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Reverse Mortgage

A Reverse Mortgage could make all the difference.

Conventional loans

So, what is a reverse mortgage?

Many ask, “is a reverse mortgage a good idea?” While there can be speculation, our hope is that you become fully informed of this unique mortgage loan and make the appropriate decision for you and your family given your unique situation.

It can be scary making a major decision about one of your biggest investments, the place that means the most to you. Deciding whether a reverse mortgage loan is right for you often requires education and expert advice. We hope the following information is beneficial as you explore whether a reverse mortgage is right for you.

A reverse mortgage is a unique loan that allows homeowner(s) 62 years of age and older to draw on the value of their home, which is paid to the homeowner(s) in a variety of payout options or used as a line of credit. One of the unique features of a reverse mortgage loan is that it does not require repayment until the homeowner(s) no longer reside in the residence, the last surviving borrower passes away, or does not comply with the loan obligations. An example of reverse mortgages or HECM guidelines / obligations are paying property taxes and insurance and maintaining the property to FHA guidelines (if the reverse mortgage is FHA’s HECM loan).

There are different types of reverse mortgage solutions. The two most popular are the HECM loan (Home Equity Conversion Mortgage, insured by the FHA) and jumbo or proprietary reverse mortgage¹ for high value homes. Prior to applying for a reverse mortgage loan, it is required that you are made aware of the terms and conditions of the loan through sources provided by HUD or your lender. If you are applying for a HECM loan, you can contact the Housing Counseling Clearinghouse at 1-800-569-4287 to obtain the name and telephone number of a HUD-approved counseling agency. You may also contact our office and we will provide you with the list of HUD-approved reverse mortgage counseling agencies.

We are reverse mortgage specialists and are here assist you as you explore your options and whether a reverse mortgage solution is right for you. Our goal is that as you learn more about the reverse mortgage you have all the information you need to make the best decision for you and your family. We aim to provide world class service from start to finish.

Qualifications

To qualify for a reverse mortgage loan there are some basic requirements, such as:

  • At least one borrower (that will be on title) must be at least 62 years old.
  • The home must be lived in and be the primary residence of the borrower/s.
  • There must be sufficient equity in the home. While there is no specific amount of equity required - as a general rule of thumb - you'd want at least 50% equity in your home since you will need to pay off your existing mortgage with the loan proceeds. The more equity you have the more loan proceeds you will have access to.
  • For a HECM loan, all applicants are subject to a financial assessment to determine their financial capacity and willingness to pay the loan obligations, such as taxes and insurance.
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Keep in mind that each lender may have different qualification requirements based on multiple factors; like your financial situation, age, interest rates, home value and other factors. Also, you do not need to pay off your home to qualify for a reverse mortgage loan.

The cash you can potentially receive is based on the age of the youngest borrower, the current expected interest rate, the mortgage option selected, and the appraised value of the home. For instance, an older individual with a higher value home typically will be eligible for more than a younger person with the same home value at the same expected interest rate. How much money you can take in the first year is limited.

Features

Reverse Mortgage - Sprint Funding

Deciding whether a reverse mortgage loan is right for you can be a daunting task, but we are here to hopefully alleviate some confusion and provide you with all the information you need to make the right decision for you and your family.

Some of the key features of the reverse mortgage loan are as follows:

  • While you will still need to pay property taxes and insurance and maintain the property, no monthly mortgage payments are required.
  • There are multiple options to convert your home's equity to support your financial goals, such as, receiving monthly payments, receiving a lump sum, or growing a line of credit over time.
  • Proceeds you receive from a reverse mortgage loan are typically tax free, however, you will need to consult your tax advisor for tax advice.
  • Borrower protection to help reduce the risk of foreclosure. An example of this is a guideline that limits the amount of equity the borrower can access during the first year of the loan. Also, the borrower/s must demonstrate that they're able to pay property taxes and insurance and maintain the home during the time they have the loan. Furthermore, if a non-borrowing spouse under the age of 62 loses their borrowing spouse or their spouse permanently leaves the home, they will be allowed to remain in the home.
  • If the borrower/s choose to access their equity via a line of credit, interest only accrues on funds that are used. Funds that are not used will increase over time at the same rate of your loan. This feature allows for growing the amount of cash you have access to should you need or want to access it later in retirement.
  • The FHA HECM Loan is a non-recourse loan. This means that if your home sells for less than the loan balance, your heirs are not liable for the debt. Only the funds received from the sale of the home can be used to repay the loan.

At the time of application, your home mortgage balance does not have to be paid off to qualify. However, the reverse mortgage loan proceeds you receive must be used to pay off the existing mortgage or liens (if there is a mortgage balance owing). You will continue to hold title to your home subject to the mortgage securing the reverse mortgage loan.

Reverse Mortgage Home Eligibility

Homes that are eligible for a reverse mortgage loan include single-family homes, detached homes, townhouses, and two-to-four unit properties that are owner-occupied. Condominiums must be FHA-approved for the HECM loan and some manufactured homes are also eligible. Contact your Reverse Mortgage Loan Originator for more details on manufactured home eligibility.

Benefits

Should I Use An Estate Planning Service To Find A Reverse Mortgage?

HUD advises against using any service that charges a fee (except required HECM counseling) or any service that requests a lender referral fee to obtain a reverse mortgage. HUD provides this information free of charge and can direct you to HUD-approved housing agencies that offer approved reverse mortgage counseling or additional services that are free or have a minimal cost.

There is typically a reverse mortgage (HECM) counseling fee that ranges from $125 – $150. If the borrower cannot afford this fee, some counseling agencies will waive the fee for qualified applicants. You can find a HUD-approved housing counseling agency near you by calling 1-800-569-4287 toll free.

Options For Receiving Loan Proceeds

Adjustable interest rate reverse mortgage payments can be received in one of five ways:

Tenure

equal monthly payments

Term

equal monthly payments for a fixed period of months as decided by the borrower

Line of Credit

payments made in installments or at various times and in amounts dictated by the borrower(s)

Modified Tenure

monthly payments with a line of credit

Modified Term

monthly payments for a fixed period of months with a line of credit

What is a HECM loan?

Reverse Mortgage - Sprint Funding

HECM stands for Home Equity Conversion Mortgage.

A HECM is the FHA insured reverse mortgage that allows qualified homeowners 62 and older to access part of the value of their home. Home equity can be accessed in a number of ways and enables greater cash flow to the borrower. Imagine living in your home without a traditional monthly mortgage payment¹, or instead, enjoying monthly loan proceeds from the years you’ve invested in your home. After you get a reverse mortgage on your primary residence, repayment is not due until the home is sold, the last borrower passes away or permanently leaves the home. Borrowers also must keep the home in good condition, pay property taxes, and keep homeowner’s insurance coverage to avoid the loan becoming due and payable. For HECM guidelines please view our reverse mortgages page.

A reverse mortgage is a unique mortgage designed for homeowners 62 and older. You may enjoy access to part of the value of your home and the freedom and comfort of the home you’ve known for so many years. It’s your home, now you can put it to work for you.

Features, Benefits, and Qualifications

Reverse mortgage borrowers retain ownership and title to their home. It’s yours just as it was before, but now you may benefit from the equity that’s been building in your home for years. In addition, HECM (Home Equity Conversion Mortgage) reverse mortgage loans give you peace of mind since your home and property are the only assets that secure the loan.

HECM Loans are insured by the Federal Housing Administration (FHA). FHA requires a Mortgage Insurance Premium (MIP) to be collected at closing and during the life of the loan. These premiums are charged to the borrower’s loan balance. The upfront Mortgage Insurance Premium (MIP) is calculated using your home’s appraised value or a maximum of $822,375 (the 2021 national lending limit cap) and is charged at closing. The ongoing FHA insurance premiums are calculated using each month’s outstanding loan balance.

This insurance provides the following protections and peace of mind for borrowers and their children:

  • The borrower(s) are not required to pay more than the home’s fair market value.
  • If the loan balance exceeds the value of the home, FHA reimburses the lender for the difference when the estate sells the home.
  • Payments made to the borrower by the lender are insured by FHA. If the lender is unable to continue making payments, the payments would be made by FHA.
  • If the loan balance grows and exceeds the home’s present market value, the lender cannot take title. FHA ensures that borrowers can live in their home as long as basic loan obligations are met (homeowner’s insurance in force, property tax payments current, and the home is maintained in good condition).
In order to retain the home when the reverse mortgage becomes due, the heirs may choose to keep the home by paying 95% of the home's appraised value, less customary closing costs and real estate commissions.

FAQs

To become eligible for a reverse mortgage, you must be at least 62 years old and own your home. You must have equity in the house to pay off any outstanding balances, and your home must be occupied as your principal residence. All applicants are subject to a financial assessment to determine their financial capacity and willingness to pay obligations as part of the qualification process.

The amount of money that a lender will loan depends on how old you are at the time of closing, how much your house is worth, the total amount of liens, and interest rates. The payoff of your existing mortgage and mandatory obligations along with the payment option chosen will affect the amount of money you will receive. HUD limits borrowers to using 60% of the available money (after closing costs & fees) in the first year. The remaining funds are accessible beginning year two. This maximum disbursement limit set by HUD allows for the GREATER of:

1. 60% of the Principal Limit (amount of money available to the borrower in all years of the loan) in the first twelve months of the loan from your closing date OR…
2. The sum of Mandatory Obligations (existing mortgage payoff, tax liens, closing costs, mortgage insurance premium) plus 10% of the Principal Limit. This total cannot exceed the total Principal Limit at the time of loan closing.

There are several different options to choose from. You can take the money in a lump sum (up to HUD’s first-year maximum withdrawal)*, set up a line of credit, monthly payment, or a combination of all three. In the first year, the Line of Credit or monthly Tenure Payments or monthly payments cannot exceed 60% of the Principal Limit. After the first year, the available Line of Credit or Tenure/Monthly payments will be increased when applicable.

* Fixed interest rate reverse mortgages only allow for the Single Disbursement Lump Sum payment plan.

The fees and cost of a reverse mortgage are based on a number of items. For example, an origination fee is paid to the broker/lender, a MIP (mortgage insurance premium) is paid to FHA on the Home Equity Conversion Mortgage (HECM), an appraisal fee, a flood certification fee, a document preparation fee, title, settlement, and escrow fees. All costs are clearly shown on the Good Faith Estimate (GFE). Monthly servicing fees could apply.

FHA requires a Mortgage Insurance Premium (MIP) to be collected at closing and during the life of the loan. These premiums are charged to the borrower’s loan balance. The upfront Mortgage Insurance Premium (MIP) is calculated using your home’s appraised value or a maximum of $822,375 (the 2021 national lending limit cap) and is charged at closing. The ongoing FHA insurance premiums are calculated using each month’s outstanding loan balance.

Yes. Counseling is required with an independent third party HUD-approved counselor to protect borrowers from receiving incorrect information about reverse mortgages. The lender must be in receipt of the counseling certificate before they can close the loan. To locate a reverse mortgage counselor near you, contact your Mortgage Loan Originator or your local HUD office.

While the proceeds you receive from a reverse mortgage are typically not subject to individual income taxation, you will need to consult your tax advisor.

A reverse mortgage was created so borrowers don’t have to pay most fees during the course of the loan. Typical upfront costs are for the appraisal and HUD-approved reverse mortgage counseling (some agencies waive counseling fees at their discretion). However, there may be a monthly servicing fee associated with reverse mortgages (which will be financed and added to the loan balance). For more information on the service set-aside, please talk to your Mortgage Loan Originator.

*These FAQs are not from HUD or FHA and have not been approved by HUD, FHA or any federal government.

Resources

AARP free information on reverse mortgages
Phone: 1-800-209-8085

The Consumer Financial Protection Bureau (CFPB) Consumer Lookup
http://www.nmlsconsumeraccess.org/

Housing Counseling Clearinghouse
Phone: 1-800-569-4287

The Eldercare Locator: Local Resources for Older Adults
http://www.eldercare.gov
Phone: 1-800-677-1116

Federal Trade Commission (FTC) to report possible fraud
http://www.ftc.gov
Phone: 1-877-FTC-HELP (1-877-382-4357)

National Council For Aging Care
http://www.aging.com/
Phone: 1-877-664-6140

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