What is a reverse mortgage?
A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you. However, unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage. You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.
Can I qualify for FHA's HECM reverse mortgage?
To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, have the financial resources to pay ongoing property charges including taxes and insurance, and you must
live in the home. You are also required to receive consumer information free or at very low cost from a HECM counselor prior to obtaining the loan.
Can I apply for a HECM even if I did not buy my present house with FHA mortgage insurance?
Yes. You may apply for a HECM regardless of whether or not you purchased your home with an FHA-insured mortgage.
What types of homes are eligible?
To be eligible for the FHA HECM, your home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.
What are the differences between a reverse mortgage and a home equity loan?
With a second mortgage, or a home equity line of credit, borrowers must make monthly payments on the principal and interest. A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments. With a reverse mortgage, you are required to pay real estate taxes, utilities, and hazard and flood insurance premiums.
Will we have an estate that we can leave to heirs?
When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid. All proceeds beyond the amount owed belong to your spouse or estate. This means any remaining equity can be transferred to heirs. No debt is passed along to the estate or heirs.
How much money can I get from my home?
The amount varies by borrower and depends on:
- Age of the youngest borrower or eligible non-borrowing spouse
- Current interest rate; and
- Lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price
If there is more than one borrower and no eligible non-borrowing spouse, the age of the youngest borrower is used to determine the amount you can borrow.
Should I use an estate planning service to find a reverse mortgage lender?
FHA does NOT recommend using any service that charges a fee for referring a borrower to an FHA-approved lender. You can locate a FHA-approved lender by searching online at www.hud.gov
or by contacting a HECM counselor for a listing. Services rendered by HECM counselors are free or at a low cost.
How do I receive my payments?
For adjustable interest rate mortgages, you can select one of the following payment plans:
- Tenure- equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
- Term- equal monthly payments for a fixed period of months selected.
- Line of Credit- unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.
- Modified Tenure- combination of line of credit and scheduled monthly payments for as long as you remain in the home.
- Modified Term- combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.
For fixed interest rate mortgages, you will receive the Single Disbursement Lump Sum payment plan.
What if I change my mind and no longer want the loan after I go to closing? How do I do this?
By law, you have three calendar days to change your mind and cancel the loan. This is called a three day right of rescission. The process of canceling the loan should be explained at loan closing. Be sure to ask the lender for instructions on this process. Mortgage lenders differ in the process of canceling a loan. You should ask for the names of the appropriate people, phone numbers, fax numbers, addresses, or written instructions on whatever process the company has in place. In most cases, the right of rescission will not be applicable to HECM for purchase transactions.
How do I qualify for a reverse mortgage?
You (and your spouse) must be at least 62 years of age, own your home, have sufficient equity in it to borrow against and live in it as your primary residence. An analysis of your ability to pay taxes, insurance and maintenance costs after receiving the proceeds of the reverse mortgage will be required. The borrower is also ineligible for a reverse mortgage if a lien used to convert home equity to cash has been originated on the property in the last 12 months.
How will the proceeds from the reverse mortgage affect my taxes, Social Security or other benefits?
Regular Social Security and Medicare benefits are not impacted by the proceeds from a reverse mortgage. Some programs, such as Supplemental Security Income (SSI) and Medicaid, may be affected. If you participate in one of these programs, please consult the appropriate government agency to determine how a reverse mortgage could impact your benefits.
How much equity can I access?
The amount of equity you can access depends primarily on three factors: the age of the youngest homeowner, the appraised value of the home as determined by the lender, and current interest rates at the time of the loan closing. The older you are, the larger the percentage of your home's equity that can be accessed.
What if I already have a mortgage or other debt on my home?
The mortgage or any other lien against the property will be paid off from the proceeds of the reverse mortgage loan at the closing. Your net loan will then be based on the remaining equity in your home.
What are the options for receiving reverse mortgage payments?
Depending on the reverse mortgage product selected, you can receive a lump sum at closing, a line of credit to draw on if and when you choose, or monthly payments for as long as the home is your primary residence or for a fixed number of years. You can also elect to receive payment using a combination of the above methods. For example, you can choose a combination of an up-front lump sum for immediate needs and a line of credit that can be drawn upon at a later date if additional needs arise. The amount of funds you may receive as a draw on a credit line or in a lump sum is limited in the first year of the reverse mortgage.
Will I still own my home after I get a reverse mortgage?
You will continue to own and hold title to your home.
Will a formal appraisal be conducted as part of the reverse mortgage approval process?
A formal appraisal is performed to determine the home's value, a key factor in determining the amount of the loan. Paying for the appraisal is the responsibility of the borrower.
Will I need an attorney to represent me at the reverse mortgage closing?
Although most programs do not require it, you may choose to have your own attorney at the closing. In addition, it is prudent to seek advice from a trusted family member or advisor.
Will counseling be required before I can get a reverse mortgage?
You must attend a counseling session given by a government-approved agency. There may be a fee for this required counseling service.
Are there any restrictions on what the reverse mortgage proceeds can be used for?
Depending on the reverse mortgage product selected, there may be some restrictions. Generally, you can use the proceeds for a wide range of needs, including paying for everyday necessities, purchasing or paying for health insurance or health care, buying life insurance and making repairs to your home.
Are there any monthly mortgage payments?
No monthly payments are required on the loan. Principal and interest do not need to be repaid as long as the property remains the borrower's primary residence,1
taxes and insurance are paid and the property is maintained.
Can one owner remain in the house if the other moves out or passes away?
As long as the property remains the owner’s primary residence, either owner may remain in the home if the other moves out or passes away. Only when the last owner vacates the home does the loan become due.
Will a temporary non-occupancy cause the reverse mortgage to become due?
Non-occupancy of your principal residence by all owners for a period of time defined by your reverse mortgage program, generally more than one year, will cause the reverse mortgage to become due.
When must the loan be paid off?
When the home is no longer the primary residence of the owner(s).
Do my heirs have to sell the house to repay the reverse mortgage?
Your heirs do not have to sell the house to repay the reverse mortgage if they can repay the balance due from other resources. If they choose to sell the home, they keep the excess equity, if any, after repaying the loan.
How much will be owed at the end of the reverse mortgage?
The total of loan advances, accrued interest, accrued mortgage insurance premiums, and any costs and fees financed as part of the reverse mortgage will become due at the conclusion of the reverse mortgage. There are no prepayment penalties.
Can a living trust or other form of trust take out a reverse mortgage?
Generally, a trust can take out a reverse mortgage as long as the trust is revocable, with the borrowers as the beneficiaries. The entire trust document must be reviewed by the lender in order to approve the reverse mortgage in a manner that maintains the integrity of the trust and a clear title for the lender.
Will any other part of the homeowner’s estate be responsible for reverse mortgage debt?
What must be paid at the conclusion of the reverse mortgage is the sum of the actual funds received plus those advanced for fees and the accrued interest. If the property is sold to pay off the reverse mortgage balance, the estate's liability is limited to the proceeds from the sale of home. However, if your heirs decide to keep the home, then the payoff amount would equal the total balance on the account.
Can the proceeds be used as a retirement or estate planning tool?
The proceeds of a reverse mortgage can be used as a funding mechanism for an entire financial retirement solution.
What are the costs involved with getting a reverse mortgage?
All mortgages have costs paid by the borrower, whether they are expressed as points paid up front or are built into the interest rate and paid on a monthly basis. Reverse mortgages are no exception and many of the same costs of a conventional mortgage apply to a reverse mortgage as well. Almost all of the costs of a reverse mortgage can be financed or incorporated into the loan, which greatly reduces out-of-pocket costs. The charges may include an appraisal fee, origination fees, mortgage insurance fee, and other standard recording or closing costs.
How do I receive the proceeds from my reverse mortgage?
You make the choice to receive the proceeds from your reverse mortgage either through a lump sum, set monthly advances, or a line of credit.
Who will be on title to the home after I close my reverse mortgage?
You will continue to own the home and hold title to it.
When do I have to pay back the loan?
With a reverse mortgage, there are no monthly principal and interest payments required. The loan is paid back when the last surviving borrower either passes away or moves out of the property, usually through the sale of the property. Note: Borrowers are responsible for maintaining current property taxes and homeowners insurance.
Are condominium units and manufactured homes eligible for a reverse mortgage?
In many cases, they are eligible.
What happens if the loan balance becomes more than the value of my home?
If the loan grows to more than your home is worth, you do not have to pay the excess. You or your estate will typically sell the home, the lender will take the proceeds from the sale as payment on the loan, and FHA insurance will cover any remaining loan balance. You may continue to live in your home as long as it is your primary residence.
What is a reverse mortgage?
A reverse mortgage is a home equity loan for seniors age 62 and over that allows them to convert the accumulated equity in their home into cash without giving up title or incurring monthly payments of principal or interest.
Can I Purchase a Home and Have NO Mortgage Payment?
A Purchase Home Equity Conversion Mortgage for Reverse Mortgage Purchase makes it possible.
A Reverse Purchase Mortgage can help you finance the ideal home for this time in your life—and the best part is, you’ll have no monthly mortgage payment.* You can get a home that’s right-sized for you, while preserving your savings—and the home will be in your name, just like a traditional mortgage.
How does a Reverse Mortgage for purchase work?
Here’s an illustration: take for instance a married couple, who are 71 years old, planning the next phase of their lives—looking for a right-sized home with little maintenance and upgraded amenities. They can purchase the home for $250,000 with a down payment of about 45% to 55%, and live the life they imagined with no monthly mortgage payment required. As borrowers, they must continue to pay for homeowners insurance, property taxes, and home maintenance.
How do I qualify for a Reverse Purchase Mortgage?
You can be eligible for a Reverse Purchase Mortgage if you are at least 62 years old and the new home will be your primary residence. Houses and most condos qualify. Your down payment must come from either the sale of a home or your other assets—not another loan.