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What’s a reverse mortgage loan?
A reverse mortgage is a loan, secured by a home, where repayment is deferred until a later date, typically when the home sells. There are 2 main differences between a reverse mortgage and a traditional mortgage. With a reverse, the payment stream is reversed. Rather that you making monthly payments to the bank, you are able to receive funds in a monthly payment to you or a lump sum. The second thing is that you balance on traditional mortgages decrease month to month since you are making principal and interest payments. On a reverse mortgage, your balance increases each month as interest accrues since you are not making payments. You are able to make payments though to reduce your balance, without penalty.
There are a several reverse mortgage products currently available, however the most popular product as of 2018 is the Home Equity Conversion Mortgage (HECM). Borrowers must be a minimum of 62 years old in order to get a HECM, although the program does allow for a younger non-borrowing spouse. The HECM is insured by the federal government. In order for HUD to guarantee the program, there is an upfront upfront Mortgage Insurance Premium (MIP) and an ongoing MIP that is charged to the borrower. If you run our reverse mortgage calculator you will be able to see this fee.
There are also jumbo reverse mortgages, also referred to as proprietary reverse mortgages. These products are not insured by HUD and are originated by us through large investors. Each of these have unique features that may work for your situation. If you have a higher home value or a condo that is in a complex that isn’t HUD approved, I would suggest reading more about these product offerings on our jumbo reverse mortgage page.
Do I still own my home if I get a reverse mortgage?
Yes. The borrower still retains ownership of the home and may sell it at any time with no prepayment penalties. Many seniors believe the lender gets the home in the transaction. That is not true. It is simply secured with a lien the same way their current mortgage is secured, or the same way a home equity line of credit is secured with a lien.
Does my line of credit grow?
Yes. The available Line of Credit (LOC) for a HECM reverse mortgage grows at the interest rate plus 0.5%. However, only the available LOC grows. Therefore, a client that borrows every penny from their LOC will not see an increase. Read more about the line of credit that grows.
We also have a proprietary product, HomeSafe Select, that the unused portion of the LOC will grow at the current rate.
Can reverse mortgages be paid off at any time?
Yes, reverse mortgage can be paid off without penalties on HECM reverse mortgages and jumbo/proprietary reverse mortgages. As such, they can be paid off at any time. Remember that if you have a line of credit set up and would like to continue to have access to that line, you cannot pay your account down to zero. You should always keep a small balance. If you choose to make a large payment to reduce your balance dramatically, I would be sure to include a note that you are paying down your balance and that you would like to keep your line of credit open.
We do have one jumbo reverse mortgage (HomeSafe Select) that currently allows for a line of credit. The one caveat is that you need to draw a minimum of 25% of available funds at closing and the balance can’t be paid down lower than that amount without it being paid off in full. If you would like to close your line of credit on this HomeSafe product, you can pay off the balance in full without penalty.
Are reverse mortgages non-recourse loans?
All reverse mortgage loans that we offer are non-recourse, meaning you can never owe more than the value of your home. The non-recourse feature is a powerful benefit of reverse mortgages. It makes it so that homeowners are not responsible for debt that accrues beyond the value of the home. This feature makes it so that you will never leave your heirs with a bill. If the heirs choose to sell the home (after a maturity event, such as the last surviving spouse passing away), the accrued debt will need to be paid off and the proceeds go to the heirs. If there is no equity remaining, the heirs are not responsible for the loss.
I’m 62, so I can collect my Social Security benefits instead of doing a reverse mortgage?
A lot of our clients feel that same way initially. But, Social Security was designed to help supplement income; not be the only source. Plus, waiting a few years could let you receive even more from your Social Security. With the cost of living increasing nationwide combined with the advantages of deferring Social Security, many folks feel that having a safety net from a reverse mortgage can help ease their transition to retirement. What would you do if you suddenly had to pay for a hospital visit?
Can I change the loan after funding?
Yes and No. You cannot switch loan programs (fixed to adjustable), but if you have an adjustable rate HECM, you can change the payout options at any time for a $20 fee. For example, if you set up a line of credit, but later decided that you preferred a tenure payment, you could do that. You would call your servicer and they would be able to provide you with updated numbers.
Is there a situation where I would need 2 appraisals to get a reverse mortgage?
Yes, there is for both HECM and proprietary reverse mortgages.
HECMs: Effective for all HECM originations with FHA case numbers assigned on or after October 1, 2018 through September 30, 2019, HUD has implemented interim procedures in regards to appraisals. All appraisals will be submitted to FHA for automatic appraisal review. If the report doesn’t pass FHA’s review, then a second appraisal will be required. We will be required to use the lower value of the two appraisals to calculate the maximum claim amount. On a HECM for purchase, the second appraisal must always be paid for by the borrower.
Jumbo/Proprietary: Many proprietary reverse mortgages will require a second appraisal if the home value is above a certain amount.
- HomeSafe will require a second appraisal on homes valued over $2 million
- Platinum will require a second appraisal on homes valued over $2 million
- EquityEdge will require a second appraisal on homes valued over $1.5 million
- HELO will require a second appraisal on homes valued over $2 million
My brother-in-law is in real estate. Can I order the appraisal through him?
In order to use the appraisal, we would need to order it direct through one of our approved Appraisal Management Companies (AMC). An AMC separates us as originators from the appraisers. It is a requirement that our company order the appraisal through an approved AMC. If you order it yourself, we will not be able to use the report and you would be out any money spent on that report.
Can I do a reverse mortgage on a manufactured home that has a stick built addition?
Yes, but it will depend on the appraiser finding good comparable properties (manufactured homes with stick built additions) as well as the manufactured home meeting FHA guidelines.
I own two consecutive parcels of land. My house sits on one of the parcels and my 4 car garage is on the other parcel. The garage is beautiful and fully finished with HVAC, full bathroom, etc. and I know it will add value to the home. If I tell the appraiser to appraise the entire property including the garage, will I run into issues?
Yes, you will likely run into appraisal issues. The reverse mortgage will encumber the subject property (main home). In order to include the garage, you will likely need to do a lot line adjustment, making the entire parcel one (garage and home). That should give you the most value. You may be able to fool the appraiser do the report as a single family home with a garage, without him/her realizing that it’s two parcels, however an underwriter will definitely be able to figure it out by the legal description on the preliminary title report and will condition to either do a lot line adjustment or have the appraiser amend the report, which could possibly mean finding new comps, etc, which could lower the value. This is a scenario in which we should spend some time on the phone discussing before you proceed with an appraisal.
Who must attend counseling?
All borrowers, co-borrowers, POAs for incompetent borrowers, non-borrowing spouses, conservators, and guardians are required to be counseled.
I will be 62 in 4 months, can I start the reverse mortgage process today?
On a HECM reverse mortgage, you will be able to start your application 60 days prior to your 62nd birthday, per HUD requirements. You can do reverse mortgage counseling at any time, but know that counseling is only good for 6 months, so if you don’t at least have a case number assigned prior to 6 months after counseling, you will be required to be counseled again. If you do get a case number assigned prior to 6 months, then we are OK to close with a certificate that ages beyond 6 months while we work to close the loan. It will be good as long as we have a valid case number.
We do have a product called Equity Edge that allows for borrowers with a minimum age of 60, so it’s advisable we speak to see which program best suits your need. If the 60+ program is best for your situation, then you can start the process today.
Why do I need to wait 7 days after counseling to start the process in California?
The simple answer is that there is a fairly new California law that requires a “7 day cooling off period” before a lender or broker can accept your reverse mortgage application and no fees may be assessed upon a prospective applicant until after 7 days from the date of counseling, which is technically the 8th day following counseling.
When does a counseling certificate expire?
180 days from the day the counseling was completed. It is alright for it to expire during processing. However, if the lender has not received an FHA case number by the expiration date, the borrower will need to be re-counseled.
Is counseling required for HECM to HECM refinances?
Yes. The program changes periodically and an updated counseling cert will be required.
How long is the waiting period to get a reverse mortgage if I had a Chapter 7 bankruptcy?
If an FHA-insured loan was included in the bankruptcy estate, the borrower is not eligible for another FHA insured loan for three years from the date of the discharge.
On a HECM used for a refinance: There is no seasoning or credit score requirements if you had a Chapter 7 bankruptcy, unless an FHA insured mortgage was included in the BK within the past 3 years. We do require that the BK be dismissed or discharged. To avoid a Life Expectancy Set-Aside (LESA), it’s possible extenuating circumstances may be required depending on the length of time since the bankruptcy has passed.
On a HECM used for a purchase: The bankruptcy must be dismissed or discharged for at least two years prior to obtaining the FHA Case Number Assignment; or If less than two years but not less than 12 months since the discharge date, a HECM may be acceptable if the borrower can provide documentation showing that the bankruptcy was caused by extenuating circumstance beyond the borrower’s control, and the borrower has since established the ability to manage his or her financial affairs in a responsible manner.
How long is the waiting period to get a reverse mortgage if I had a Chapter 13 bankruptcy?
The borrower must pay off any liens against the subject property and any federal debts.
On a HECM used for a refinance: Liens must be paid off at closing with the HECM proceeds and the payoff letter from the trustee; or Provide the court order signed by the judge indicating the borrower does not need to pay off the bankruptcy and that the borrower is authorized to proceed with the Reverse Mortgage. This permission issued by the court must specify that the mortgage may be an adjustable rate mortgage, if applicable.
On a HECM used for a purchase: Please provide documentation to show all of the following conditions have been met:
• at least 12 months of the pay-out period under the bankruptcy has elapsed at the time of the FHA Case Number Assignment,
• all required payments have been made on time and
• the borrower has received a written permission from the bankruptcy court signed by the judge to enter into the Reverse mortgage transaction
How long is the waiting period to get a reverse mortgage if I had a Chapter 11 bankruptcy?
The borrower must pay off any liens against the subject property and any federal debts and court ordered approval, signed by the bankruptcy judge, indicating that the borrower does not need to pay off the bankruptcy and that the borrower is further authorized to proceed with the Reverse Mortgage.
Will a reverse mortgage affect my social security or medicare benefits?
It is always advised to check with a tax specialist, however, in general, a reverse mortgage does not affect Social Security and/or Medicare. There are ways that a reverse mortgage could affect asset based benefits such as Medicaid. If you are on Medicaid, any reverse mortgage proceeds that you receive must be used immediately. Funds that are retained would count as an asset and could impact Medicaid eligibility. Please contact the appropriate Government agency for clarification on how a reverse mortgage may impact benefits.
How Much Money Would I Be Eligible For?
The maximum amount that a lender may distribute to a Reverse Mortgage borrower is called the “Principal Limit”. This amount is generally based on the home’s value, prevailing interest rates, and the age of the youngest borrower or eligible non-borrowing spouse. Try using our reverse mortgage calculator to find out how much you are eligible for.
Heirs and Loan Maturity
Will my children/family members lose their inheritance?
No. A Borrower may designate an heir of their choosing. They heir(s) will inherit the home after the last surviving borrower passes away and may then choose to keep (by paying off the reverse mortgage balance) or sell the home. Should they choose to sell, any remaining equity after paying of the loan (minus interest and/or fees) would be theirs.
If I use a reverse mortgage to purchase a new home, can I retain my existing home?
Absolutely. However if you would like to retain your existing home, you will need to show sufficient income to cover payments for both properties. That includes any Principal, Interest, Taxes, Insurance, HOA, Condo dues and any other property-related charges.
Another item to consider is the type of mortgage that you have on your existing home. You are generally only allowed to have one FHA loan at a time. If you do have an FHA loan, it will likely need to be paid off prior to obtaining the new HECM reverse mortgage. Below are some exceptions to the rule in which FHA will allow a borrower to have more than one FHA loan:
- Relocation. You may be eligible for a new FHA loan if you are relocating for an employment related reason and the new area is more than 100 miles from your current home.
- Increase in family size. If your family has grown since you moved into your current home with an FHA loan and the home no longer meets your family’s needs, you could qualify for a new FHA loan.
- Leaving a jointly owned property. If you are leaving your current principal residence with no intent to return and the residence will continue to be occupied by the co-borrower, you may be able to obtain an additional FHA loan. Read more about using a reverse mortgage in a divorce situation.
- Non-occupying co-borrower. If you were a non-occupying co-borrower on a current FHA loan, but don’t reside in the property, you may be eligible for another FHA loan.
At the end of the day, it may be best to reach out to us directly to review your scenario.
What fees CAN the seller pay in a HECM for purchase transaction?
The seller is restricted in what they can pay at closing. Generally, that includes their pro-rated share of taxes or HOA dues, transfer or intangible taxes, costs of repairs, a home warranty, and fees that are customarily paid by the seller in that area.
If I outlive my life expectancy, can I be evicted?
Absolutely not. Reverse mortgage lenders put no time limit on how long the borrower(s) can stay in their homes. Since you still own your home, lenders cannot evict you as long as you continue to live in and maintain the home, and property taxes, homeowners insurance and any other property related charges are paid.
Why did I get an occupancy certification?
Reverse mortgages are for primary residences only. Therefore, homeowners must certify that they still occupy the home on a yearly basis after closing on their reverse mortgage. You will receive the certification every year and are required to complete and return it. Please understand that this isn’t a violation of privacy. The lender is merely making certain that you still meet the requirements of the program. You will simply complete and return the form to the servicer. If you don’t return the form, the lender may follow up with phone calls and possibly a visit to the property.
My home is currently being changed from a condo to a single family attached villa. Do I need to wait for the process to complete before I my loan officer takes my application? I expect final approval from the county in the next couple weeks.
In short, it is best to wait until the change is complete. We will need to order a case assignment and when doing so, we will need accurate property details. If the application is taken now, the condo will be listed on case number and thus we would need the condo to be approved by HUD. If you wait, you will no longer need the condo to be approved through HUD, which will ultimately save you time and some headache.
Pros and Cons
I plan on selling my home in the next year, is a reverse mortgage a good idea?
We view a reverse mortgage as a long term solution and as such, we wouldn’t recommend you get one if you plan on selling within a year. There may be instances where a reverse mortgage can be of benefit to you as a short-term solution. It would be advisable to have a conversation with one of our experts to review your scenario. As mortgage brokers who have a full product offering, we may be able to find a product better suited to address your need.
Is counseling required for HECM to HECM refinances?
Yes. The program changes periodically and an updated counseling cert will be required.
I am legally separated from my husband, but our divorce isn’t final. Is my husband required to be on the loan?
As long as you are legally married, your spouse would need to be a Non-borrowing Spouse (NBS). If your spouse no longer resides in the subject property, then that spouse would be an ineligible NBS and we would not take their age into account on the new loan.
What is an ineligible non-borrowing spouse?
An ineligible non-borrowing spouse (NBS) is a spouse who will not be on the reverse mortgage and their age will not be used when determining the amount of proceeds for the borrowing spouse. To meet the requirements of an ineligible non-borrowing spouse, the NBS:
- Does not occupy the home (or will not if a purchase)
- Is not protected by the NBS due and payable deferral provisions
- Does not have his or her age included in the calculation of the borrower’s principal limit.
What is an eligible non-borrowing spouse?
An eligible non-borrowing spouse (NBS) is a spouse who will not be on the reverse mortgage (likely due to being younger than 62), but will be protected by the due and payable status. Borrowers with an NBS could access less funds, however the NBS will be eligible for deferral if the borrower passes away. Meaning, if the borrower passes away, the eligible NBS will be allowed to continue to reside in the home without have to payoff the reverse mortgage. If there is a line of credit or monthly payments, those options will cease to exist. To meet the requirements of an eligible non-borrowing spouse, the NBS:
- Occupies the home
- Is protected by the NBS due and payable deferral provision
- Has his or her age included in the calculation of the borrower’s principal limit.
How does an eligible non-borrowing spouse (NBS) qualify for the deferral period?
The due and payable status may be deferred for an eligible non-borrowing spouse (NBS) after the death of the last borrower. The are certain criteria that must be met though, so please pay close attention to the following:
- The NBS must have been the borrower’s spouse at the time of closing the loan must have closed with the NBS as an eligible NBS. Many HECMs originated before this change was made in 2015.
- The NBS must have been disclosed at closing and been named an NBS on the loan documents. That means that the principal limit would have been based on the younger NBS’s age.
- The NBS must have remained the borrower’s spouse during the time the HECM was being serviced.
- The NBS must continue to occupy the home as their primary residence.
It is of utmost importance that the NBS obtain legal ownership of the property or other legal right to stay in the property within 90 days of the last borrower passing away. The NBS will then be responsible for maintaining the property; paying property taxes, homeowner insurance and any other fees associated with the maintenance of the property, such as HOA dues. If the NBS fails to keep current on those items, the loan could become due and payable.
Lastly, it’s important to remember that the NBS will not have access to any monthly payments or line of credit following the death of the spouse.