Today I'm joined by reverse mortgage authority Andrew Scammon to help me discuss the pros and cons of this loan product.
Looking to sell a home in Southern California?
Looking to buy a home in Southern California?
Reverse mortgages have both pros and cons to them. Today, I'm joined by Andrew Scammon of Alpine Mortgage Planning to help me explain.
A reverse mortgage is a product that first came around in the 1960s by insurance people which allowed people to borrow money to purchase annuities, and the FHA first got involved with them in 1989. Reverse mortgages are designed to allow someone to use the equity in their house to fund the everyday necessities of life.
The minimum age for a reverse mortgage is 62, but there have been changes to legislation that allows a co-borrower under age 62. There's no maximum age limit, but another condition is that the property must be one that the FHA is allowed to lend on. As long as it's a safe and healthy environment for the borrower, the FHA will allow them to lend on it, Andrew says.
The process of selling your house is one of the key changes we've seen with reverse mortgages since they were first invented.
The FHA writes the regulations that let us place a reverse mortgage on a property, and it used to be that the bank actually went on the title. If the owner couldn't sell the property, they didn't have that option. However, reverse mortgages now allow the owner to sell the property, and from a legal standpoint, it's exactly the same as a traditional mortgage—it's just a lien against the property that is paid off when the property is sold.
The FHA will lend on any property they deem healthy and safe.
However, with a reverse mortgage, the balance will be more than they started with, so the house can end up being upside down (you owe more than the value of the house). Neither the client, their heirs, or the estate can be held liable for that overage, though. Even if the owner owes more than the property is worth, the property is the only payback.
If the owner passes away, Andrew says that from a legal standpoint, the heirs can sell the property just like they would with a traditional mortgage and pay off the balance. The remaining equity of the home goes to the heirs after the sale expenses have been taken out. One of the key differences between a reverse mortgage and a traditional mortgage is the time frame.
A traditional mortgage becomes due as soon someone passes away, but with a reverse mortgage, if someone wants to keep the property, they have 120 days to refinance it. If they want to sell it, they have six months, which is hopefully enough time to prepare the property for sale, Andrew says.
If you have other questions for Andrew about reverse mortgages, you can call him at 562-743-0111 or email him at SoCalReverse@gmail.com.
As always, if you have any questions about the market here in Southern California or you're thinking about buying or selling a home, give me a call or send me an email. I'd be happy to help however I can.
