What is a reverse mortgage?
A Reverse Mortgage is a federally regulated program for homeowners, aged 62 and older. It allows the equity in your home to pay you rather than you paying for the home.
Why would I choose a reverse mortgage over an equity loan or conventional line of credit?
Unlike conventional equity loans or lines of credit, a reverse mortgages does not need to be repaid as long as you remain in your home. For a home equity loan or conventional line of credit you must qualify with sufficient income and/or assets to repay the debt and in addition, you are required to make monthly payments to the lender, and failing to do so will result in the property being foreclosed. You do not make monthly mortgage payments on a reverse mortgage and a federally insured reverse mortgage protects you from foreclosure as long as you comply with the loan terms.
How is a reverse mortgage different from a conventional mortgage?
In a conventional forward mortgage, you make monthly payments to the bank eventually paying off the mortgage over time. With a reverse mortgage you receive cash from your lender, as lump sum upfront, as monthly installments or as a line of credit that grows over time. As long as you live in your home you never have to pay off a single dollar of the loan (you must continue to pay property taxes and insurance on your home).
What is a Government Insured HECM program?
HECM stands for Home Equity Conversion Mortgage. It is a federally insured and guaranteed program. The HECM is a safe way for you to access the equity in your home without ever making a monthly mortgage payment.
How is this Program “safe” for seniors?
No matter what happens in the economy, how much money you receive, or how long you live in your home you will never be required to make a monthly mortgage payment. In addition, no matter what happens to your lender or your home’s value you have guaranteed access to your money.
I have heard bad things about reverse mortgages from friends that had a reverse mortgage years ago. What is different now?
The federally insured reverse mortgage went through significant changes in 2008 and 2010, when new rules and regulations were implemented by the Federal Housing Administration. Today’s reverse mortgages are now highly regulated by State and Federal laws to make them safe and to protect you. Among others, the following regulations apply:
– You retain title of the home.
– No equity share is allowed, meaning the lender does not slowly take over your home.
– Fees and costs are federally regulated.
Do I qualify for a reverse mortgage?
To qualify you must be at least 62 years old and own your home. You must have equity in the house to pay off any outstanding balances, and your home must be your principal residence. In addition, you must have fair credit and income sufficient to pay your property taxes, insurance, and home maintenance with disposable income remaining as determined by HUD in the region you reside.
What type of home qualifies for a reverse mortgage?
Any single-family home, detached home, townhouse, two-to-four unit income property where one of the units is owner-occupied. Most condominiums are also eligible if they are FHA approved.
Does my home have to be paid off to qualify?
Your home does not need to be paid off to qualify assuming you qualify for a loan amount sufficient to pay any amounts you still owe.
Can I qualify if I am currently under a conservatorship?
You can qualify if your conservator obtains a court order authorizing the reverse mortgage. There are legal requirements to what the court order must recite, and you should consult with your legal representation and your broker or lender for exact information.
Can I qualify if someone has a power of attorney over me?
You can qualify if someone is your attorney in fact and your power of attorney is valid and in full force at the time of the application. Additional documentation would need to be provided with your application.
Can I use a reverse mortgage to buy a home?
Yes you can.
How much can I qualify for?
The amount depends upon how old you are, how much your house is worth, the total amount of outstanding loans and liens on your home, and current interest rates. The type of reverse mortgage and how you choose to receive your payments can also impact the amount.
How do I receive my money?
There are five (5) different options:
Tenure: Equal monthly payments for as long as you live.
Term: Equal monthly payments for a fixed period of months as decided by you.
Line of Credit: Payments made in installments or at various times and in any amounts dictated by you (similar to a conventional equity line of credit).
Modified Tenure: Monthly payments together with an available line of credit.
Modified Term: Monthly payments for a fixed period of months together with a line of credit.
What costs are associated with a reverse mortgage?
Typically, a reverse mortgage has an origination fee that is paid to the broker or lender, a mortgage insurance premium that is paid to the US Government’s Department of Housing and Urban Development, an appraisal fee, a flood certification fee, and standard and customary title, escrow and settlement fees.
Do I have to receive counseling before I can get a reverse mortgage?
Counseling is required by government regulations to protect borrowers from receiving incorrect or inaccurate information about reverse mortgages. Before your broker or lender can begin formally processing your application, you must have completed the counseling and received your counseling certificate. Locating a local reverse mortgage counselor near you can be done by contacting your broker, lender or local HUD office.
Is the money I receive taxed?
All the proceeds of a reverse mortgage are tax free. (However, you should always obtain independent advice from a tax professional regarding any financial transaction, including a reverse mortgage.)
Do I have to pay any monthly fees for a reverse loan?
There are usually no monthly fees associated with a reverse mortgage. By design, the intent was that senior borrowers did not have to pay any fees over the term of the loan. However, some lenders do charge a nominal monthly servicing fee. You should consult with your broker or lender to make sure your loan will not have any such fees. You should also know that you must continue to make all property tax payments and maintain acceptable hazard insurance on your home at all time.
What are my obligations under a Reverse Mortgage?
With a Reverse Mortgage you retain title to your home. This means that you continue to have all your obligations as a home owner. Specifically, you are responsible for property taxes and hazard insurance.
When do I have to pay back the reverse mortgage?
As long as you comply with the loan terms (i.e. you continually pay your property taxes and insurance) you are only required to pay back the loan when 1) you sell your home; 2) you move out of the home for more than 12 months; 3) you pass away; or 4) you cease compliance with the loan terms.
What happens if, in the future, the amount I owe exceeds the value of my home?
Your reverse mortgage will continue as is, thanks to the federal insurance. If you chose a reverse mortgage line of credit, or monthly payments, the line of credit will still be available and monthly disbursements you may have set up, will still be sent to you.
When the loan does become due and payable, who will owe the difference between my home’s value and the balance of the loan?
No one. A reverse mortgage is a “non-recourse” loan. This means that you and your heirs are never personally responsible for the difference. The maximum your lender can receive is the amount the property is worth at the time the balance becomes due and payable.
Do I give up the title of my home?
No you do not. A reverse mortgage works just like a forward or conventional mortgage in that a deed of trust or mortgage is recorded against the property. You remain the 100% owner of your property.
Can my beneficiaries still inherit my home?
Yes. Your beneficiaries and heirs can inherit the home as long as they pay the lesser of the outstanding loan balance, or 95% of the home’s then appraised value.
What if I can’t pay the entire amount when it is due?
With a reverse mortgage, you never owe more than your house is worth. The reason for the government subsidy of the program and the mortgage insurance premium paid at the closing is to cover the difference of what is owed and your home’s value. And remember, you do not pay back the loan until you sell, pass away, or move out for more than 12 consecutive months.