Home Equity
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. 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 or move.
Here are the basics:
- All homeowners have to be 62 years old or older.
- Homeowners can choose to receive money either on a monthly basis, in a lump sum or as a line of credit.
- No income or minimum FICO scores are required.
- Generally repayment of this money is not required*.
- Social Security and Medicare benefits are not affected*.
- When the last home owner dies or permanently leaves the home, the lender recovers the initial loan amount, plus interest.
- When the loan is paid in full, any equity left over will be distributed to your heirs.
* consult your tax advisor for your specific situation.
Keep in mind:
Reverse mortgage borrowers continue to own their homes. The bank never takes title to the property. Because there are no monthly loan payments, the amount owed on the loan grows over time. This could result in the remaining equity in the home decreasing over time if home values do not increase faster than the unpaid loan balance.
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 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?
You must be age 62 or older and you must occupy the home as your primary residence – for the 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.
You must be age 62 or older and you must occupy the home as your primary residence – for the 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 free HUD counseling session and sign the loan papers. The HUD counseling is either handled in person, or over the telephone.
Does my home qualify for a 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. The reverse mortgage must also be the only mortgage held against the residence. That means that if there are one or more mortgages or liens on the property, that all of them will need to be paid off with the proceeds of the 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. The reverse mortgage must also be the only mortgage held against the residence. That means that if there are one or more mortgages or liens on the property, that all of them will need to be paid off with the proceeds of the reverse mortgage.
Examples of qualifying homes:
- Single Family One-Unit Residences
- 2-4 Unit Owner-Occupied Residences
- Manufactured Homes build after 15 June 1976
- Condominiums
- Townhomes
- Planned Unit Developments
How is the loan amount determined?
The amount of the loan is based on:
- The age of the youngest borrower
- The appraised Value of the property
- Current loan balances, if any
- No income or credit is required.
What are my reverse mortgage options?
HECM -- The Home Equity Conversion Mortgage (HECM) is the only reverse mortgage that is 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