortgage is an option for these folks but they need to do the math. They need to understand if the mortgage is used aggressively the interest can add up and eventually overtake the equity in the home.
This group needs to understand how interest accumulates. We have all been taught about the power of compounding interest. We've been taught to save early. That way over time that compounding interest really adds up. Well, it works to the borrower's detriment for reverse mortgages. Don't forget a reverse mortgage is adding interest to the mortgage in the same manner.
A couple other things to consider are the costs to get the mortgage and the costs to sell the home when the mortgage is over. The reverse mortgage closing costs can be as little as 3.5% for homes valued at FHA loans limits of $625,500 and as much as 10% of the value for homes valued at $50,000.
When selling the home the closing costs can be as little as 1% of value and as much as 8%. Keep this math in mind if leaving equity to heirs is important.
March 15, 2009: Financial and Reverse Mortgage Resources
Going forward with a reverse mortgage in Texas is not something that should be taken lightly. It takes careful consideration and plenty of planning. After all, for many senior borrowers, their is their largest asset and the equity built over years can serve as a major financial stopgap.
With this in mind we'd like to suggest a handful of excellent sites to gather more information. The first step along the line to learn about the reverse mortgage is the National Reverse Mortgage Lenders Association. This will provide a good foundation about the reverse mortgage. Another good site to go along with NRMLA as supplemental information is "Important Reverse Mortgage Facts"
If you would like to speak with a neutral party regarding the reverse mortgage you should go to this site to find a local reverse mortgage counselor. Additionally, the National Association of Area Agencies on Aging can be a big help if you wish to determine how the reverse mortgage can affect your benefits. Lastly, if you want to be absolutely sure of general ramifications as they pertain to other parts of your life contact the Society of Certified Senior Advisors.
March 3, 2009: How to Trigger the End of the Reverse Mortgage in Texas
The great feature, the one that everyone wants of the Texas reverse mortgage is the ability to borrow money against the equity of the home and not be forced to make monthly payments to lender. The other important feature is in the fact that the reverse mortgage is open ended. That means it doesn't have have definitive ending date. However there are several things that can happen to trigger the end.
The two most prominent triggers are the voluntary sale of the proeperty and death of the last surviving spouse. Naturally, the mortgage company wants their money with interest at that time. The next most common trigger is the borrower actaully leaving the property for at least 12 consequtive months. At this point the property is no longer a primary residence, and reverse mortgages are just for primary residences.
Thirdly is not paying taxes or insurance. The lender only has one thing that secures the debt. That is the home itself. If these items are left unpaid the county can foreclose and natural disaster or fire can destroy the bank's security.
Last, but not least is letting the home become dilapidated. This is a no no as far as FHA is concerned. It has certain physical standards which must be met. Also, FHA can send an auditor to check up on the condidition of homes
February 20, 2009: Obama's New Reverse Mortgage Lending Limits
President Obama's new stimulus plan just increased the new FHA national lending limit from $417,000 to $625,500.
Don't forget the limits just raised to $417,000 in November. This certainly can't hurt the reverse mortgage industry but it will hardly make an impact as very few people in Texas will be in this high end reverse mortgage range. However, other parts of the country like California and New York will certainly be pleased about this change.
If a reverse mortgage lender lends anywhere from forty-five percent to seventy-five percent of value a borrower at the top end will receive $282,000 to $470,000. No doubt this will be a huge relief to anyone struggling to pay on a forward mortgage in that range.
January 28, 2009: How Much Money Will You Get
Perhaps you've heard by now. Perhaps not, but the lenders, as of November 6, 2008 could begin closing reverse mortgages with the new higher lending limits in place.
The new limits in most parts of the country are $417,000. This is an increase by as much as two times in many of these same areas. So, what does this mean?
One could liken the lending limit to the actual value of a home and as a starting point to determine how much money the lender will actually allow the senior to borrow. If the value of the home exceeds the lending limit ($417,000), the borrower receives no additional benefit.
Remember, the mortgage company uses the home's equity as the security for the loan. It will use the value or the maximum lending limit, whichever is less, as a starting point to determine how much they will allow the borrower to cash out at any given time.
Two other important factors go into this determination: Interest rate and the youngest borrower's age.
Age makes sense right? Let's face it, reverse mortgage lenders are using actuarial tables, just like insurance companies, to determine how long the borrower will live in the house. The great fear is one day more will be owed the home is worth.
Clearly if the tables tell a mortgage company the borrower is going to live 4 years as opposed to 14, they will lend the older borrower far more than the younger.
Interest rates are thought of in a similar manner. The greater the interest rate, the quicker the accrual of interest will eat away at the security for the mortgage. Therefore, lenders lend more to prospective borrowers as rates go down than the vice versa.
The prospective reverse mortgage candidate really needs to plug in all three of these variables into the formula to determine how much money he or she will qualify to receive. There are no hard numbers.
January 16, 2009: Texas Reverse Mortgage Power of Attorney Issues
Let's face it.. Aging stinks, and we may get to the point when we won't have to faculty to sign our names legally. What do we do prior to getting to this point? Well, we give power of attorney to our son, daughter or some other family member. Now, they can handle our business legally and with no problems. Right? Wrong.
I recently took a Texas reverse mortgage loan application with the son having POA for his mom. A POA is never a walk in the park with title companies, but I'm yet to see a giant stop sign jammed in my face. Well, after several discussions with numerous title companies we learned that the Texas Department of Insurance changed the rules regarding closing a reverse mortgage with a POA in Texas. In essence, they no longer allow this to be done. Even a guardianship is no longer eligible. This is unfortunate news as individuals with POAs due to medical reasons are probably in the most need for a reverse mortgage. I haven't called the TDI to figure this deal out. I can only conjecture at this point as to why. Surely, they have good reasons, ranging from greed to fraud. It's just a shame a few rotten apples had to ruin the whole bunch. Unfortunately, members of the bunch often need the reverse mortgage as a tool to relieve financial pressure.
Now I'm stuck having to contact my clients. These are good people trying to get themselves out of a financial mess, and I'll have to tell them the bad news. I hate this part!
So, what is the solution to this problem for people in this situaton looking for a Texas reverse mortgage? I personally don't know. It seems unfortunate, but for now the answer seems to be wait for the family member to die.
BITTER SWEET REVERSE MORTGAGE CLOSING COSTS
If I were to name the biggest hurdle to get over with prospective clients in the Texas reverse mortgage business it would have to be the closing costs.
There is no doubt, and I let my folks know this upfront, reverse mortgage closing costs for FHA insured mortgages are higher than typical forward mortgages.
Now, closing costs are high for three reasons. The first being closing costs are charged on the value of the home not necessarily what the Texas reverse mortgage lender allows the borrower to cash out of the loan (aka “Available Principle Limit”).
The second is FHA charges 2% of the value of the home up to $417,000. And the last is Texas reverse mortgage lenders charge an origination fee .5% to 1% higher than typical forward mortgages.
No need to do the math. You can extrapolate that there are some costs to pay. And no one is happy about it.
One could argue the origination fee for the Texas reverse mortgage is not really higher than typical mortgages, because forward mortgages simply build the fee into the rate. That's another subject for another day.
Much of these costs are FHA. In the example above we’re talking $8340 just for mortgage insurance.
On the surface this seems a bit out of hand, but you must remember, this is the mechanism that allows these same “unhappy with the closing costs” seniors the right to borrow as much as they do.
Example: for a 70 year old borrower with a $200,000 home. Today, a Texas reverse mortgage lender will allow this borrower to pull out in excess of $130,000.
Fannie Mae offered a reverse mortgage product until September of this year. It discontinued it. You know why? Everyone took the FHA product because it offered far more money than the Fannie product. The same borrower would have received less than $100,000 on the Fannie product.
LOAN LIMITS INCREASED AS OF NOVEMBER 6, 2008
Perhaps you've heard by now. Perhaps not, but the lenders, as of November 6, 2008 could begin closing Texas reverse mortgages with the new higher lending limits in place.
The new limit in Texas and most other parts of the country are now $417,000. This is a two fold increase. So, what does this mean?
One could liken the lending limit to the actual value of a home and as a starting point to determine how much money the Texas reverse mortgage lender will actually allow the senior to borrow. If the value of the home exceeds the lending limit ($417,000), which does not
aid California reverse mortgage borrowers, the borrower receives no additional benefit.
Remember, the mortgage company uses the home's equity as the security for the loan. It will use the value or the maximum lending limit, whichever is less, as a starting point to determine how much they will allow the borrower to cash out at any given time.
Two other important factors go into this determination: Interest rate and the youngest borrower's age.
Age makes sense right? Let's face it, Texas reverse mortgage lenders are using actuarial tables, just like insurance companies, to determine how long the borrower will live in the house. The great fear is one day more will be owed the home is worth.
Clearly, in Texas, if the tables tell a mortgage company the borrower is going to live 4 years as opposed to 14, they will lend the older borrower far more than the younger.
Interest rates are thought of in a similar manner. The greater the interest rate, the quicker the accrual of interest will eat away at the security for the mortgage. Therefore, lenders lend more to prospective borrowers as rates go down than the vice versa.
The prospective Texas reverse mortgage candidate really needs to plug in all three of these variables into the formula to determine how much money he or she will qualify to receive. There are no hard numbers.