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czarina
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quote:
Originally posted by wtg:
This seems noteworthy:

quote:
Origination fees on regular and "reverse to purchase" HECMs are a killer. Unlike a conventional loan where the fee is based on the loan amount only, HUD permits an origination fee on a HECM up to 4% of the FMV of the real estate.

It pays to shop HECMs for the fees.


https://www.bogleheads.org/for...ewtopic.php?t=252635


yes. but it is cheaper to do the reverse to purchase than to pay the fees for a conventional purchase and then do a reverse mortgage later. so if you are going to end up doing a reverse later, it makes more sense to do it when you buy.


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fear is the thief of dreams

 
Posts: 21372 | Registered: 18 May 2005Reply With QuoteReport This Post
czarina
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quote:
Originally posted by Steve Miller:
“After the housing crash, the federal government moved to shore up big banks and increase their capital requirements, but those changes don't apply to the non-bank portion of the mortgage market where most reverse mortgages are held. Mortgages of all types may be riskier than we realize.”

Sounds to me like if the loan company goes broke, and the payments stop, there is nothing you can do about it. If so, that risk would be unacceptable to me.

Or does the FHA cover you at that point? Confused

Ten risks of a reverse mortgage


Those cautions primarily apply to someone who is getting a reverse mortgage for the purpose of getting an annuity-like payment or line of credit.

When a reverse mortgage is used to buy a property, the benefit is that you have no mortgage payment. You pay taxes, insurance, and maintenance, and you certainly wouldn't want to buy in a location or buy a house that is likely to demand more in those three things than you can afford. You aren't dependent on getting payments from the lender. You won't ever have a mortgage payment.

Meanwhile, most likely the property is appreciating at the same time that your initial equity--your down payment--is eroding.

You would have to have a plan in place for what you will do if you end up needing to move for some reason. But this is true even if you don't have a reverse mortgage. People without reverse mortgages also go bankrupt because of death of a spouse or exhorbitant medical expenses.

In our case, we worked with a financial planner to explore different late=old-age scenarios. We will be fine if one of us needs long-term care. If we both end up needing it, we are screwed regardless. Sometimes you just can't cover every eventuality.

Our intention is to find a property that would allow us to age in place with a caregiver having a place to live on the premises. Is that going to work out for sure?

Nothing is for sure.

There are some communities that have organizations that provide in-home care for elderly who dont have family to help.

In what scenarios we would have to sell before we want to, and what the consequences of that would be is something we are going to look at very closely.


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fear is the thief of dreams

 
Posts: 21372 | Registered: 18 May 2005Reply With QuoteReport This Post
czarina
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http://www.theretirementcafe.c...r-using-reverse.html

This is the second article I read about using a reverse to purchase. I think it lays things out pretty clearly.


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fear is the thief of dreams

 
Posts: 21372 | Registered: 18 May 2005Reply With QuoteReport This Post
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The other issue, I assume, is that you still have to pay the taxes. And the taxes on a more expensive house will be higher.

We are wrestling with that question now …. how much can we spend on a house without having a tax payment that we view as beyond our budget.
 
Posts: 45778 | Registered: 20 April 2005Reply With QuoteReport This Post
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quote:
Sounds to me like if the loan company goes broke, and the payments stop, there is nothing you can do about it.


Re this point… with a regular mortgage, after you buy your house, often the mortgage is sold and you end up with a different mortgage servicer than the bank that you contracted your mortgage with. And generally, you have. No control over what bank it ends up being.

Would it be the same with the reverse mortgage? That would make me very nervous.

Separate from all that, so, a reverse mortgage works bc houses are assumed to appreciate, and you start the investment by buying the house, and then you essentially give that investment to the bank in return for never having to pay any monthly mortgage or rent payments? Is that right?


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Posts: 18616 | Location: not in Japan any more | Registered: 20 April 2005Reply With QuoteReport This Post
czarina
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quote:
Originally posted by QuirtEvans:
The other issue, I assume, is that you still have to pay the taxes. And the taxes on a more expensive house will be higher.

We are wrestling with that question now …. how much can we spend on a house without having a tax payment that we view as beyond our budget.


absolutely true. we walked away from more than one desireable property that we could afford the price of because of the tax burden.

one thing i intend to look into is if, now that mr pique is retired and our income is lower, if we would qualify for property tax relief.

I think it is very worthwhile to look at typical property taxes in various markets. For example, housing prices in western New York state are comparatively cheap, but the property taxes are more than double, compared to where we are. OTOH, do you get commensurate community services from those taxes? That has to be factored into the equation.

Property taxes in New Mexico are extremely low, and house prices are lower than where we are, but how are services? It's a whole picture you want to be looking at.

In western Massachusetts, property taxes are very low in some communities, and very high in others. But do the communities with low property taxes still get the public services the high tax communities get?


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fear is the thief of dreams

 
Posts: 21372 | Registered: 18 May 2005Reply With QuoteReport This Post
czarina
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quote:
Originally posted by ShiroKuro:
quote:
Sounds to me like if the loan company goes broke, and the payments stop, there is nothing you can do about it.


Re this point… with a regular mortgage, after you buy your house, often the mortgage is sold and you end up with a different mortgage servicer than the bank that you contracted your mortgage with. And generally, you have. No control over what bank it ends up being.

Would it be the same with the reverse mortgage? That would make me very nervous.

Separate from all that, so, a reverse mortgage works bc houses are assumed to appreciate, and you start the investment by buying the house, and then you essentially give that investment to the bank in return for never having to pay any monthly mortgage or rent payments? Is that right?


again, if the purpose of the reverse mortgage is to take the equity out of your home without having to sell/move, i fail to see why it matters if another financial institution buys your mortgage. they would be bound by the same terms as the original lender.

if the purpose of the reverse mortgage is to buy a new home with it, one huge benefit for a retired person is that lenders often will not give a forward mortgage to a retiree, no matter how big a down payment. this is something the lender who pre=approved us warned us about years ago, and one of the reasons we have been trying to buy before mr. pique's retirement.

our fallback plan has been to pay all cash, and not take a mortgage. but now, with prices so very high, that would require putting more than half our assets into a new house. Not acceptable.

A reverse mortgage to purchase is designed for people in our circumstances.

As to your second point--a house is not an investment. It is a place to live. The house remains yours. Any appreciation on the house that isn't needed to service the loan is also yours.


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Posts: 21372 | Registered: 18 May 2005Reply With QuoteReport This Post
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I have the same question that I think Steve and SK have.

1) You are receiving reverse mortgage payments from Entity X.

2) They go belly up.

3) What are the mechanics if that happens? Does anyone guarantee that the payments to you continue? Is the reverse mortgage dissolved in some way?

Steve mentioned FHA intervention as one possibility.


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We are all visitors to this time, this place. We are just passing through. Our purpose here is to observe, to learn, to grow, to love… and then we return home. - Australian Aboriginal proverb

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Posts: 38024 | Location: Somewhere in the middle | Registered: 19 January 2010Reply With QuoteReport This Post
czarina
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quote:
Originally posted by wtg:
I have the same question that I think Steve and SK have.

1) You are receiving reverse mortgage payments from Entity X.

2) They go belly up.

3) What are the mechanics if that happens? Does anyone guarantee that the payments to you continue? Is the reverse mortgage dissolved in some way?

Steve mentioned FHA intervention as one possibility.


A good question to ask the lender before signing on to a reverse mortgage. But do you worry about what will happen if your current lender goes belly up? I would think the risks are the same.


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fear is the thief of dreams

 
Posts: 21372 | Registered: 18 May 2005Reply With QuoteReport This Post
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In a regular mortgage, you have a loan that you are paying back.

In a reverse mortgage, the money is flowing from them to you.

It seems like there are different risks involved.

I'm not sure the lender is the entity that should answer the question. From what I was reading, the FHA might be the place to start.


--------------------------------
We are all visitors to this time, this place. We are just passing through. Our purpose here is to observe, to learn, to grow, to love… and then we return home. - Australian Aboriginal proverb

Bazootiehead-in-training



 
Posts: 38024 | Location: Somewhere in the middle | Registered: 19 January 2010Reply With QuoteReport This Post
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Steve is probably right about FHA being the guarantor.

This article is from 2012, but I'm not sure this would have changed.

quote:
Virtually all of the reverse mortgages written today are insured by FHA under the Home Equity Conversion Mortgage (HECM) program authorized by Congress in 1988. FHA insures the lender against loss in the event the loan balance at termination exceeds the value of the property. It also insures the borrower that any payments due from the lender will be made, even if the lender fails.


https://www.mtgprofessor.com/A...rse%20Mortgages.html


--------------------------------
We are all visitors to this time, this place. We are just passing through. Our purpose here is to observe, to learn, to grow, to love… and then we return home. - Australian Aboriginal proverb

Bazootiehead-in-training



 
Posts: 38024 | Location: Somewhere in the middle | Registered: 19 January 2010Reply With QuoteReport This Post
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quote:
Originally posted by wtg:
In a regular mortgage, you have a loan that you are paying back.

In a reverse mortgage, the money is flowing from them to you.

It seems like there are different risks involved.

I'm not sure the lender is the entity that should answer the question. From what I was reading, the FHA might be the place to start.


Your question is the right one. I haven't read anything about reverse mortgages, but it's at least conceivable that, if the reverse mortgage company stops making payments to you, you get the house back, free of liens.

The other question that comes to mind is who is responsible for maintenance and repairs, and what happens if you get in a dispute with (as an example) a plumber and they slap a lien on the place.
 
Posts: 45778 | Registered: 20 April 2005Reply With QuoteReport This Post
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Pique, if I’m reading you right the sort of reverse mortgage you are talking about is one where you use a reverse mortgage to purchase the new property and the lender uses your equity to essentially make loan payments to themselves. You don’t receive payments directly.

Do I have this right?


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Posts: 35011 | Location: Hooterville, OH | Registered: 23 April 2005Reply With QuoteReport This Post
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quote:
do you get commensurate community services from those taxes?


Indeed! My mother lived in Buffalo for many years, and based on her experience, I would say yes, you get those taxes back in various services. But not every where is like NY...

Pique, re this
quote:
if the purpose of the reverse mortgage is to take the equity out of your home without having to sell/move, i fail to see why it matters if another financial institution buys your mortgage. they would be bound by the same terms as the original lender.


I guess I don't know what the terms are, and that seems to me to be the most important point... It seems to me that with a reverse mortgage, the bank truly owns your house, to a greater degree than with a regular mortgage... With a regular mortgage, the bank owns your house, minus however much equity you have in it. And as you pay on the house, more and more of it becomes yours and less and less of it becomes the bank's. With a reverse mortgage, it's never yours. Or is it??

Re Pique's comment in response to WTG
quote:
But do you worry about what will happen if your current lender goes belly up? I would think the risks are the same.

Again, with a regular mortgage, your equity in the house is increasing the entire time you're paying on it, plus appreciation. So the mortgage owner/servicing bank going belly up has a different impact. Or at least that's how I'm thinking of it.

...

re this:

quote:
As to your second point--a house is not an investment. It is a place to live.


I meant, this is how banks treat houses. A house is not a place to live from the bank's point of view. The bank is not concerned with the people and any living they do in the house. The way foreclosures are carried underscores just how true this is.


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My piano recordings at Box.Net: https://app.box.com/s/j4rgyhn72uvluemg1m6u

 
Posts: 18616 | Location: not in Japan any more | Registered: 20 April 2005Reply With QuoteReport This Post
(self-titled) semi-posting lurker
Minor Deity
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posted Hide Post
quote:
Originally posted by Steve Miller:
Pique, if I’m reading you right the sort of reverse mortgage you are talking about is one where you use a reverse mortgage to purchase the new property and the lender uses your equity to essentially make loan payments to themselves. You don’t receive payments directly.

Do I have this right?


This is a super good point/summary, and now that you write this, I guess that's my understanding as well.... But I'm pretty sure I've heard of reverse mortgages that also include payments to the tenants... ?


--------------------------------
My piano recordings at Box.Net: https://app.box.com/s/j4rgyhn72uvluemg1m6u

 
Posts: 18616 | Location: not in Japan any more | Registered: 20 April 2005Reply With QuoteReport This Post
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