An older couple bought a house when their children were young and have lived in it continually since. The mortgage was paid off long ago, or has a small balance, but with today’s crazy real estate market, the house appraises at as much as 100 times its original cost!
Typically, these homeowners are a retired couple living on a small pension, Social Security, and some savings. They are living in a million-dollar home, but they would have to sell it to get the money. But if they sell it, they have to move out. After decades of living in the same house and neighborhood, their house is comfortable for them, and the neighbors are all friends. They would much prefer to stay put.
But property taxes have gone up with house prices. This means the homeowners must come up with several thousand dollars each year to pay their property taxes. They may have to sell the house to get the money for the taxes.
A reverse mortgage allows the homeowners to sell part of their home equity for cash and still live in the house. The homeowners must pay the taxes, insurance, and utilities, but now they can use part of their home equity money to pay these huge bills. The lender pays the homeowners in cash for a portion of the home equity. The lender must wait until both the homeowner and the homeowner’s spouse die, move out, or fail to pay the taxes or insurance in order to take possession of the house. But first, the lender must pay the homeowner for the remaining equity.
The oldest of the homeowners must be at least 62 years old to qualify for an HECM reverse mortgage. The homeowners must have sufficient equity in the home to ensure an income in the out years to pay property taxes, insurance, and living expenses while they live out their lives in the home.
The details of reverse mortgages are quite complex and an unscrupulous lender can saddle the homeowners with a very bad deal. This is why HUD (the U.S. Department of Housing and Urban Development) has set up a HECM (Home Equity Conversion Mortgage) program. This program starts with an interview with a HECM counselor.
To get further information on HECM reverse mortgages, visit tinyurl.com/y6uer4bv or call 1-800-569-4287 to speak with a counselor. The HECM counselor will discuss with you the program eligibility requirements, financial implications and alternatives to obtaining a HECM reverse mortgage. Counselors will also discuss provisions for the reverse mortgage becoming due and payable. These counseling sessions are not theoretical, but are based on the realities of your situation, your house, and your taxes.
After HECM counseling, you should be able to make an independent, informed decision on if a HECM reverse mortgage meets your needs. The HECM counselor can provide you with a list of FHA approved lenders if you decide to go ahead. The lender will discuss requirements of the HECM program, available payment options, the loan approval process, and repayment procedure.
“Coming of Age… Again” is edited by the Kirkland Senior Council, a group the City of Kirkland created in 2001 to advocate for older adults in our community. The council is made up of people living or working in Kirkland who want to help improve and maintain the quality of life for people in Kirkland as they grow older. Membership is open throughout the year.