This set of Reverse Mortgage Q & A is educational and helpful as you research the HECM product. Let me know what you think!
What Is a Reverse Mortgage?
A Reverse Mortgage allows a senior homeowner to convert a portion of the equity in his or her home, eliminating mortgage payments and gaining tax-free income without losing the title to his or her home. The equity in your home that has built up over years of mortgage payments and appreciation can be paid to you. Unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer uses the home as their principal residence.
Can I qualify for a HUD Reverse Mortgage?
HUD's federal housing administration (FHA) guidelines require that the borrower is a homeowner 62 years of age or older with a low enough mortgage balance or sufficient funds to reduce the current mortgage balance low enough that it can be paid off at the closing with proceeds from the reverse loan. The home MUST be the borrowers principal residence.
To be eligible for a JUD Reverse Mortgage, the borrower(s) must receive formal counseling from a HUD-approved counseling source prior to completing the loan. To find a counseling agency near you use HUD's own HECM Counseling Web Search at HUD Certified HECM Counselors.
What types of homes are eligible?
The home must be a single-family dwelling or a two-to-four-unit property that is owner occupied. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA approved. The home must be in reasonable condition and must meet HUD minimum property standards. In some cases, home repairs can be made after the closing of a Reverse Mortgage.
What's the Difference between a Reverse Mortgage and a bank home equity Loan?
With a traditional second mortgage or a home equity line of credit, there must be sufficient income versus debt ratio to qualify for the loan, and monthly mortgage payments are required. FHA Reverse Mortgages are different in that they pay you and are available regardless of current income. The amount depends on age, current interest rate, other loan fees and the appraised home value or FHA Lending Limits for your area - whichever is less. There are no monthly payments required. (And there are no prepayment penalties should the senior homeowner wish to make prepayments.) The loan is not due as long as the house remains the principal residence, the property taxes and homeowners insurance are kept up to date and the home is reasonably maintained.
Can the Lender take my home away if I outlive the loan?
No! A borrower cannot outlive a Reverse Mortgage! Nor is the loan due. It does not have to be repaid as long as one of the borrowers continues to live in the house and keeps the taxes and insurance current. .
Will I still have an estate that I can leave to my heirs?
When you sell your home or no longer use it for your primary residence, you or your estate will repay the loan proceeds from the Reverse Mortgage, plus interest and related fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs.
How much money is available to me?
The amount you can borrow depends on your age, the current expected interest rate, other loan fees and the appraised value of your home or FHA's mortgage lending limits for your area, whichever is less. Generally, the more valuable your home is, the older you are and the lower the expected interest rate is, the more you can borrow.
What's the most you can owe?
Reverse Mortgages are nonrecourse loans, which means that in seeking repayment the lender does not have recourse to anything other than the home. Not income, nor any other assets. So even if a monthly loan amount advances until you are age 115, the home declines in value between now and then, and the total of monthly payment advances becomes greater than the home's value - you still would never have to repay more than what you could obtain by selling the home at market value. If you or your heirs sell your home to pay off the loan, the debt is generally limited by the net proceeds from the sale. This is why mortgage insurance is so important. This insurance, which is part of your closing fees, ensures your heirs are not liable for a penny of your Reverse Mortgage after you are gone.
How do I receive payments?
You have several options:
*Tenure - equal monthly payments as long as at least one borrower continues to occupy the property as a principal residence.
*Term - equal monthly payments for a fixed period of months selected.
* Line of credit - unscheduled payments at times and in amounts of your choice, until the line of credit is exhausted.
Lump sum - obtain a lump-sum payment of some amount when the loan is funded.
*A combination - Most people do a combination of all the options. For example, you could take out some amount as a lump sum for home improvements, travel or large-item purchases, put some into a line of credit for possible future use, and use the remaining as a tenure monthly payment for life.
Are there restrictions on how I use my Reverse Mortgage loan proceeds?
You can do anything you want with the money; it is your money. Many people take vacations, buy a new car and help kids or grandkids with college or their first home. Many people put some in a line of credit that they will use in the future for in-home healthcare, medical costs, property taxes and home repairs.
What are the costs?
Cost have recently been lowered by most lenders. Most closing costs are generally of the same type found on traditional mortgages: interest charges, third-party closing costs (title search and insurance, surveys, inspections, recording fees, mortgage taxes that are required in your area. Reverse Mortgages also typically include a "FHA MIP "mortgage insurance premium". Many lenders have eliminate the loan origination fee and monthly servicing fees. Some do this on both fixed and adjustable, others only offer it on the Fixed Rate reverse. (This is because of the higher resale value of the fixed rate, closed end loans in the secondary market. ) Monthly MIP is currently charged on a reverse mortgage at an annual rate of .5% (one half of one percent) and is currently being reviewed for a likely increase this fall to 1.25%.
* Line of Credit, Tenure Payments, Term Payments and Combination of benefits are not available on the Fixed Rate Reverse Mortgage product. The fixed rate reverse is a closed end loan and all funds must be disbursed at the close of the loan - in other words you must take all that you qualify for.
By Deborah Nance
Your Local Southern California Reverse Mortgage Professional
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iReverse Home Loans, LLC, NMLS#810502 originates reverse mortgages in Alabama, Alaska, Arizona (MB-0919584), California, Colorado, Connecticut, Florida, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon (ML-5378), Pennsylvania, South Dakota, Tennessee, Texas, Utah, Vermont (1164-MB), Virginia, Washington and Wisconsin.
Important Information: Reverse Mortgages are neither "endorsed" nor "approved" by the Federal Government. The FHA (Federal Housing Administration) provides certain insurance benefits for lenders and borrowers in connection with the lender’s HECM loans; the FHA does not make or originate loans. The owner(s) retain title to the property that is the subject of the reverse mortgage until the person sells or transfers the property and is therefore responsible for paying property taxes, insurance, maintenance and related taxes. Failing to pay these amounts or failure to maintain the condition of your property may cause the reverse mortgage loan to become due immediately. A reverse mortgage is a complex loan secured by your home. Whether such mortgage makes sense for you depends on your financial situation and needs. For these reasons, we strongly recommend that you consult with a qualified independent housing counselor, family members and other trusted advisers before making this decision. This website is not from HUD or FHA and was not approved by HUD or any government agency.