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.
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.
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.
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.