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Dale W Doughty, Jr.'s Blog

By Dale W Doughty, Jr. | Mortgage Broker
or Lender in Maine

Saving Your Retirement Home

This Recession has proven to be especially difficult for homeowners.  Those that are nearing retirement or retired may have gotten it the worse.  Limited increases to SSI, increased food and medical costs, failing pension funds and decimated retirement portfolios have made the Golden Years, far less golden.  Many retirees have been forced to liquidate their homes through short sales or have even faced foreclosure.  The daunting experience of financial hardship as a senior can be even more traumatic when it is coupled with the loss of a home.  This trauma is compounded with a home that has been in the family for years and offers irreplaceable memories and comfort. 

Another option to a sale or foreclosure of the property may be a HECM (Home Equity Conversion Mortgage).  A HECM is an FHA insured loan that basically works like a Home Equity Line, with flexible payment options.  It allows you to convert equity in your home to liquid capital in order to pay off the existing mortgage, make renovations on the home or provide a supplemental income.  You can make monthly only interest payments to keep the loan balance from rising or you can choose to make no payments at all.  If down the road your financial picture improves you can refinance back into a traditional mortgage and start paying down the principal or you can make principal payments to the HECM at any time.  Even if you never make a payment again you can stay in the home as long as you continue to live there.  The amount of money you can borrow with a HECM depends on a formula that takes into account your age and current mortality tables.  In other words, the older you are the higher the percentage of your home’s value you can borrow.  When you die, the HECM works similar to a traditional mortgage in that your heirs would need to pay off your mortgage (buy the home) if they wanted to retain it.  The difference is, if the home’s value isn’t worth what the mortgage balance is on it or the heirs do not want to be bothered with the home they need not worry about.  The home is liquidated by the lender and the FHA insurance kicks in and pays any deficiency balance, leaving the heirs with no liability. 

Who can qualify for a HECM?  Really, the biggest factor is age and equity.  The minimum age to qualify for a HECM is 62.  The younger you are the more equity you will need to qualify.  However, there are no credit or income requirements.  So, if you’re behind on your mortgage or really struggling financially you will likely still qualify. 

So, what are the steps to learn more about whether or not a HECM is right for you?  One, meet with a mortgage lender who has experience with reverse mortgages and see if a reverse mortgage is a viable option and whether or not it makes sense.  You should plan on having any family members or other advisers that will be involved in the decision attend this consultation with you.  Step two, is to attend a HUD approved class to learn all the pros and cons of HECM’s and to make sure you understand the process.  This step is required by HUD, who administers all FHA programs.  Classes are usually offered by Consumer Credit Counseling Services and other non-profit agencies.  Once you complete this step your mortgage lender can order an appraisal of your home to see how much you can borrow and will go over all of the disclosures to show you what your closing costs and mortgage rate will likely be.  Once approved you attend a closing, just like a traditional mortgage.  If you had enough equity to cover the existing mortgage with some left over, or had no mortgage at all, you have the option of taking your money all at once, letting it sit on a line of credit or annuitize it to create a monthly income. 

Unfortunately, thieves tend to prey on seniors, especially if they are desperate financially.  One thing you should always keep in mind, and remind your loved ones of is that it is illegal for anyone to collect a fee prior to having an initial consultation and attending a HUD approved class from an uninterested third party.  Anyone who does otherwise is probably not looking out for your best interests. 

HECM’s can be a great estate planning tool but they are not for everybody.  If you or someone you know is 62 or older and you think a HECM may benefit them, feel free to call me for a free consultation.  I have been involved in the financial services industry for 22 years working as a financial planner, estate planner and mortgage banker giving me the experience necessary to help you make the right decision.  I can be reached toll-free at 1-877-440-2739.


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