Q: What is a Reverse Mortgage?
A Reverse Mortgage is a special type of loan that enables homeowners 62 years or older to convert a portion of their home’s equity into accessible funds. The FHA insured HUD program know as the Home Equity Conversion Mortgage (HECM) is the most popular.
There are also Jumbo Reverse Mortgages for higher valued homes.
The major feature is that the homeowner does not make monthly payments as long as they continue to live in their home. The homeowner retains ownership of their home as they would with any mortgage, and is responsible for property taxes, homeowners insurance, and maintenance.
Q: Why should a senior consider a Reverse Mortgage?
A Reverse Mortgage may solve a financial problem when a senior is short of funds to accomplish their needs or goals. Needs may be paying for in-home caretaker or medical providers or simply to have enough to live comfortably. Goals may be anything for home improvements to helping family members financially.
Q: What are some of the benefits of a Reverse Mortgage?
The Reverse Mortgage borrower retains ownership and lives in their home free from current mortgage payments while still paying property taxes, homeowner’s insurance and maintenance, while still being responsible for property taxes, homeowner insurance and maintenance. Loan proceeds can be used for any purpose such as paying off an existing mortgage and credit card debt, supplementing income, paying medical expenses, home repairs or simply enjoying life more fully.
Loan proceeds are not considered income and will not affect Social Security, SSI, Pension or Medi-Cal benefits but may effect Medicaid or other government programs. Neither the Reverse Mortgage borrower nor their heirs will ever owe more than what the property is valued.
Q: When a borrower dies will the bank take the property?
No, its just a mortgage and the lender will simply be paid what is owed at the time which is the principal amount borrowed and accrued interest – the rest goes to the heirs. There may be a situation where the amount owed is greater than the home value in which case the sale proceeds will go to the lender. But that is rarely the case and if it should happen the heirs are not liable for any shortfall. There is a possibility of foreclosure if there is not timely action to resolve the debt if the loan is called for violations of the terms.
Q: How can I qualify for a Reverse Mortgage?
All applicants must be a homeowner 62 years or older and receive independent counseling to ensure that the mortgage loan program is right for them. There is a financial assessment done to make certain that the borrower demonstrated a willingness to pay obligations and will have sufficient residual income to live on after paying property taxes, homeowners insurance and the usual living expenses such as utilities, etc. It is not the customary credit analysis and debt to income calculation done for conventional mortgages.
Single family homes, qualified condos, town houses, manufactured homes and 2 to 4 family owner–occupied properties are eligible.
Q: What my options in accessing the loan proceeds?
You choose from a number of options:
- Lump sum advances immediately,
- Guaranteed monthly payments for life,
- Line of credit available upon request,
or a combination of any of the above. These options can also be changed at any time.
Q: What are the upfront costs of a Reverse Mortgage?
The upfront costs of Home Equity Conversion Mortgages are regulated by HUD and most costs are financed through the loan. The costs include an origination fee, a mortgage insurance premium (for FHA ), an appraisal fee, the HUD counseling fee and standard closing cost, i.e., escrow ,title. etc.
Jumbo loans have different fee structures and vary with the lender and depend upon the specifics of the loan. These costs may be higher or lower than the FHA/HUD program.
Q: What are the steps to obtain a Reverse Mortgage?
Borrowers are first required to receive counseling by a certified HUD counselor. After the application is signed it will take 4-8 weeks to ready the final loan documents. There may be some required repairs and most of them that can be completed after the loan is funded.
Q: What are my responsibilities while I have a Reverse Mortgage?
The borrowers responsibilities are simple: live in the home as a primary residence, pay property taxes and homeowners insurance and maintain the property and otherwise comply with the loan terms.
Q: How much money can be borrowed?
The borrowers age, the appraised value and current interest rates will determine the maximum amount that can be borrowed. This can amount to anywhere from about 30 to 60% of the home value. Of course any existing liens against the property such as mortgages and home equity lines as well as any upfront loan cost must be paid out of the available loan proceeds.
Call for a no cost or obligation for analysis of how a Reverse Mortgage will work for a specific borrower.