Reverse Mortgage FAQ 2018 | Frequently Asked Questions about Reverse Mortgages
1. What is a reverse mortgage?
A reverse mortgage is a government-backed loan available to senior homeowners. The loan allows the homeowner to take a portion of equity in the home and convert it into cash.
2. Can I qualify for reverse mortgage?
To be eligible for a reverse mortgage, you have to meet a few criteria. The homeowner needs to be 62 years of age or older, you must live in the home, and you must own your own home outright. You also are required to meet with a government approved counselor prior to obtaining the loan.
3. What types of homes are eligible?
To be eligible for a reverse mortgage, your home must be a single family home. Also eligible are 2-4 unit homes, but one unit must be occupied by the borrower. HUD-approved condominiums and manufactured homes are also eligible, if they meet FHA requirements.
4. Can I apply for a reverse mortgage even if I didn’t buy my home with a FHA mortgage insurance?
Yes, while you must meet FHA minimum standards, it does not matter if you didn’t buy your home with an FHA-insured mortgage.
5. Does the lender take title to my property?
No, the lender does not take title to the property. You still remain on the title. However, the lender will put a lien on the property, just as they would with a regular mortgage.
6. What are the differences between a reverse mortgage and a home equity loan?
With a second mortgage or a home equity loan, borrowers must go through a credit check and income verification to qualify for the loan, and the borrowers make monthly payments on the principal and interest. A reverse mortgage is vastly different, instead of you making a monthly payment – it pays you – either by monthly payments, a lump sum payment, or a line of credit that you can withdraw from when needed. With a reverse mortgage, you are still obligated to pay real estate taxes, utilities, homeowners dues (if applicable), and insurance.
7. When does the reverse mortgage need to be paid off?
When you no longer occupy the home as your primary residence or sell the property.
8. Do I need to own my house free and clear to get a reverse mortgage?
No, you do not need to own your home free and clear to qualify for a reverse mortgage. However, any existing liens must be paid off at closing.
9. Will we be able to leave our home to heirs?
Yes, you can still leave your home to heirs. However, when the home is no longer used as a primary residence, the loan has to be repaid. Your heirs can either repay the loan by selling the property or using other funds to pay off the loan. It is important to understand that no debt is passed on the estate or heirs.
10. How much money can I get from my home?
The amount you can borrow will depend on:
- Age of the borrower (if a married couple, it goes by the youngest age)
- Current interest rate
- Lesser of appraised value or the FHA mortgage limit of $625,500 or the sales price
Other factors that are considered are if the borrower is over 70 years of age, the more money you may be able to borrow. Also, the more valuable the property and the lower the interest rate are also used to determine the amount.
11. Do I have to have good credit in order to get a reverse mortgage?
Maybe. Lenders have their own requirements for qualifying for a reverse mortgage. Most reverse mortgage lenders do not require a credit check, but a few lenders are now requiring a good credit score. Check with the lender first, and ask what qualifications they need in order to process your application.
12. What are the costs and fees associated with a reverse mortgage?
All closing costs can be paid out of the proceeds from the reverse mortgage. There are no out-of-pocket costs needed to obtain the loan. You are, however, required to pay interest on the principal advanced. Ask you lender if they charge a monthly servicing fee for any cash advances.
13. How much are closing costs?
It depends on the value of your home and the county it is located in.
14. How do I receive my payments?
You have a choice of payment plans:
- You can take a lump sum payment.
- You can take a monthly income payment.
- You can have a line of credit, which grows monthly on the unused portion.
- Or you can get a combination of any of the above.
15. What are the interest rates for a reverse mortgage?
Rates will vary by program. The one thing to remember is that all HUD rates are regulated in the same manner, which means that the index drives the rate is the same for all lenders.
16. Are there different types of reverse mortgages?
Yes, there are three types:
- Federally insured
Known as Home Equity Conversion Mortgage (HECM), this type of loan is federally insured. There are no income requirements and the loan can be used for any purpose.
As an alternative to a HEMC, Fannie Mae offers a Home Keeper, which is a government-sponsored enterprise program. However, it addresses needs that are not covered by the HECM, like individuals with higher property values and homeowners who wish to purchase a new home.
- · Proprietary
A propriety loan is a private loan with unique features that appeal to certain types of borrowers.
17. Can I refinance a reverse mortgage, just like a traditional home mortgage?
Yes, you can refinance a reverse mortgage. If your home increases in value or interest rates drop significantly, it may make sense to do so.
18. If I have an existing first or second mortgage, can I still qualify for a reverse mortgage?
Yes, you may eligible for a reverse mortgage even if you still owe money on existing mortgages. The proceeds from a reverse mortgage will go to pay off the other balances, though.
19. Can I get a reverse mortgage on a second home?
No, unfortunately reverse mortgages may only be taken out on your primary residence.
20. My home is in a “living trust”. Would I qualify for a reverse mortgage?
Typically, yes. In most cases a homeowner who has put their home in a living trust can obtain a reverse mortgage. Your reverse mortgage lender may want to review your trust documents to make sure there is nothing in the trust that would prohibit qualification.
21. What if I change my mind and decide I don’t want the loan after closing?
By law, you have a three day right of rescission. That is three calendar days. At closing, the loan processor should explain the process of cancelling the loan. Be sure to get information about the lender, including names, addresses, and phone numbers, in case you should have any questions after the closing has taken place.
22. How do I obtain my counseling certificate?
Once you meet with a government approved reverse mortgage counselor, you will obtain the certificate. This certificate indicates that you understand the intricacies of a reverse mortgage. The certificate is given to the lender in order to proceed with the loan processing.
23. Will I pay taxes on the reverse mortgage proceeds?
It is best to check with a trusted tax advisor, but generally the funds from a reverse mortgage loan are considered to be non-taxable as the money received is not earned income.
24. Can I start making payments any time on a reverse mortgage?
Yes, while a reverse mortgage does not require regularly scheduled monthly payments, the borrower can make voluntary partial or full payments on the loan. There is no penalty for paying down or paying off your loan at any time. However, you are not able to “re-borrow” the money during the life of the loan.
25. What if I don’t want to accept the full amount that I qualify for?
You have the option to choose a line of credit and only use a portion of the funds that you need.
26. Will the proceeds from a reverse mortgage affect my Social Security or Medicare benefits?
The proceeds will not affect public benefits like Social Security or Medicare, but may affect Medicaid since it is a “need based” program.
27. What are the drawbacks to a reverse mortgage?
Reverse mortgages are not for everyone. If you intend to leave your home within 5 years, you may want to consider other options, such as home equity line of credit. Also, if you are planning on leaving your home to your children, you should discuss the options with them because the home will have to be sold to pay back the reverse mortgage (unless your heirs have the funds to pay off the loan).
28. Can I pay off a reverse mortgage before the maturity date is reached?
Yes, you can pay off a reverse mortgage in full at any time. There are no pre-payment penalties.
29. How long does my estate have to pay off the reverse mortgage after it has been called due?
Your reverse mortgage has to be paid in full once it has been called due. If the loan is not paid in full in a timely manner, then the loan servicer may begin foreclosure procedures within 30 days after the loan has been called due. If the estate has been working to refinance the property or sell the property, then it is imperative to stay in touch with the loan servicer to forestall any foreclosures actions.
30. What are the benefits of getting a reverse mortgage?
There are many advantages to a reverse mortgage.
- You will be able to remain in your home. Your lender can not force you to move.
- You will retain the title to your home.
- You will not have to make mortgage payment. A reverse mortgage pays you! You can choose from monthly payments, a lump sum, or a line of credit.
- There are no restrictions on what you do with the proceeds of a reverse mortgage. Take a vacation, pay off your credit cards, or pay for your grandchildren’s college expenses.
- The funds do not affect your Medicare benefits or your Social Security.
- You do not have to pay income taxes on the funds received from a reverse mortgage.
- You never have to pay back more than what your home is worth.
31. What if I want to take out more equity from my home than the FHA-insured mortgage limits for the area I live in?
A reverse mortgage is primarily intended for low-to-moderate income families. Currently, FHA has a maximum home mortgage amounts that vary depending on the location of home. An owner that has property valued beyond the FHA mortgage limits or who has a large amount of equity will probably not receive as much cash as they may can from a private lender. If you have questions regarding the amount you wish to receive from a reverse mortgage, you should speak to a government approved counselor first.
32. How do I get started?
The process is easy to get started. The first step is to meet with a reverse mortgage specialist about your reverse mortgage options. They will help you get started with the process and answer any questions you may have.
The regulations and requirements for a reverse mortgage are continually changing, and while we attempt to provide the most recent information, it is possible that our information is out of date. Always check with a qualified loan provider or call us directly for the most up to date information.