Reverse Mortgages in Detail
A Reverse Mortgage Loan
A reverse mortgage is a home loan that lets homeowners convert a portion of the equity in their homes into cash. The equity they have built up over years of mortgage payments can now be paid back to the Colorado homeowner in cash. Unlike a traditional mortgage or a second mortgage, no repayment is required until the borrower(s) no longer need the home as their principal residence, or do not pay the required property taxes or homeowners insurance. Most people who obtain a Colorado Reverse Mortgages stay in their homes without ever having to make another house payment until the last one of them dies.
To be Eligible
To be eligible for a Colorado Reverse Mortgage, HUD’s Federal Housing Administration (FHA) requires that all non-married homeowners are at least 62 years of age. Only one spouse needs to be 62-years-old if married. Their Colorado home can either be owned outright, or have a mortgage with a low enough balance that it can be paid off at the closing with proceeds from the Colorado Reverse Mortgage. The reverse mortgage loan can only be taken out on an owner-occupied home, not a rental or vacation home. Most home types may qualify.
The Amount You Can Borrow
The amount you can borrow depends on your age, current loan balance, interest rates and the appraised value of your Colorado home, or the FHA’s mortgage limits for your area (whichever is less). Generally: the more valuable your Colorado home and the older you are, the more you can borrow.
What is a Reverse Mortgage?
The Federal government’s Federal Housing Administration (FHA) created this program in 1987 as tool to help seniors stay in their homes. Since that time, regulations have made the loans even more friendly. As long as all rules are followed, Colorado Reverse Mortgages are a way for older homeowners to convert the equity in their homes into cash without ever having to make monthly payments, sell their home, or move.
Here are the basics:
- One spouse of married homeowners must be 62-years-old or older. Unmarried homeowners must both be at least 62-years-old.
- Homeowners can choose to receive money either on a monthly basis, in a lump sum, or as a line of credit.
- No minimum credit scores (FICO) scores are required.
- Social Security and Medicare benefits are generally not affected*.
- When the last home owner dies or permanently leaves the home, the estate has 1 year to pay off the reverse mortgage loan.
- When the loan is paid in full, any equity left over will be distributed to your heirs or the estate.
* consult your financial advisor for your specific situation.
Keep in mind:
Colorado Reverse Mortgage borrowers continue to own their homes. The bank never takes title to the property as long as all rules of the loan are followed. Because there are no monthly loan payments, the amount owed on the loan grows over time. Banks are not charities. They don’t loan money for free. The interest that they charge you is simply added to your loan balance every month.
Borrowers must continue to pay homeowner’s insurance and property taxes during the loan period. It is also the borrower’s responsibility to keep up with home repairs. In fact, if a borrower fails to adhere to any of these obligations, it may cause the loan to become due and payable in full.
Do I qualify for a reverse mortgage?
One spouse of married homeowners must be age 62 or older. Otherwise, all unmarried homeowners must be at least 62-years-old. Borrowers must occupy the home as your primary residence for a majority of the year. Borrowers may own the home outright or have a low enough balance on the existing mortgage that it can be paid off from the proceeds of the reverse mortgage.
Each borrower listed on the title must apply for the Reverse Mortgage loan, attend a HUD counseling session, and sign the loan papers. The HUD counseling can be done in person, or over the telephone. Call Steve Haney for a current list of HUD-approved counselors at: (719) 434-3919.
Does my home qualify for a Colorado reverse mortgage?
First of all, your residence must meet HUD standards. Basically, it will need to be safe, sound and sanitary. A full HUD appraisal will need to be done before closing. If there are one or more mortgages or liens on the property, all of them will need to be paid off with the proceeds of the reverse mortgage.
FHA uses a formula to determine the amount of your reverse mortgage.
How is the reverse mortgage loan amount determined?
The amount of the loan is based on FHA formulas, and may include:
- The age of the youngest borrower
- The appraised value of the property
- Current loan balances
- Other miscellaneous requirements
- Your specific situation
What are my Colorado reverse mortgage options?
The Home Equity Conversion Mortgage (HECM) is the only reverse mortgage loan insured by the Federal Housing Administration (FHA). The FHA guarantees that HECM lenders meet their obligations, governs how much HECM lenders may loan to qualified borrowers, and limits loan costs. Because this is a government insured program, loan counseling is required by an approved HUD counselor.
HECM offers 4 draw options:
- Monthly income for a fixed term or life
- Line of credit
- Lump sum
- Any combination of the above 3