What is a Reverse Mortgage?
A reverse mortgage is a loan for homeowners 62 years and older. HECM reverse mortgage loans are insured by the Federal Housing Administration (FHA) and allow homeowners to convert part of the equity in their homes into tax-free cash without having to sell the home, give up title, or take on a new monthly mortgage payment. Instead of making monthly payments to the lender, as with a regular mortgage, the lender makes payments to you.
Although no monthly payment is required with a reverse mortgage, borrowers are required to pay their property taxes, insurance and any other property related charges as well as maintain the home in accordance with FHA guidelines.
It can provide the cash resources necessary to enjoy a fuller life and to stay in your own home. Many safeguards are built into the program to protect seniors from predatory lending practices.
A reverse mortgage uses the home as collateral. The amount of money a borrower can receive is based on the age of the youngest homeowner (or Non-borrowing spouse if a spouse is under 62), interest rates, and lesser the home’s appraised value, sales price or maximum lending limit. Due to program requirements, the amount of money available in the first 12 months after the loan closes, may be restricted. In addition, depending on credit history and income, the homeowner may be required to establish a set aside for payment of future taxes and insurance.
You Own Your Home
Similar to other mortgage types, with a reverse mortgage, you continue to own your home. You will receive a monthly mortgage statement that will breakdown the interest charges and balance information.
Distribution of Reverse Mortgage Proceeds
Reverse mortgage proceeds are not considered income and can be received in any combination of the following options:
- Line of Credit – draw upon as needed. The unused portion will grow
- Lump Sum – a lump sum of cash at closing
- Tenure – monthly payments for as long as you occupy the home as your primary residence
- Term – monthly payments for a specific period of time
What are the Qualifications for a Reverse Mortgage?
Reverse mortgages are available to all US citizens and Permanent Residents age 62 or older who own a home or are looking to purchase a home. You must occupy the home as your primary residence and continue to do so. If purchasing a new home, that home must be your new primary residence. Borrowers are required to continue to pay property taxes and homeowners insurance.
Due to recent changes, there are income and credit requirements. We look at residual income and payment history of debts, property taxes, homeowners insurance, HOA dues, etc. A bad pay history means we examine the loan in more detail to see if a set aside will be required for future payment of property taxes and insurance.
When and how is the Loan Repaid?
The loan does not generally have to be repaid until 6 months after the last surviving borrower passes away or fails to maintain the home as their primary residence. Heirs can possibly receive up to two, 3 month extensions to sell the home or find other means to pay off the existing reverse mortgage. Any remaining equity after the sale of the home and repayment of the reverse will go to the heirs. The estate is not personally responsible for any debt if the home sells for less than what is due on the reverse mortgage.
It is also important to note that a reverse mortgage has no prepayment penalty, so at any time, should a homeowner choose to pay off the loan, they can do so without penalty. Monthly payments can also be made to help keep the balance from growing, should one so desire.
Who Should Consider a Reverse Mortgage?
A reverse mortgage is a fantastic tool to help you age in place. As such, anyone who feels that their income levels are not being met may want to consider it. A reverse mortgage can supplement income allowing for a higher qualify of retirement. Additionally, many people choose to opt for a line of credit to draw on as needed. It can provide some comfort knowing that the funds are available in an emergency by accessing the line of credit.
A purchase reverse mortgage may be a good idea for those looking downsize, more closer to town or closer to family.
Who is NOT a Good Candidate for a Reverse Mortgage?
Anyone who does not intend on living in their home for a reasonable period of time should consider other options than a reverse mortgage. Due to the fees, it may not be a viable solution as a short term loan.
All those interested in pursuing a reverse mortgage are required to go through a reverse mortgage counseling session. The reason being that the Federal Housing Administration (FHA) wants to be certain you fully understand the program. Counseling is available by phone or in person, with most people opting for phone counseling. After counseling is complete, you will receive a counseling certificate, which is then signed and returned to your lender prior to the lender ordering any services that would incur a fee to you.
Further Reading: View additional counseling information here.
Eligible Property Types
Most single-family homes, two-four unit owner-occupied dwellings, manufactured homes (June 15, 1976 or newer) and FHA approved condos. Homes must meet FHA minimum property standards.
A reverse mortgage does not affect Social Security or Medicare, however cash proceeds may affect eligibility of certain “needs based” programs.
MLS Reverse Mortgage is here to help you through the entire process of your reverse mortgage and we will make this a quick and smooth transaction without you leaving the comfort of your home. Give us a call toll free at 1-888-888-4834 or request your free, no-obligation quote and guide.
Visit the Reverse Mortgage FAQ section to see a list of the most commonly asked questions.