The Mortgage Man

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What Is A Reverse Mortgage?

If you are unfamiliar, here is a quick breakdown of a Reverse Mortgage.

The following information is also available on HUD’s website.

Reverse Mortgages have been around for years, but have become more popular recently as a way to fund retirement and supplement social security and increase overall quality of life.  The FHA HECM reverse mortgage was one of the original reverse mortgages available and is a federally insured private loan to provide a safe retirement planning alternative.  There are many uses for a reverse mortgage including income in the form of monthly payments, passive income by eliminating mortgage payments, cash out for home improvement or purchasing a boat or RV, etc.

  • What is a Reverse Mortgage? A reverse mortgage is a special type of mortgage that allows a homeowner to “reverse” the flow of money on their home and receive cash or income (or both) based on the equity that has built up over time.  But, unlike a traditional home equity loan or second mortgage, no repayment of the mortgage is required until the home owner(s) no longer use the property as their primary residence.  HUD’s reverse mortgage provides these benefits, and is federally insured as well.
  • Can I qualify for a Reverse Mortgage? In order to qualify for a Reverse Mortgage, HUD requires the following:
  1. You must be a homeowner
  2. You must be at least 62 years of age (the minimum age for all residents in the home)
  3. You must own your home outright, or have a low mortgage balance that can be paid in full at closing
  4. You must reside in the home as your primary residence
  5. You are also required to undergo HUD approved consumer counseling to gain a full understanding of the process
  • Can I qualify if I did not buy my current home with an FHA loan? Yes, it is not required that your existing loan, or your original purchase loan be an FHA mortgage.  Your new Reverse Mortgage will be an FHA insured loan.
  • What types of homes are eligible? Your home must be a single family dwelling or a two to four unit dwelling and you own and occupy as your primary residence.  Townhouses, detached homes, units in condominium projects, and some manufactured homes are eligible.  It is also possible for individual condominium units to qualify under the Spot Loan Approval program.
  • What is the difference between a Reverse Mortgage and a bank home equity loan? With a traditional mortgage or home equity line of credit, the borrower must qualify based on their current income and expense ratio and ability to repay the monthly payments.  A Reverse Mortgage has no monthly payments, it pays you.  Therefore, there are no qualifying criteria for income.  The amount you can borrower is determined by your age, current interest rates, and the appraised value of your home or the local FHA lending limits, whichever is lower.  Generally, the older you are, and the more valuable your home is, the more you have available to borrow.  You have no monthly payments because there are none due as long as you live in the property as your primary residence.  Like all homeowners, you are still required to pay your property taxes, home owners insurance and normal owner obligations such as utilities and maintenance.  But, with an FHA insured Reverse Mortgage, you can not be foreclosed on or forced to vacate the property for “missing payments” because there are none.
  • Can the lender take away my home if I outlive the home? No!  You are not required to repay the loan as long as you reside in the home and you continue to pay your taxes and insurance.  You can never owe more than your home’s value.
  • Will I still have an estate that I can leave to my heirs? When you sell your home or no longer live in it as your primary residence, you or your estate will repay the cash received through the Reverse Mortgage plus interest and fees to the lender.  The remaining equity in your home, if any, belongs to you or your heirs.  None of your other assets will be affected by the Reverse Mortgage, and the actual debt will never be passed along to your heirs or the estate.
  • How much money can I get from my house? The amount of money available is based on your age, value of your home and current interest rates.  Generally, the more valuable the home, the older you are, and the lower current interest rates are, the more you have available.
  • Should I use an estate planning service to find a Reverse Mortgage? You should not pay a referral fee to someone to help you find a lender.  You can reach Primary Residential Mortgage directly at 888-257-8383 for more information on obtaining a Reverse Mortgage.
  • How do I receive my payments? You have 5 options:
  1. Tenure – Equal monthly payments as long as at least one borrower continues to live in the property as a primary residence.
  2. Term – Equal monthly payments for a specified length of time.
  3. Line of Credit – Unscheduled payments or installments at times and in the amounts of the borrower’s choosing until the line of credit is exhausted.
  4. Modified Tenure – Combination of equal monthly payments and installments for as long as borrower occupies the property.
  5. Modified Term – Combination of equal monthly payments and installments for a specified length of time.

Hopefully this has answered many of your questions, but we know that you have more.  Contact me at any time to discuss your reverse mortgage in greater detail.  Steve Russell 888-257-8383.

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1 Comment»

[…] If you are not familiar with reverse mortgages, check out What You Should Know About a Reverse Mortgage. […]


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