Frequently Asked Questions About Reverse Mortgages
Many people have questions about Reverse Mortgages. Reverse Mortgages also known as Home Equity Conversion Mortgages (HECM), are becoming increasingly popular in America. The U.S. Department of Housing and Urban Development (HUD) created one of the first forms of HECMs. HUD's Reverse Mortgage is a federally-insured private loan, and it's a safe loan that can give senior Americans greater financial security. Many seniors use it to supplement social security, meet unexpected medical expenses, make home improvements, and more. Since your home is probably your largest single investment, it's smart to know more about Reverse Mortgages, and decide if one is right for you! Below are some Frequently Asked Questions about Reverse Mortgage's and their impact on you.
Q: What is a reverse mortgage? A: A reverse mortgage is a special type of home loan designed for senior homeowners to convert a portion of the equity in his or her home into tax-free income*. Unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer reside in the home.
*Consult Tax Advisor. Not all products available in all states.
Q. Who can qualify for a reverse mortgage? A. To qualify for a Reverse Mortgage, you must be at least 62 years old and have paid off all or most of your home mortgage. Income is not a factor, and no medical tests or medical histories are required. If you seek a Reverse Mortgage, you also must undergo Free mortgage counseling from an independent government-approved "housing agency." Financial institutions offering proprietary Reverse Mortgages also require counseling. With a Reverse Mortgage, you remain the owner of your home just like when you had a forward mortgage. You are still responsible for paying your property taxes and home-owner insurance and for making property repairs.
Q: How much do I qualify for? A: The amount of money you can borrow depends on the specific Reverse Mortgage plan or program you select. It also depends on the kind of cash advances you choose. Some Reverse Mortgages cost a lot more than others, and this reduces the amount of cash you can receive with each Reverse Mortgage loan program. The amount you can borrow depends on your age, the equity in your home, the value of your home, and the interest rate. With a Home Equity Conversion Mortgage (HECM), federal law limits the maximum amount that can be paid out. You can be paid in a lump sum, in monthly advances, through a line of credit, or a combination of all three.
Q: What types of properties are eligible for Reverse Mortgages? A: Eligible property types include single-family homes, 2-4 unit properties, manufactured homes (built after June 1976), condominiums, and townhouses. In general, cooperative housing is ineligible. These can be either your primary residence or in some circumstances your second home. Non-Owner occupied rental properties are not eligible for reverse mortgages at this time.
Q. Would a home that is in a "living trust" be eligible for a reverse mortgage? A. Yes. In most cases a homeowner who has put his or her home in a living trust can usually take out a reverse mortgage. A review of the trust documents would be made by the reverse mortgage lender to determine if anything in the living trust would be unacceptable.
They differ however, in that with a home equity loan you must make regular monthly payments to the lender. However, with a reverse mortgage you do not make any monthly mortgage payments for as long as you stay in the home.
Remain independent. A reverse mortgage allows you to remain in your home and retain home ownership.
Stay in your home. It allows you to remain in your home and retain home ownership.
No monthly mortgage payments. You need not pay back the reverse mortgage loan nor make any monthly mortgage payments until you permanently move out of the home.
Tax-free money. Because the money you receive from a reverse mortgage is not considered income, it is tax free* and will not affect your Social Security or Medicare benefits.
Freedom and flexibility. The money you get from a reverse mortgage is yours to use in any way you choose.
Q. When will I have to pay the principal and interests cost of this loan? A. Your reverse mortgage loan becomes due and must be paid in full when one or more of the following conditions occurs: (a) the last surviving borrower passes away or sells the home; (b) all borrowers permanently move out of the home; (c) the last surviving borrower fails to live in the home for 12 consecutive months due to physical or mental illness; (d) you fail to pay property taxes or insurance; (e) you let the property deteriorate, beyond what is considered reasonable wear and tear, and do not correct the problems.
Because the homeowners retain title, they remain responsible for the payment of property taxes, insurance, utilities, home maintenance, and other expenses — just as they would with a standard first mortgage or home equity loan.
Q. Can I refinance a reverse mortgage? A.After you get a reverse mortgage, sometime in the future you may be able to increase the loan funds available to you by refinancing the loan. Large increases in your home's value, increases in HUD's 203-b limits, or lower interest rates could make this possible.
When you refinance a HECM, lenders are required to show you the total cost of refinancing, and compare it to the increase in available loan funds that a refinance would provide.
This comparison makes it easy for you to see the total costs that would added to the amount you owe versus the additional loan funds that would become available to you. If you need help understanding the comparison, HECM counselors can explain it to you.
Q. Is it possible for my loan balance to exceed the value of my home? A. No. You can never owe more than what your home is worth and since the reverse mortgage is what is known as a "non-recourse" loan, the lender cannot seek repayment from your income, your other assets, or your estate. In other words, the house is the only thing that stands for the debt.
Q. Are there restrictions on how I use the money? A. You can use the money for anything you choose*, from daily living expenses, home improvements, health care expenses, paying off existing debts, or simply enhancing your retirement years. For many people, the money provides a "financial security blanket," in case unexpected expenses arise. Always Consult a tax advisor for any implications of a Reverse Mortgage.
*Always consult a tax advisor when deciding on a Reverse Mortgage
You can choose to receive the money all at once, as a lump sum.
You can receive monthly payments as long as one of the borrowers lives and continues to occupy the property.
You can choose to receive equal monthly payments for a fixed period of months.
You can get a line of credit*; which allows you to take funds at times and in amounts of your choosing until the line of credit is exhausted. This is the most popular option, chosen by more than 60% of reverse mortgage borrowers.
If you receive SSI, Medicaid, or other public assistance, your reverse mortgage loan advances are only counted as "liquid assets" if you keep them in an account past the end of the calendar month in which you receive them. You must be careful not to let your total liquid assets become greater than these programs allow. It may be wise to consult your tax advisor on this.
Another tax fact to bear in mind: interest on reverse mortgages is not deductible on your income tax returns until the loan is paid off entirely.
Q. If I get a reverse mortgage, how will it affect my government benefits? A. The funds from a reverse mortgage do not affect regular Social Security or Medicare benefits. You should discuss the impact of a reverse mortgage on federal,state or local assistance programs with a professional advisor, such as your local Area Agency on Aging (toll free at 1-800-677-1116), an independent reverse mortgage consultant*, or a tax attorney.
* A list of approved counseling agencies is posted on the Internet by the U.S. Department of Housing and Urban Development, at www.hud.gov.
Q. Do I have to meet with a counselor before completing my reverse mortgage application. What does that accomplish? A.Yes, you will meet with a counselor before you can complete your reverse mortgage application.This is a federally mandated feature of the reverse mortgage process and is designed for your protection. The counselor, who is from an independent government-approved housing counseling agency, explains in detail the pro's and con's of all your reverse mortgage alternatives. He or she will discuss a reverse mortgage’s costs and financial implications for you and your heirs. They will tell you about any government or nonprofit programs for which you may qualify, and advise you on any proprietary reverse mortgages that may be available in your area.
* A list of approved counseling agencies is posted on the Internet by the U.S. Department of Housing and Urban Development, at www.hud.gov
MOST REVERSE MORTGAGES ARE CONTROLLED BY THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD):
• All approved lenders must use the same HUD published rates
• All approved lenders must abide by the HUD established costs
• The vast majority of the Reverse Mortgages are FHA insured So what makes us different than other Reverse Mortgage Lenders?
Customer service is the #1 reason we continue to receive referrals from our clients friends and family year after year. We are not a big box lender; customer service is what keeps our business running. ReverseMortgageCity.com only recruits loan officers who have proven that customer service is at the heart of their business practices. Those applicants who meet the minimum requirements are then brought into an intense training program to learn about the Reverse Mortgage and, as with all bank loan officers, are required to meet all compliance requirements. All administration and processing is performed by our FHA specialized staff to further ensure that ReverseMortgageCity clients are always being served by specialists in all aspects of their relationship with ReverseMortgageCity.
In summary, with ReverseMortgageCity your needs and objectives are placed above all else. Our loan officers are charged with the responsibility of aiding you in finding the best solution for your particular situation, even if it does not result in your using a Reverse Mortgage. So unlike many other HUD-approved sources, our loan officers are not focused on just the Reverse Mortgage product itself, but instead are focused on you and your objectives.
Q. Does ReverseMortgageCity.com provide a free analysis? A. Yes! ReverseMortgageCity.com will provide you with a no-cost, no-obligation, Free Reverse Mortgage quote. We will only need basic information about you and your property and will be able to offer an instant estimate and analysis regarding a Reverse Mortgage.
Q. What banks to you use? A. ReverseMortgageCity.com only works with HUD approved Reverse Mortgage lenders. We can provide you with a comparison of the current available Reverse Mortgages, and assist you with any questions regarding the Reverse Mortgage process.
Q. Should I just sell my house if I can’t afford it anymore? A. Many homeowners become interested in reverse mortgages so they can stay in their own homes. Selling their homes and moving elsewhere are generally not very appealing to most senior citizens.
The single best way to evaluate a Reverse Mortgage is to compare it to what may be your only real option: selling your home and using the proceeds to buy or rent a new home.
Ask yourself the following:
How much cash you could get by selling your home?
What it would cost you to buy (and maintain) or rent a new home?
How much money you could safely earn on any money left over after you buy a new home?
Have you recently looked into buying a less costly home, renting an apartment, or moving into assisted living or other alternative housing?
Until you have seen and considered other housing options, how do you know that another housing choice wouldn't be better for you than a reverse mortgage?
For your own peace of mind, look into what else might be available. It doesn't hurt to explore all your options before making a decision.
Most likely you will come to one of two conclusions:
you may find another housing option that is a lot more attractive than you thought; or you may confirm what you were fairly certain of all along: that where you live now is the best place for you to be. No matter what you conclude, you will have a much better idea of the overall costs and benefits of staying versus moving. That will give you a better sense of what is most important to you. And then it should be easier for you to evaluate the costs and benefits of a reverse mortgage.
Q. Why not just refinance with another “forward” mortgage? A. To qualify for most loans, the lender checks your income to see how much you can afford to pay back each month. But with a reverse mortgage, you don't have to make monthly repayments. So you don't need a minimum amount of income to qualify for a reverse mortgage. You could have no income and still be able to get a reverse mortgage.
With most home loans, you could lose your home if you don't make your monthly payments. But with a reverse mortgage, there aren't any monthly repayments to make. So you can't lose your home by not making them. Most reverse mortgages require no repayment for as long as you, or any co-owner(s), live in the home. So they differ from other home loans in these important ways:
you don't need an income to qualify for a reverse mortgage; and you don't have to make monthly repayments on a reverse mortgage.
Equal Housing Lender. Some
products may not be available in all states. Restrictions apply. All
rights reserved. Pre-qualification is neither pre-approval nor a
commitment to lend; you must submit additional information for review
and approval. Approval may be subject to rate increases, satisfactory
title and appraisal review, and no change in financial condition.
*Refinancing or taking out a home equity loan or line of credit may
increase the total number of monthly payments and the total amount paid
when comparing to your current situation
