Reverse Mortgage in California - Everything You Need To Know

The state of California has witnessed a surge in reverse mortgage loans in recent years. Since the market is flourishing there is no shortage of lenders offering a variety of loans. But incidents have been noted where elders were scammed out of their money so before working with any lender make sure that none of their staff is breaking any laws. First of all let’s see what is reverse mortgage?

 Definition

It is a kind of loan where the lender pays you regular installments from your loan amount against the equity of your house. As the time progresses the lender’s share in your home equity grows and the loan amount decreases. In this type of loan borrower doesn’t have to pay installments to the lender for as long as you live in your home. You can either move selling your property to repay the loan or after your death your spouse or heirs can either sell the house or repay the loan and keep the property.

Features

The mandatory eligibility condition for any type of reverse mortgage California or anywhere else in the country for that matter is that the applicant should be at least 62 years old. It is only natural that the older is applicant; higher will be his / her equity in the property. According to new rules the lender, must make applicants spouse a borrower even if he / she is under the age of 62 at the time of application. This rule will allow elders to live in the same property in case of their partner’s sudden death. The modified rules also state that homeowners won't be able to cash out all of their allowable equity as soon as they get the reverse mortgage. The FHA will limit the disbursements in the first year to no more than 60 percent of whatever the homeowner is allowed to borrow.

Reverse Mortgage Interest Rates  

Interest rates on these loans may vary from state to state and city to city. For example interest rates on reverse mortgage Los Angeles are slightly higher than anywhere else in the state of California. Borrowers can choose from either fixed or variable reverse mortgage interest rates. Fixed rates are approximately 4% - 5% however variable rates can be slightly lower. Interest on reverse mortgages is not deductible on income tax returns – until the loan is paid off, either partially or in full.

Types of  reverse mortgage loans

There are mainly two types of loans, offered by government agencies or nonprofit organizations and loans offered by private lenders. Private lenders offer proprietary reverse mortgages only with conditions based on assessment of each individual application. There are two types of government backed loans, single purpose loans and HECMs. Single purpose loans are offered by some state and local government agencies, as well as non-profit organizations, but they’re not available everywhere.

The HECMs (Home Equity Conversion Mortgages) are very popular and most widely available reverse mortgages California as well as the entire nation. These are backed by U. S. Department of Housing and Urban Development (HUD) and can be used for any purpose. The amount of how much any homeowner can borrow depends on several factors including applicant’s age, appraisal value of property in question and a financial assessment of your willingness and ability to pay property taxes and homeowner’s insurance etc. Your current income is not considered while processing any type of HECMs but you shouldn’t be at fault on paying your property taxes, flood and homeowner’s insurance etc.

Choosing a Lender

The federal law clearly states that only licensed and certified lenders are eligible to disburse reverse mortgages. Secondly the lender must provide applicant with a list of third party counselors prior to the application process. The counselors or the nonprofit counseling organizations should not have any relationship with the lenders whatsoever i.e. they should not solicit any product or service offered by respective lender. You must take care to work with a certified and licensed lender following good practices and avoid being scammed.

In conclusion

The bottom-line is you must approach the any reverse mortgage scheme with caution, even though you will benefit from it. There are many nonprofit counseling organizations providing free counseling and guidance to senior citizens applying for HECMs.