loans; the receipt of reverse mortgage proceeds can make it difficult to qualify for need-based programs including Supplemental Security Income or Medicaid support; and the loan reduces the size of the estate available to your heirs. The only reverse mortgage insured by the U.S. Federal Government is called a Home Equity Conversion Mortgage (HECM). There are also private companies that offer reverse mortgages. HUD operates an information center (1–800– 569–4287) that provides assistance with reverse mortgage counseling. Reverse mortgages are not for everyone. Be sure to research your options and beware of high-pressured salespeople who may highlight the positives without telling you the high costs associated with the loan. If you can not afford to stay in your home, you may be better off selling your home and moving to a cheaper place, keeping whatever equity you have in your pocket rather than owing it to a reverse mortgage lender. 11–6. CREDIT HISTORY. When a lender is evaluating a particular loan situation, they need to know the background or credit history of the borrower. It is impractical for each lender to specifically research this information for every credit decision. Consequently, credit bureaus (listed in the chart on the next page) have been created to collect and provide this information on a fee basis. The volume of information collected has resulted in the development of credit scoring systems — a process that consolidates all credit information into a single “credit score.” The higher the score, the stronger the credit rating. Strong credit ratings present less risk for the lender and result in lower interest rates for the borrower. The most widely used system, called FICO, was developed by the Fair Isaac Corporation. While the various credit bureaus use different scoring methods, the following table provides a indicator of credit evaluation. Credit Score Evaluation
b. Direct Unsubsidized Loans are loans made to eligible undergraduate, graduate, and professional students, but eligibility is not based on financial need. c. Direct PLUS Loans are loans made to graduate or professional students and parents of dependent undergraduate students to help pay for education expenses not covered by other financial aid. Eligibility is not based on financial need, but a credit check is required. Borrowers who have an adverse credit history must meet additional requirements to qualify. d. Direct Consolidation Loans allow you to combine all of your eligible federal student loans into a single loan with a single loan servicer. Additional information on government loan programs and other financial aid can be found at www.StudentAid.gov. Private loans can be arranged through banks, schools, or educational loan organizations. They can be used to make up for any short fall that remains after using government loan programs. The terms of these loans can vary — interest rates may be determined by the applicant’s credit score, there may be a cosigner requirement, and they generally do not have deferment options. 11–5. REVERSE MORTGAGES. Reverse mortgages provide an opportunity for senior homeowners to access the equity that has built up in their home without being required to repay the mortgage in monthly installments. To qualify for a reverse mortgage, the homeowner must be at least 62 years of age, use their home as their primary residence, and have equity built up in the home. The proceeds from a reverse mortgage can be taken in a lump sum or be received in monthly payments. The loan must be paid off if the homeowner dies, sells the house, or moves out (ex: homeowner moves into an assisted living facility). The borrower will never owe more than the home is worth regardless of how much they borrow or what happens to their property values over time. The repayment of a reverse mortgage can be accomplished through refinancing into a traditional mortgage or selling the home. Any difference between the proceeds from the sale or refinancing process belongs to the homeowner or the heirs of the estate. The advantages of reverse mortgages include: the loan proceeds are tax free, there are no income qualifications, and eligibility for Social Security and Medicare benefits are not effected. The disadvantages include: cost and complexity — the nature of the loan contract together with associated interest and closing costs make these loans more complicated and costly when compared with conventional
800 - 850
Exceptional
740 - 799
Very Good
670 - 739
Good
580 - 669
Fair
300 - 579
Very Poor
CHAPTER 11: PERSONAL CREDIT
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