Reverse Mortgages In a Nutshell
What is a reverse mortgage?
A reverse mortgage is a specially designed financial tool for homeowners and homebuyers, 62 years or older, allowing them to:
1. Convert part of the equity in their homes into tax-free funds
2. Eliminate an existing mortgage payment
3. As a means of purchasing a new primary residence
You are not required to pay back the money used until you or your estate sell the home or the home is otherwise vacated. As long as you live in the home, no monthly payments are required towards the loan balance.
One borrower must be at least 62 years old
The property must be your primary residence
Must complete an independent reverse mortgage counseling session with a HUD-approved housing counselor
WHAT ARE YOUR OBLIGATIONS UNDER THE PROGRAM?
Timely payment of property taxes
If applicable, maintain and pay homeowners insurance
If applicable, stay current on HOA dues
Live in the home as your primary residence
Maintain the condition of the home
Comply with the program terms
No pre-payment penalties—While you are not required to make payments on the loan, you can repay the loan in full or in part, at any time, without penalty.
Non-recourse feature—Neither you nor your heirs will be personally liable for more than the value of the property. If the loan balance were to ever exceed the value of the home, your estate is not obligated to repay the debt above the value of the home.
HUD fee limitations—For the FHA program, there are caps and limitations on how much can be charged and what fees can be included on a reverse mortgage.
Financial assessment—There is a thorough evaluation of the clients’ ability to meet the financial obligations associated with the program once the reverse mortgage is in place.
Younger spouse protections—New rules provide protections to spouses who were under the age of 62 at the time the reverse mortgage was established. These protections allow the surviving spouse to live in the home for the rest of their life.
Counseling—As an added layer of education and to prevent predatory lending and financial abuse of the elderly, HUD requires third-party independent reverse mortgage counseling.
FREQUENTLY ASKED QUESTIONS
WHAT MAKES A REVERSE MORTGAGE UNIQUE FROM OTHER FINANCIAL PROGRAMS?
The most unique and beneficial aspect of a reverse mortgage is the fact there is no monthly mortgage payment. There is no repayment required on the loan as long as the borrower(s) lives in the home as their primary residence and all other program requirements are met. The interest on the loan is deferred until the home is no longer occupied by the borrowers or their qualified non-borrowing spouse.
HOW DO I KNOW IF I QUALIFY FOR A REVERSE MORTGAGE?
If you are married, one spouse must be at least 62 years old. The home you own or are buying must be your primary residence. In addition, you must complete an educational counseling session with a HUD-approved counselor. Please contact us directly for a personalized and comprehensive determination of eligibility.
IS THE INTEREST RATE FIXED OR ADJUSTABLE?
There are options for either an adjustable or a fixed-rate loan. Contact us for current rates.
WHAT DETERMINES HOW MUCH MONEY IS AVAILABLE TO ME?
The age of the youngest person, appraised home value, the current FHA lending limit, and the current interest rates. The older you are and the more your house is worth the more you will qualify for.
WHAT HAPPENS TO THE HOME WHEN I PASS AWAY?
After a grace period, your estate may repay the loan by selling the home or by paying off or refinancing the balance due and keeping the home. You or your estate are not personally liable for repayment of the debt on the home regardless of the loan balance. If there is equity in the home your estate can claim it, if there is no equity, your estate can walk away without recourse.
WHAT IS HUD-REQUIRED COUNSELING?
Anyone wishing to get a reverse mortgage is required to take a one-on-one class from a HUD-approved counselor prior to applying for the program. Family members can attend and, for your convenience, this session can often be done over the phone. Counseling is required to ensure the applicant understands the reverse mortgage program. Once the counseling is completed, the applicant will be given a signed certificate of completion.
The reverse mortgage program is a time-tested, safe and secure retirement funding tool. The program has built-in safeguards and protections for the senior homeowner to ensure it remains a safe and beneficial part of retirement. Hundreds of thousands of senior homeowners across the country are currently realizing the benefits of reverse mortgages every day, with thousands of new seniors entering the program each month.
Borrowers still maintain ownership of the home under a reverse mortgage, just like with a conventional mortgage. But instead of the homeowner paying off the mortgage with monthly payments, the interest accrues on the balance of the loan, allowing for the equity to pay the balance at the end of the loan. Because there is no change in title possession, homeowners must still pay property taxes, keep up with repairs, and maintain proper insurance on their homes.
As long as homeowners remain compliant with the terms of the reverse mortgage (e.g. not renting out the home or living elsewhere as their primary residence), then they can remain in the home, payment-free, for as long as they live or until they vacate or sell it.
Seniors who have limited income or less than perfect credit will often still qualify for a reverse mortgage. Criteria and qualifications are unique to the reverse mortgage program. If you’ve been turned down for traditional financing, you may still be able to get a reverse mortgage. Please contact us today and we’ll help you determine if you qualify.
Most of the closing costs associated with a reverse mortgage are comparable to any traditional mortgage program. One additional cost associated with a reverse mortgage is that of a Mortgage Insurance Premium (MIP). The mortgage insurance required on a reverse mortgage is in place to remove personal liability for repayment of the loan. In most cases, the majority or all the closing costs can be financed into the loan rather than paid out of pocket. We also provide low and no-cost options to most of our clients and can show you how to save the maximum amount on your new reverse mortgage.
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The information provided in this guide is accurate as of the date of print and may change without notice. The information is being provided as a service to those individuals interested in a reverse mortgage. The information contained in this publication should not be construed as legal, tax, accounting, financial, investment, or professional retirement advice. Please consult a tax professional regarding any tax implications. This guide does not constitute a commitment to lend or extend credit. Restrictions may apply to all loan programs. All loans are subject to program qualifications and lender approval.
Once your loan is in place you are still responsible for paying property taxes, homeowners insurance, HOA dues, and home maintenance costs. These materials are not from HUD (Department of Housing and Urban Development) or FHA (Federal Housing Administration). Loans are not made, originated, endorsed, or approved by the Federal Government. The FHA provides certain insurance benefits for lenders and borrowers in connection with the lender’s HECM (Home Equity Conversion Mortgage) loans.