Category Archives: Senior Resources

Senior Homeowners Benefit from Reverse Mortgages

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Senior Homeowners Benefit From Reverse MortgagesAre you looking for some funds to supplement your retirement?  Do you need to modify your home to meet your needs?  Are you looking for a way to pay for the home health care you need now or may need in the future?  Do you have a mortgage and find making the payments is a struggle?  Or maybe you want to continue making your trip south during the winter but funds are short to do so.  Are you considering downsizing to move closer to family or want to have a home more suitable to your current lifestyle?

A Home Equity Conversion Mortgage (HECM)  reverse mortgage may be your answer.  A reverse mortgage is a home equity loan with special terms for senior homeowners 62 and older.  Similar to a conventional loan, you continue to own the home.

With the flexibility of making payments toward the loan balance, or NOT making a mortgage payment at all, the HECM reverse mortgage could provide the cash for your immediate needs or future needs. (Borrowers are still responsible for paying property taxes, hazard insurance and maintenance of the home.)

It also offers more flexibility on how you can receive the funds including monthly payments, line of credit, lump sum or a combination of these versus a lump sum with a conventional mortgage.

An additional benefit is funds left in the line of credit grow so more funds become available over time…a great advantage over a HELOC and a great tool for long-term care planning.

There are no limitations on how you spend the funds.  Look at ways the reverse mortgage benefited some seniors:

Eliminate Mortgage Payments, Home Upgrades and Line of Credit:  Dee and Peter did a reverse mortgage to eliminate their current mortgage payment, take a lump sum for some home upgrades, receive an extra $300 a month in monthly payments to supplement their Social Security, and still have funds in a line of credit for future use.

Maintain Lifestyle:  Helen and Harold did a reverse mortgage to afford to take their annual trip to Florida during the winter months.  They are thankful they are able to maintain their lifestyle.

Don't Rely on ChildrenNot Rely on Children:  Nancy had accrued some debt including some credit cards and borrowing from her children.  She did a reverse mortgage to pay off those debts and to have a line of credit available for her future needs.   She also enjoyed having some extra cash to purchase some things to fix up her home and to go to lunch with friends on occasion.  Because her children had their own expenses and needs, they were relieved that their mother had done the reverse mortgage and could live more comfortably without relying on them.

Protect Other Investments:  To have extra spending money without having to cash out their CDs or other investments, Jerry and Carol decided to do a reverse mortgage.  Providing them more freedom and control of their life during retirement.

Line of Credit for future needs:  Janice did the reverse mortgage just for the purpose of having a line of credit to draw on in the future when needs arise.  Because the funds in the line of credit grow more funds become available in the future.  With the line of credit available to her when she needs car repairs, or even a new car, or to cover medical expenses or long term care needs she will have funds in her line of credit to cover these needs.

Purchase a New Home:  Mike and Carol wanted to purchase a new home that fit their needs of a one-level so they used the reverse mortgage rather than a conventional mortgage to finance their new home.  This meant they didn’t have monthly mortgage payments to make and provides them a better cash flow during their retirement years.

The loan becomes due and payable when the home is no longer the primary residence of the borrowers or on their 150th birthday.  Another difference and benefit of the reverse mortgage over a traditional mortgage is that the reverse mortgages are non-recourse loans.  This means there is no personal liability if the loan balance is higher than what the home can be sold, it is paid only from the fair market value of the home.  If the home is sold for more than the loan balance then the borrower(s) or their heirs keep the difference.

As with any mortgage loan there are closing costs.  The closing costs of the reverse mortgage are comparable to a conventional mortgage.  They include the origination fee, appraisal, title and settlement and recording fees.  With the FHA HECM reverse mortgage HUD’s regulations state that only the actual cost may be charged to the borrower, they do not allow mark ups such as processing fees.

As a FHA loan the fees include the FHA Mortgage Insurance Premium – this would be the same if they are doing a Forward FHA loan.  When comparing closing costs side by side to a conventional loan the difference is the up-front FHA Mortgage Insurance Premium.  The benefits of FHA insuring the loan include guaranteed funds, a lower interest and the loan being non-recourse as well as regulating the fees.  “Surprise! Reverse Mortgage Closing Costs Actually Compare to Conventional Mortgage Costs” provides a side-by-side comparison.

When considering whether to do a conventional mortgage, a HELOC or a reverse mortgage you must consider if you can even qualify for a conventional mortgage or HELOC; then if you or your spouse can make the payments over time.  For example, what happens if “life happens,” could you continue making those payments?  Would you be stressed trying to pay living expenses, medical bills, or would you be facing foreclosure? Or could you qualify for the reverse mortgage and have enough funds to pay off your current mortgage?

Will the reverse mortgage be the answer to your financial retirement needs?  Explore the option, get the facts, know what to look for in an originator. You might find it will benefit you as it has benefited hundreds of thousands of other seniors.

Meet Reverse Mortgage Originator in personFor further details on the reverse mortgage contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.

When you decide to do a reverse mortgage make sure you work with a local originator or loan officer who specializes in reverse mortgages, has years of experience and knowledge in reverse mortgages in your state, preferably holds the Certified Reverse mortgage Professional (CRMP) designation, licensed in your state, is a broker, working with various lenders, and is willing to meet with you to review the details, before the application, during the application and at closing.

I would caution about working with an originator from another state who is mailing all the documentation, including the application and not “meeting” with you to explain and review what you are signing. (The lenders in another state may send a notary for application and/or closing – they are not licensed mortgage brokers so can NOT answer questions, they are there only to verify your signature.)  Ask for references and find out if the loan originator will be there for you even after the loan has closed.  If you feel pressured, call another originator.  You can find a list of questions to ask an originator at our webite:  www.RMSIDAC.com.

To ensure that borrowers understand reverse mortgages HUD requires anyone doing a reverse mortgage to complete counseling through a third-party.  They will review the program and discuss other options that may be available.

© 2017 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link: http://wp.me/p4EUZQ-1rv

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Choosing between A HELOC and A HECM Reverse Mortgage

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Choosing between HELOC and HECMPeople often look at Home Equity Lines of Credit (HELOC) to give them extra cash.  These can be a good option.  However, for those 62 and older, a Home Equity Conversion Mortgage (HECM) Line of Credit may be more advantageous.  Let’s compare the two.

 

Home Equity Line of Credit (HELOC) Home Equity Conversion Mortgage (HECM) Reverse Mortgage Line of Credit
Borrow against equity in home Yes Yes
Uses of funds There may be stipulations that funds can only be used for certain things, i.e. remodel, adding an addition. No restrictions.
Draw Period, time during which you can access funds/Repayment Period, time when you make payments to repay the loan Draw Period is usually 5 to 10 years; when draw period ends you can no longer access funds.

 

 

 

Repayment period is usually 10 or 20 year terms; Some may require a payment of the full balance at one time at the end of the draw period.

 Longer term: Draw period is as long as the home is your primary residence and you abide by the terms of the loan and there are funds available in your line of credit.

 

Repayment is due when the home is no longer the primary residence, usually when borrower dies, sells or moves.  Due date on mortgage document is 150th birthday of youngest borrower.
Payment Requirement Yes – requires a minimum monthly payment of interest during Draw Period; eventually increasing to include principal to pay entire loan balance during Repayment Period. No – Offers flexible option; No monthly mortgage payment required but can choose to pay as little or as much as you want or NOT at all.
Responsible for Property Taxes, Insurance, maintaining property; paying HOA dues if applicable Yes Yes
Interest Rates Most are Adjustable Rate; as interest rate rises payments will also rise.

 

 

Generally no cap on the size of the adjustments.  Lifetime caps may be available for a shorter term HELOC.  May vary by State law.

 Adjustable Rate.  Interest added to loan balance, only impacting loan balance at end.  (See Non-recourse Loan.)

 

Adjustable Rate Options have a lifetime cap on the rate; for the monthly adjustable rate it is10 points and for the annual rate it is 5 points over the initial rate at the time of closing.

Fixed rate option is available but does not offer Line of Credit option, all available funds must be drawn at closing.
Called due or Freezing Funds Banks can call the loan due or freeze funds not yet used or cut the Line of Credit if they find adverse information about the borrower’s credit or as the market changes as was done when home values declined. Line of Credit cannot be frozen as long as you meet terms of the loan.  Because FHA insures the loan it’s guaranteed to be there for you during term of the loan.
Line of Credit Growth Rate No Unused Line of Credit grows so more funds become available in future with Adjustable Rate Option.
Re-borrow LOC Funds Yes Yes; If loan payment(s) made, reduces loan balance and funds can be re-borrowed in future with Adjustable Rate option.  Line of Credit is not available with the Fixed Rate Option so funds cannot be re-borrowed.
Non-recourse Loan – The loan can only be repaid with the value of the home. There is no personal liability to repay the loan from the borrower or their heirs. No Yes
Qualifying Lenders look at income, credit worthiness including credit scores, and ability to make HELCO payments.  Regulatory requirements and restrictions may prevent some seniors qualifying. 62 and older, meet Financial Assessment requirements demonstrating their ability and willingness to pay property taxes and insurance into the future.  In some circumstances a Life Expectancy Set Aside may be required to cover the property taxes and insurance.
Planning for future Short term loans limit use in future when one might need long-term care. Longer term loan offers options for planning and potentially having funds for long-term care needs in the future.

If you are looking for funds for a short period of time, you can afford to make payments and you qualify, a HELOC may be the best option for your situation.*

Happy they decided on HECM Reverse Mortgage over HELCO

For those 62 and older, generally the HECM is more advantageous over a HELOC. 

With the flexibility of making payments toward the loan balance, or NOT making a mortgage payment at all, the HECM reverse mortgage line of credit could be part of your plan for when life changes.
(Borrowers are still responsible for paying property taxes, hazard insurance and maintenance of the home.)

The HECM Line of Credit funds, which have a growth rate on unused funds, can provide some safeguards if one’s situation changes such as loss of job, Social Security or pension reduced because of the loss of a spouse, or changed or reduced of financial assets.  Or if “life happens” with funds in a HECM line of credit you could cover your long-term care needs.

Additionally one can change their payment plan option to receive tenure or term monthly payments; this can benefit them as their needs change.

*If you do a HELOC then later decide to do a HECM, there is a 12 month seasoning requirement, have to wait 12 months, after taking out the HELOC and drawing $500 or more.  Doing the HECM initially may make more sense.

For further details on the reverse mortgage contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.  For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

© 2017 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-1qE

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Refinancing A Reverse Mortgage – Should you?

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Receiving Letters to Refinance Reverse MortgageCurrent reverse mortgage borrowers are receiving letters encouraging them to refinance.  While refinancing a reverse mortgage is an option, let’s explore whether it should be considered.

Just like refinancing a conventional, or what we call a forward, mortgage, borrowers consider refinancing a reverse mortgage when they need more money.  But just like a forward mortgage, one needs to make sure they are going to receive a benefit when they refinance.  And just like a forward mortgage, when refinancing the closing costs are part of the transaction.

When I receive the calls from my borrowers who have received the letters or encouragement on their statements I start with these questions:

  • How long ago did you take out your reverse mortgage?
  • What was the value of your home at that time?
  • What is the value of your home now?
  • What is your current loan balance on your reverse mortgage?
  • Are you receiving monthly payments?
  • Do you have funds in a Line of Credit?
  • Why would you want to refinancing?

These questions are pertinent in helping one decide if it makes sense to consider refinancing.

Keep in mind the factors used to determine the amount a senior can receive from their reverse mortgage include:  the interest rate of the program chosen, the age of the borrower (the older one is the more funds one can receive), and the home value based on an FHA appraisal or the FHA Lending Limit.

The first three questions are important in determining if you will be able receive more money when refinancing.  As one aged during the time home vales were increasing refinancing made more sense because borrowers were more likely to be able to receive additional funds.

As you know, during the housing crash home values decreased.  Now while home values have started to increase, we often find that the borrowers will still not receive additional funds from refinancing their reverse mortgage. (However some states the values have increased faster and higher than others.  In MN, while increasing, the values have not increased enough to warrant refinancing in many situations.)

If, however, the initial reverse mortgage was taken when there was a lower lending limit, i.e. $251,750 and the current home value is, say $400,000, then refinancing may be considered.

For many years the FHA Lending Limit was based on the county in which one lived.  In 2008 the Lending Limit was changed to a national limit of $417,000.  In 2009 and through the end of 2016, the national limit was $625,500.  January 1st through December 31, 2017 the FHA Lending Limit for reverse mortgages has been increased to $636,150.

Is refinancing a good idea just because the Lending Limit has increased?  Not necessarily, especially if one’s home value isn’t in the higher valued range.

The current loan balance is important because when refinancing the reverse mortgage, the current reverse mortgage needs to be repaid.  If there aren’t enough proceeds to pay off the current mortgage and to receive additional money then refinancing doesn’t make sense.

The next two questions, whether they are receiving monthly payments or have funds in a line of credit, are important because most likely it doesn’t make sense to refinance a reverse mortgage if they still have funds available to them that will last them for a few more years.

With a forward mortgage sometimes refinancing is done to reduce the interest rate.  With the reverse mortgage generally it doesn’t make sense to refinance for the interest rate.  Remember one isn’t making payments with a reverse mortgage so the interest rate doesn’t impact their monthly cash flow, it only impacts the amount that will be repaid when the loan becomes due and payable.

It is important to note that the reverse mortgage is non-recourse which means there is no personal liability to the borrower or their heirs if the loan balance is higher than what the home can be sold for.

The funds available to borrowers are determined by the age of the youngest borrower, the Expected Interest Rate and the program chosen.  If the Expected Interest Rate is higher, less funds will be available.

Until 2008 all reverse mortgages were adjustable rate mortgages.  Don’t panic, this isn’t a bad thing with a reverse mortgage.  With the adjustable rate reverse mortgage there is more flexibility by having the option of a line of credit, monthly payments, a lump sum or a combination of these.

The adjustable interest rate is made up of an index and a margin.  The index is based on the LIBOR and the margin is determined by the lender.  HUD set a floor at 5.06% which means the funds available will be the same if the interest is at 5.06 or below.   Currently the interest rates are remaining low, below the floor so one generally will not receive more funds if they were to refinance.

In 2008 a fixed rate option was introduced.  With the fixed rate one has to draw all funds as a lump sum; the line of credit and monthly payment options are not available.  One is not going to gain a benefit of more funds available by refinancing for a lower interest rate.  However we have had some who refinance from a fixed rate to an adjustable rate to receive the flexibility the adjustable rate option offers, especially if one chooses to make payments on their reverse mortgage.

When refinancing one will still have closing costs so you have to consider if refinancing will offset off set a lower interest rate and/or funds one is receiving.

The Streamline Refinance of the FHA Housing and Urban Development (HUD) Home Equity Conversion Mortgage or HECM reverse mortgage requires a calculation demonstrating borrowers receive at least 5% more or they must go through the counseling session to review their situation.  Some lenders require the counseling for any borrower refinancing their reverse mortgage.  This is a strong protection to help borrowers from falling for a lender’s marketing letters and thinking refinancing may be a good idea when it really isn’t.  Unfortunately it can cost seniors to find out this information as counselors are allowed to charge, generally $125 for the counseling session.

The National Reverse Mortgage Lenders Association (NRMLA) ethics committee set a guideline that reverse mortgage borrowers who want to refinance must wait a minimum of 18 months along with the “closing cost test” and “loan proceeds test.”

The last question or why you are considering is important in the decision to refinance because there could be valid reasons to refinance that benefit you.  Some include a title change, i.e. adding a younger spouse to title when they turn 62, taking on a new spouse are a couple reasons.  Reverse Mortgage Borrower Contemplating Options

While options should always be considered, after reviewing the above questions and your answers, at this time refinancing generally doesn’t make sense for the majority of reverse mortgage borrowers.  Hopefully seniors don’t get sucked in with marketing letters & statements by completing an application so that the lender can just take an application when refinancing doesn’t make sense for them.

For further details on the reverse mortgage contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.  For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

© 2017 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link: http://wp.me/p4EUZQ-1q4

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Believe It Or Not, Reverse Mortgages Are NOT A Scam!

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Comments under factual articles in the media, “warnings” to those interested in exploring a reverse mortgage, and even research says people are afraid of reverse mortgages because they think they are a scam.

Attention, Reverse Mortgages are NOT ScamMost people have, or had, a conventional mortgage using them to purchase their home or have refinanced their original purchase mortgage…these aren’t considered a scam.  So why are reverse mortgages considered a scam?

A reverse mortgage is a loan to a homeowner using the home as collateral or security where the lender puts a lien against the property, just like conventional mortgage, but with special terms for those 62 and older.

The Home Equity Conversion Mortgage or HECM, the most common reverse mortgage, is insured by FHA for the purpose of providing a valuable financing alternative for senior homeowners to help them remain in their home and have access to funds by withdrawing a portion of their home equity.

Whether a conventional mortgage or a reverse mortgage, borrowers are responsible on how they use the funds from their loan.  If not used wisely, with a conventional mortgage the borrower is said to be irresponsible; with a reverse mortgage it is said the lender took advantage of the borrower and it’s a scam.  Why?  It is the borrower who is making the choices.

Let’s compare the two.

Reverse Mortgage Conventional Mortgage
Loan Collateral It is a loan using the home as collateral. It is a loan using the home as collateral.
Title/Ownership The title stays in the borrower’s name, they remain the homeowner. The title stays in the borrower’s name, they remain the homeowner.
Interest Rate

 

 Income or credit scores don’t affect the interest rate.

 

 Interest rate can be impacted by one’s income and credit score.  Limited income and poor credit means a higher interest rate.
Qualifying

 

 

 

 

 

 

 

 One homeowner needs to be 62 or over.  Income and credit history are used to for qualifying; to determine if borrowers meet HUD’s Financial Assessment requirements. If one has a history of late payments on debt and a low residual income, a Life Expectancy Set Aside may be necessary.  Under some circumstances they may not qualify.  These requirements are lower and less strict than a traditional loan. Income and credit history and scores are used to for qualifying; low income and/or a poor credit may mean one doesn’t qualify for the conventional mortgage.

 

 

 

 

 
Closing Costs

 

 

 

 

 

 

 

 

 Closing costs generally include origination fee, appraisal, title and recording fees.  Closing costs could be offset by lender or broker credits but will likely have a higher interest rate.

FHA Mortgage Insurance Premiums are charged.

 

 

Closing costs are comparable to reverse mortgages…side-by-side comparisons have been done.

 Closing costs generally include origination fee, appraisal, title and recording fees.  Closing costs could be offset by lender or broker credits but will likely have a higher interest rate.

If doing a “Forward” FHA Mortgage Insurance Premiums are charged.  On conventional mortgage one may be required to pay for Mortgage Insurance.

Closing costs are comparable to reverse mortgages…side-by-side comparisons have been done.
Loan Amount Borrowed

 

 

 

 

 

 

 

 

 

 Initial amount borrowed is based on the age of the youngest homeowner, appraised value or FHA Lending Limit, expected interest rate and program chosen.

Over time the amount borrowed increases with the interest amount charged, FHA Mortgage Insurance Premium and draws being added to the loan balance.  At some point the amount borrowed could be more than the value of the home at the time the loan was initiated.

If payments are made (they are optional), then they could decrease the loan balance.

 Amount borrowed is based on appraised value of home, credit score, income, debts, and program chosen.

 

 

 

 

 

 

 

 
Receipt of Funds

 

 

 

 

 Can receive funds as a line of credit, monthly payments to the borrower, lump sum or a combination of these.

Line of credit increases monthly so more funds become available over time. The available line of credit can never be withdrawn by the lender if borrower is abiding by the terms of the loan.

 Conventional mortgage funds are drawn as a lump sum.

 

Home Equity Line of Credit (HELOC) creates a line of credit for a specific term and specific amount. The line of credit does not increase and the lender can withdraw the loan at any time.
Use of Funds

 

 

 Borrowers benefit by having access to funds for whatever they need or want.  It can be used for more immediate needs or as a financial planning tool or even to purchase a home. Borrowers purchase a home or refinance to have funds for what they need or want.

 
Monthly Mortgage Payments

 

 The advantage is monthly mortgage payments are not required make which takes away the risk of foreclosure from not making a monthly mortgage payment. With a conventional mortgage or HELOC one has to make monthly mortgage payments.  If the mortgage payments aren’t made, usually within 3 to 4 months, the foreclosure process will begin.
Payment Requirements

 

 

 

 

 

 While monthly mortgage payments are not required, they can be made; it’s a choice of the borrower as to when, how much, how often, or not at all. Making payments reduces the loan balance.

With the adjustable rate, the funds are applied to the line of credit and can be re-borrowed without refinancing.

 Payments are required to be made.

 

 

 

One has to refinance to access more funds.

 
Interest

 

 

 

 

 

 Interest is accrued over the life of the loan.  This increases the loan balance over the term of the loan.

 

If one chooses to make payments the loan balance will be decreased by the amount of payment(s) made.

 Interest is paid each month along with the principal generally reducing the loan balance over the term of the loan.

If one has a balloon payment the full payment would be required at the end of the loan term…generally 10 to 15 years.
Borrower’s Responsibilities

 

 

 

 

 

 Borrowers are responsible for keeping insurance on the property, paying property taxes and maintaining the home.  As long as they abide by the terms of the loan they are not forced from their home.

If they don’t abide by the terms of the loan, they risk a foreclosure.

 Borrowers are responsible for keeping insurance on the property, paying property taxes and maintaining the home.  As long as they abide by the terms of the loan they are not forced from their home.

If they don’t abide by the terms of the loan, they risk a foreclosure.
Loan Term/Due Date

 

 

 

 

 It is a loan and does need to be repaid at the end of the loan term.  The reverse mortgage loan is not due and payable until the home is no longer the primary residence of the borrower.  (Or if they don’t abide by the terms of the loan.)  The due date on the mortgage is the 150th birthday of the youngest borrower. It is a loan and does need to be repaid over the life of the loan.  A conventional mortgage loan term has a due date generally in 15 or 30 years from the closing date.  A HELOC’s loan term has a due date generally in 10 to 15 years from the closing date.

 
Equity Difference When Sold

 

 When the loan is being repaid, if the home is sold for more than the loan balance, the borrower or their heirs receive the difference. When the loan is being repaid, if the home is sold for more than the loan balance, the borrower or their heirs receive the difference.
Non-Recourse

 

 

 All reverse mortgages are non-recourse which means there is no personal liability to the borrower or their heirs.  The loan is paid back only from the property. Conventional loans can be non-recourse, it’s determined by the lender.  Without the non-recourse factor the lender can be repaid from other assets of the borrower.
FHA Mortgage Insurance Premium  Covers When Loan Due

 

 

 If the loan balance is higher than what the home can be sold for when the loan is due, the FHA Mortgage Insurance covers the difference to the lender; the borrower or their heirs or tax dollars don’t cover this difference.
Staying in home when all funds used

 

 

 

 Once a reverse mortgage is in place, even if one draws all the funds available from the reverse mortgage, the borrowers can stay in their home as long as they abide by the terms of the loan, i.e. pay property taxes and insurance, HOA dues if applicable, and maintain the home. Borrowers stay in their homes even when all funds are drawn as long as they abide by the terms of the loan.

 

 

 
Protections

 

 

 

 

 

 

 

 

 Requires counseling by a HUD approved 3rd party counselor as a protection to help borrowers understand the details of the reverse mortgage.  The processing cannot start until the counseling has occurred.

HUD regulates what lenders and third-parties may charge stating they must be customary and reasonable costs necessary to close the mortgage.  Mark-ups are not allowed.

Disclosures and sample closing documents must be provided to borrowers at application.

 No counseling required.

 

 

 

Mark-ups on such items as processing and underwriting fees and courier fees can be charged.

 

 

 
Lender/Bank and Investor Benefit

 

 

 Lender makes money by the interest charged on the loan.

Would you loan money without receiving a benefit or compensation?

 Lender makes money by the interest charged on the loan.

Would you loan money without receiving a benefit or compensation?

Use a reverse mortgage to stay in homeAs you can see, reverse mortgages compare to conventional mortgages and they are NOT a scam.  As with any financial product, or any purchase for that matter, one should get the facts and understand the terms of what they are purchasing.

The loan officer one is working with should be explaining the features and terms of the reverse mortgage.  Yes, unfortunately there are bad apples in every industry but that doesn’t mean the product is bad.  The reverse mortgage industry has implemented protections to prevent borrowers from scam.

Don’t jump to conclusions! Understanding them, one might find the reverse mortgage is a viable option for their situation.

For further details on the reverse mortgage contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.  For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

© 2016 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-1ph

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Giving Thanks For The Opportunity To Make A Difference

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Happy ThanksgivingIt’s Thanksgiving and the season to reflect and give thanks.  I want to take this opportunity to say I’m grateful for all who are in or have been in my life and have touched it in one way or another.  I’m grateful for the talents God gave me and my parents taught me to use.  And I’m thankful that I have the opportunity to use those talents to assist others and make a difference in their lives.

It’s rewarding to have my reverse mortgage borrowers call and say how much the reverse mortgage has made in their life, for themselves as well as their families.  It is because of you, the customer, that I have the opportunity to serve.

This poem is hanging on my office wall as a wonderful reminder it’s because of YOU…

Because the Customer

Because the customer has a need,
we have a job to do.

Because the customer has a choice,
we must be the better choice.

Because the customer has sensibilities,
we must be considerate.

Because the customer has urgency,
we must be quick.

Because the customer is unique,
we must be flexible

Because the customer has high expectations,
we must excel.

Because the customer has influence,
we have the hope of more customers.

Because of the customer,
we exist!

Anonymous

Thank you to my reverse mortgage borrowers, my referral sources, my vendors, my networks and all who help make a difference in the lives of seniors.  It is because of YOU I exist and am so rewarded.

May you have a Happy and Blessed Thanksgiving!

Beth Paterson, CRMP
Certified Reverse Mortgage Professional
NMLS #352859

© Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Why You Pay FHA Mortgage Insurance Premiums on Reverse Mortgages

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Puzzled by FHA Mortgage Insurance PremiumThis is a question I recently received:

Hello Beth.
I notice that the monthly costs for my reverse mortgage loan include very costly mortgage insurance. From my experience as a homeowner, mortgage insurance was to cover the mortgage payment in the event the mortgagee could not make payments for one reason or the other. Since there are no mortgage payments in a reverse mortgage loan, why do I have to pay mortgage insurance?
Thank you.

This is a very good question!

With conventional mortgages many people look at mortgage insurance premiums as protection of risk if they, the borrowers, can’t make their monthly mortgage payments.  The reverse mortgage doesn’t have monthly mortgage payments required for this product. Although with the reverse mortgage there is a repayment required, it is one payment when the loan becomes due and payable, generally when the borrower(s) is(are) no longer in the home as their primary residence.

Mortgage insurance on a reverse mortgage does not protect the consumer or borrowers obligation to pay the loan balance when the home is no longer the primary residence of the borrower or if they haven’t abided by the terms of the loan.

However, with a Federal Housing Administration (FHA) insured Home Equity Conversion Mortgage or better known as a HECM reverse mortgage, there is a required mortgage insurance premium by FHA. The FHA Mortgage Insurance Premiums (MIP) offer significant benefits for reverse mortgage lenders, investors, as well as the borrowers.

The FHA required MIP are in place even though one is not making mortgage payments for several reasons:

  • The insurance protects the investors against risk and loss.

There are also advantages and increased borrowing power for the borrowers with FHA insuring the reverse mortgage.  These  include:

  • Guaranteeing the funds are available for you, the borrower, during the term of the loan.  With HELOCs the bank/lender can call the loan due and payable if there are changes with the bank, for example they merge with another bank/lender or they close their doors.
  • Guaranteeing the reverse mortgage lender against default or shortfalls means the interest rates are lower compared to other mortgages for the benefits one receives with the reverse mortgage.  i.e.,
    • With conventional loans the interest is impacted by one’s credit score.  With the reverse mortgage one’s credit, even if it’s poor, does not impact the interest rate.
    • The FHA insurance on the HECM loans keep the interest rate low and allows more dollars to be loaned than with proprietary programs.  Proprietary reverse mortgage programs have a higher interest rate to cover the lender’s and investor’s risks and loss.
  • Providing a line of credit growth rate (available only with reverse mortgages).  The tenure monthly payment option also has a growth rate factored in when the tenure payment is calculated.
  • As a reverse mortgage it is a non-recourse (no personal liability) loan.  What this means is if the loan balance on the reverse mortgage is higher than what the fair market value is on the home when the loan is due and payable, the FHA MIP will cover the difference to the lender rather than the borrowers or their heirs having to come up with the difference.

If you are considering a reverse mortgage, look at the benefits of the reverse mortgage which include:

  • No monthly mortgage payments, therefore increase your cash flow.
  • With no monthly mortgage payments required the risk of default due to not being able to make monthly mortgage payments is reduced.  (Borrowers are still required to pay property taxes, keep hazard insurance on and maintain the property and pay home owners association dues if applicable.)
  • A line of credit option which has a growth rate making more funds available to you in the future, no other mortgage offers this.  Or you can use the funds to receive monthly payments either as tenure (life of the loan) or an amount set by you.
  • Non-recourse, no personal liability to you or your heirs.

While there have been different structures for calculating the MIP with past programs, currently, the up-front FHA MIP is .5% of the property value or mortgage lending limit, whichever is less if borrowing 60% or less of the Principal Limit within the 1st 12 months; 2.5% if borrowing more than 60% of the Principal Limit within the 1st 12 months. The on-going MIP is 1.25% of the loan balance.

Received benefits with Reverse MortgageTo summarize, while one is not making payments on their reverse mortgage, the FHA Mortgage Insurance Premium with the reverse mortgage provides benefits over conventional and HELOCs where mortgage payments are required, which cannot be received with any other mortgage.

For further details on the reverse mortgage contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.  For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

© 2016 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-1oM

Related Articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Basics of Reverse Mortgages You Need to Know

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Home Equity Conversion Mortgage BasicsThe Home Equity Conversion Mortgage, or HECM, is the most common reverse mortgage and only one available in Minnesota.  The HECM was first insured by FHA in 1989 for the purpose of providing a valuable financing alternative for senior homeowners to help them remain in their home and have access to funds by withdrawing a portion of their home equity.

A mortgage like any other mortgage where borrowers retain title and borrow against their home equity, the reverse mortgage offers special terms for seniors home owners 62 and older.  One advantage for seniors is with the reverse mortgage there are no monthly payment requirements although borrowers are responsible for paying property taxes and insurance.  While monthly payments aren’t required, one can make a payment or payments when and how much they choose.

The Principal Limit or maximum loan amount is determined by the home value or FHA Lending Limit, currently $636,150, the age of the youngest borrower (the older one is the more they can receive), the Expected Interest Rate, and the program chosen.  Doing the reverse mortgage at a younger age may still be more beneficial than waiting until one is older.

To qualify borrowers must meet a Financial Assessment requirements demonstrating their ability and willingness to pay property taxes and insurance into the future.  In some circumstances a Life Expectancy Set Aside (LESA) may be required to cover the property taxes and insurance.

Reverse Mortgage BasicsWith the Adjustable Rate option, the funds available can be received in a lump sum, monthly payments, a line of credit or a combination of these.  The monthly payments can be structured as one needs or for life as long as the home is the primary residence.  Funds in the line of credit grow so more funds can be available in the future.  The line of credit growth rate is a feature that makes the reverse mortgage a tool for financial and long term care planning.

A fixed rate option is available however only the lump sum draw is available and the draw amount is limited to the 60% of the Principal Limit (an additional 10% is available in some circumstances).

With a reverse mortgage you hold the keys and titleThe borrowers keep the title to the home and are responsible for property taxes, insurance, and maintaining the home.  Unlike a conventional loan the interest accrues, increasing the balance with no mortgage payments due until the home is no longer the primary residence of the borrower(s) or if one has broken the terms of the loan, i.e. didn’t pay property taxes.

Because the closing costs are up-front, they are often perceived as high and often scare people away.  However, the fees are comparable to the traditional closing costs of a conventional loan including an origination fee, appraisal, title fees, title insurance and recording fees.  As a FHA insured loan, with the HECM borrowers also pay the FHA Mortgage Insurance Premium (MIP).

The repayment amount is the lesser of the loan balance or fair market value of the home.  If there is remaining equity, it goes to the borrowers or their heirs.  As a non-recourse loan there is no personal liability to the borrowers or their estate for repayment.

Generally the funds are tax-free but one should consult with their tax advisor for their specific situation.

One can have a trust, life estate, or receive Medicaid (Medical Assistance in Minnesota), Elderly Waiver or other public benefits.*  In the case of a couple even if one of the borrowers goes into the nursing home or passes away, the other one can stay in the home and the loan isn’t due until both borrowers are no longer in the home as their primary residence.  Not considered income, Social Security and Medicare are not affected.  *Check with legal advisor for your situation.

Eligible non-borrowing spouses may be able to remain in the home if they meet certain qualifying attributes.  Talk with your local originator and/or HUD approved reverse mortgage counselor for details.

With no limitations on how the funds can be used, through the years hundreds of thousands of seniors have benefitted from the reverse mortgage allowing them to stay in their home and have security, independence, dignity and control.

For further details on the reverse mortgage contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.  For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

© 2016-2017 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-1nZ

Related Articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Reverse Mortgage Misconceptions Continue; You need to get the facts!

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Confused about Reverse Mortgages FactsI’m amazed at how much misinformation continues about the reverse mortgage in the media as well as those who comment on these pieces.  Let me clarify the more common misconceptions.

Borrower’s do still own the home, not the lender or bank!  The reverse mortgage is a loan allowing homeowners 62 or older to use the equity while they still live in and own the home.  It is a valuable option to consider whether one has no mortgage or a conventional mortgage.  If they use the reverse mortgage to pay off their current mortgage the borrower’s cash flow will increase because they no longer have to make the monthly mortgage payment.

Everyone’s situation is different and one should consider their situation looking at ALL options including a reverse mortgage.  Get the facts, review information on HUD’s website, meet with a local originator to explore the details and how it will possibly work for your circumstances.  As I told someone the other day, one can’t make a good decision unless they have explored all the options.

Closing costs are comparable to any conventional mortgage…I’ve done side-by-side comparisons.

Selling and moving may not be the best option, especially if one wants to remain in their home.  The reverse mortgage can be less expensive than selling and moving.

Options for receiving the reverse mortgage proceeds include:

  • A Line of Credit (which as a growth rate so more funds become available based on the LOC balance).
  • Monthly Payment option – payments made to the borrower as tenure (for the life of the loan), term (an amount determined by the borrower for a specific period of time)
  • Lump Sum – funds drawn at closing
  • A combination of these.

A lump sum is a little risky but HUD has implemented some restrictions including limiting the amount one can access in the first 12 months to 60%, unless there are mandatory charges such as a current mortgage or judgements that are required to be paid from the reverse mortgage.

Better and more common options include: The line of credit with the growth rate can be a useful retirement planning tool and help pay long term care costs in the future.

The monthly payment options whether tenure or term can provide extra cash needed each month.  Maybe one could use an extra $100 or $200 a month so they don’t have to use credit cards to cover living expenses.

Some borrowers do a combination of these, taking some as a lump sum, a line of credit and monthly payments.

MN Reverse Mortgage Borrower Signing Closing DocumentsIt is a loan that does need to be repaid.  The loan does need to be repaid when the home is no longer the primary residence of the borrower(s) with some provisions for non-borrowing spouses.  If one does not pay property taxes, keep insurance on the property or does not abide by the terms of the loan, the lender may call the loan due and payable.  The actual due date on the mortgage is the 150th birthday of the youngest borrower.

The reverse mortgage uses all the equity.  While the interest is being added to the loan balance, this allows the senior homeowner the use of these extra funds during the term of the loan.  And the advantage of the reverse mortgage is it is a non-recourse loan, which means there is no personal liability to the borrower or their heirs, it is repaid from the value of the home only.  If the loan balance is higher than what the home can be sold for when the loan is due, the FHA Mortgage Insurance covers the difference to the lender; the borrower or their heirs or tax dollars don’t cover this difference.

Having Reverse Mortgage Documents ExplainedReverse Mortgages Are Complex.  What financial product or even other products aren’t complex if you don’t understand them?  Do you understand all the details of a conventional mortgage?  Your car loan?  Do you understand and use all the features of your smart phone?  Yes, there are many details with the reverse mortgage, that’s why it’s important to take the time to understand them and work with a reverse mortgage originator will will take the time educate you and not pressure you.

Get the facts!  As with any financial product, or any purchase for that matter, one should get the facts and understand the terms.  With the reverse mortgage there are many protections in place including they are required to obtain 3rd party counseling where the counselor explains the product and the terms. The loan officer they are working with should also be explaining the features and terms of the reverse mortgage.  Don’t jump to conclusions! Understanding them, they might find the reverse mortgage is a viable option for their situation.

© 2011-2016 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-1ny

Related Articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Want Independence? Explore A Reverse Mortgage.

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What gives you a sense of independence?  When I think of independence I think of having freedom of choices and not relying on others.  We all want our independence including seniors.  How can seniors  maintain that independence, have freedom of choices and not rely on others, the government or their children?  A reverse mortgage provides independence for home owners 62 and older.

Having one’s own funds for home repairs, going out to lunch with friends, traveling, visiting family across the country, purchasing a new car, paying medical bills or for medications; paying for help with housework, meal preparation, yard work or transportation, whatever is desired can give that feeling of independence.  Being able to pay off a mortgage to improve cash flow to to save one’s home from foreclosure gives one relief and freedoms.  Being able to plan and have funds for the future and long-term care needs as well as protecting other assets and/or delaying taking out Social Security are other ways to have independence.

While some assistance may be needed for seniors to remain in their home, not relying on children or the government for help and being able to choose a home care agency of their choice will give them the sense of independence.  Using the equity in one’s one with a reverse mortgage can provide seniors the funds for their independence.

“Now I have my dignity back and my independence” was what Edna exclaimed after her reverse mortgage was closed.

Another Minnesota reverse mortgage borrower, Bea, said, “With a reverse mortgage you begin to have independence anew and you begin to feel more secure.  Being free from monetary anxiety, you have better control over spending your equity.”  The reverse mortgage allowed Bea to pay off a mortgage, then to travel to family weddings and reunions.  Several years after she initially did her reverse mortgage more recently Bea is using her reverse mortgage funds to pay for home care that is needed to keep her independent and at home.

Ted, age 91 and Anna age 87, Minnesota homeowners, were proud and didn’t want to discuss their financial situation.  However, their son-in-law finally talked to them about doing a reverse mortgage.  When I met them and we started the reverse mortgage process, the children and I were told they were doing the reverse mortgage so they could put new linoleum on their kitchen floor.  Once the loan was closed I was informed by their children that they had indeed put in the new linoleum along with new windows and they bought some new furniture.  The kids were going to Ted and Anna’s and were told, “Don’t pull in the drive way, we just had it blacktopped.”  When Ted and Anna went out to eat with their kids, they could pay for their kid’s meals too making them feel good that they could treat their children to a meal.

Then one day  Anna and her daughter were sitting at the kitchen table and Anna shared that before their reverse mortgage they used to go 3 days at the end of month without food or even milk because they would run out of money from their Social Security.  As they were sitting there and looking at the paper, Anna exclaimed, “Look, Depends are on sale, I can now stock up.”

While Ted and Anna were too proud to let their children know their financial situation initially and they didn’t want to depend on them to assist with their living expenses, once they signed the reverse mortgage documents they kept their independence and had funds for their needs and desires.  This also improved their dignity.

A reverse mortgage insured by FHA, an agency within HUD,  is known as a Home Equity Conversion Mortgage or HECM.  As one of the most protected financial options available for seniors, it allows them to use the equity in their home for whatever they need or want.  With no monthly mortgage payments, cash flow can be improved by receiving money in monthly payments, a line of credit, lump sum or a combination of these.  (Borrowers are still responsible for paying their property taxes and hazard insurance and maintaining the home.)

The title remains in the borrower’s name and the loan is not due until the home is no longer the primary residence, when they die, sell or move or on their 150th birthday. Repaid from the sale of the property, as a non-recourse loan if the loan balance is higher than what the home can be sold at fair market value the borrower or their heirs are not responsible for the difference.  If the home is sold for more than the amount due then the borrower or their heirs keep the difference. 

As you bring out the red, white and blue, hang your flags and MN Reverse Mortgage Borrower Has Independencegather with family to celebrate the independence of this great country of ours, ask what independence means to your loved ones.  What is needed to help them remain independent and in their home, not relying on the government or on you, their children.   Then explore a reverse mortgage, get the facts about them, and see if it might be an option for their situation to maintain their independence.  Happy Independence Day!

© 2011-2016 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link: http://wp.me/p4EUZQ-1my

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Hearing these statements are reasons to do a reverse mortgage

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Have you heard any of these statements from a homeowner 62 and older?  They may find their solution is a reverse mortgage and they should be encouraged to get the facts to see if the FHA insured Home Equity Mortgage (HECM) is right for their situation.

  • “I want to stay in my home.”Reasons to do a reverse mortgage
  • “My only option is to move.”
  • “I’m planning for retirement.”
  • “I’m not sure how I’m going to afford any potential long-term care costs.”
  • “I can’t afford home health care.”
  • “We can’t afford a mortgage payment.”
  • “We can’t afford to make home repairs or modifications.”
  • “I need money but drawing from my retirement plans have penalties.”
  • “Not enough money at the end of the Social Security check.”
  • “I need help with keeping up my home with housekeeping or yard work.”
  • “I’m downsizing and moving.” or “I’m moving closer to my children.”
  • They can’t afford the little extras that would help them maintain and enjoy their life.
  • They want Security, Independence, Dignity, and Control which they are missing in some way now.

There statements fit into the 5 general reasons to do a reverse mortgage:

  1. Needs based: need funds immediately for covering living expenses
  2. Maintaining lifestyle:  having funds for travel, buying a car, purchasing vacation home
  3. Protecting or delaying draws from other investments:  Using the reverse mortgage to tap home equity rather than accessing other investments or retirement funds that may have penalties or are taxable; let the investments or retirement funds grow so more retirement funds are available later in one’s life; use the home equity so other investments can be left as the inheritance
  4. Planning for long-term care needs (Standby reverse mortgage): Taking the reverse mortgage at a younger age then leaving in the line of credit which grows to have funds to draw from in the future when “life happens”
  5. Purchasing a new home:  Whether downsizing, moving closer to family or buying a dream home, the reverse mortgage can be used for financing.

A reverse mortgage is a mortgage with special terms for seniors 62 and older.  Some of the differences from a traditional mortgage include income and credit scores are not considered to qualify for the interest rate and monthly mortgage payments are not required.  Borrowers are responsible for paying property taxes, insurance, maintaining the home and abiding by the terms of the loan.  Borrowers must meet HUD’s financial assessment qualifications to demonstrate ability and willingness to pay property taxes and insurance into the future.

Rather than a 15 or 30 year term, the loan is due and payable when the home is no longer the primary residence of the borrowers or on the 150th birthday of the youngest borrower. In addition, the reverse mortgage is non-recourse, which means if the loan balance is higher than what the home can be sold for there is no personal liability to the borrower or their heirs.  If the home is sold for more than the loan balance, the borrower or their heirs receive the difference.  The most common and only reverse mortgage available in Minnesota is the FHA HUD insured Home Equity Conversion Mortgage or HECM.

Options are available!  When you hear any of the above statements remember a reverse mortgage may be the option that is the most beneficial to their situation.

© 2012-2016 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:   http://wp.me/p4EUZQ-1m5

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.