Delaware Reverse Mortgages Explained
For many Delaware Residents reaching the retirement age, the equity buildup in their home is their only real asset. Delaware Reverse Mortgages are a way to tap into this asset and create a stream of income needed for retirement or take care of an unexpected financial need that is usually related to health care costs in the elderly.
Reverse Mortgage is not like a traditional forward mortgage for purchase, refinance, equity loan or a second loan on your home – there are some advantages and pitfalls. If you’re ready to get started, a Delaware Reverse Mortgage specialist on the John Thomas team can help you navigate the details: Call us at 302-703-0727 or APPLY ONLINE.
What are Delaware Reverse Mortgages?
The general definition of Delaware Reverse Mortgages is a financial agreement in which a homeowner or a home buyer relinquishes some of the equity in their home in exchange for a lump sum of cash or for regular payments, usually to supplement retirement income. A reverse mortgage can be used to refinance a home you currently own if it is your primary residence or to purchase a new primary residence. So it is not just for refinancing!
As the term implies, the flow of money reverses. Instead of the homeowner paying the lender on a predetermined schedule, the lender pays the homeowner and there aren’t any payments due until the homeowner moves or dies.
How did Reverse Mortgages Start?
Nelson Haynes of Deering Savings & Loan (Portland, ME) made the first reverse mortgage loan to Nellie Young, his high school football coach’s widow. This action was motivated by kindness and started a chain of events over the following forty years to extend a helping hand to today’s retirees. It’s been a powerful asset to seniors since.
Today, retirees are considering this asset in record numbers. In Delaware, Reverse Mortgages help many retirees cope with their financial difficulties when they have nowhere else to turn. More importantly, it helps them retain their independence and dignity. According to the National Reverse Mortgage Lenders Association in 2004, lenders originated a record 37,829 HECM loans during the most recent federal fiscal year – a 109 percent increase over the 18,079 loans closed the previous year.
Why Would a Mortgage Lender Want to do This?
While an act of kindness started this idea, mortgage lenders are not charitable organizations, like any business they seek a return on their investments. When considering Delaware Reverse Mortgages, they calculate the amount they lend based on the value of your home, projected appreciation, your age and a number of other factors. They expect to get paid the money they have lent plus the interest when the homeowner moves or dies.
What are HECM Loans?
Federally-insured home equity conversion mortgage (HECM) is the most common of reverse mortgage loans that the U.S. Department of Housing and Urban Development started offering in 1989. The HECM reverse mortgage is a FHA loan and must meet the requirements of FHA such as a FHA appraisal must be done on the property. If repairs are required by the FHA appraiser then those repairs are required to be down.
Who Cares About Federal Insurance?
With traditional loans, when you borrow the money, you have the cash in hand, and the lender has taken all the risk secured by your home. In a reverse mortgage, you plan to receive a monthly payment over a period of time. What will happen if the lender is no longer around to pay you?
This is why the federally insured reverse mortgage adds another dimension of safety and peace of mind, though it comes with a price tag. HECMs limits the maximum loan amount a homeowner can borrow to the FHA loan limit for the county that the property is located.
What about Non-HECM?
Many lending institutions offer this category of reverse mortgages, and their limits are usually higher than that of HEMD. However, they are not federally insured and there is a higher expense associated with their processing.
Can Anyone Qualify for Delaware Reverse Mortgages?
Like any other loan, there are requirements. The eligibility requirements for a reverse mortgage are:
- You must be a homeowner and the property must be your primary residence.
- You are 62 years of age or older
- You own your home outright or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan or you can use the reverse mortgage to purchase a new home.
- You live in the home currently and will live in it until you pass away or until you pay off the reverse mortgage or till you sell the property.
- In case of HUD, you are also required to receive consumer information from HUD-approved counseling sources prior to obtaining the loan. You can contact the Housing Counseling Clearinghouse on 1-800-569-4287 to obtain the name and telephone number of a HUD-approved counseling agency and a list of FHA approved lenders within your area.
- Upkeep of property taxes and staying out of bankruptcy are also required.
- Must maintain adequate home owners insurance on the property.
How Much Money can I Borrow?
The amount of money you can borrow is based on a different set of formulas than the traditional mortgage qualifications. Your age, the value of your home, the current interest rates, and the loan costs impact the maximum amount that you can borrower. Older individuals with more valuable homes in lower interest rate environment can expect to borrow more than younger individuals.
What Types of Homes are Eligible for Delaware Reverse Mortgages?
The homes that are eligible for reverse mortgages are:
- Single family
- Two-to-four unit properties
- Detached homes
- Units in condominiums
- Some Manufactured Homes
Various restrictions apply to all home types with the most significant being that you own them, live in them and have kept them in reasonable condition.
What About my Heirs?
If death occurs while you still owe money to the lender, your heirs are obligated to pay the borrowed amount, plus interest and other fees. Typically, they do this by selling the house or refinancing to pay off the reverse mortgage. Whatever remains after paying the lender belongs to your heirs. The loan cannot be passed along. The loan is a non-recourse mortgage loan which means if when you pass away the outstanding balance on the reverse mortgage loan is more than the house is worth, your heirs can simply sign the house over to the lender, they are not responsible to pay off the balance of the loan.
What are my Borrowing Options?
You have five options:
- Tenure – equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
- Term – equal monthly payments for a fixed period of months selected.
- Line of Credit – unscheduled payments or in installments, at times and in amounts of borrower’s choosing until the line of credit is exhausted.
- Modified Tenure – combination of line of credit with monthly payments for as long as the borrower remains in the home.
- Modified Term – combination of line of credit with monthly payments for a fixed period of months selected by the borrower.
What about Reverse Mortgage Scams?
A large worry for lenders and retirees alike is Revere Mortgages scams. Like most other scams directed to senior citizens, telemarketing is on top of the list. Never agree to anything over the phone, especially on the first call. Do not give personal information, financial or otherwise, over the phone.
A good thing to remember is that there is never a cost associated with getting information on reverse mortgages. This information is available for free. Ask for a written copy of everything discussed – this should include an address and a phone number so that you can confirm the data.
Ready to learn more about Delaware Reverse Mortgages? Speak to a Delaware Reverse Mortgage Loan Specialist on the John Thomas Team today by calling 302-703-0727 or APPLY ONLINE