The recent signing of the HOUSING AND ECONOMIC RECOVERY ACT OF 2008 (HR 3221) by President Bush puts into motion something that has been long in the making and that’s a modernization of FHA rules for reverse mortgages. Some of the changes facing potential reverse mortgage clients are an increase in the national lending limit from the individual county limits now in place. Folks in some parts of the country will see their lending limit rise from as low as $200,160 to an anticipated $417,000 and that’s good news for those with home values over their county lending limits since any equity access was determined from the lower of the appraised value or the respective county lending limit. In many cases where the reverse mortgage was to utilized to pay off an existing forward mortgage there wasn’t enough cash access to pay off that mortgage and the borrower either had to come to the table with money or look for alternative methods which often led to selling the home and in a down market, that’s neither easy or fun.
Another change is with the origination fee, currently capped at 2% of the lesser of the appraised value or the county lending limit. The new bill will keep the 2% up to $200,000 but cap the origination fee at $6000 which is more than $1200 less than some of the highest fees where county lending limits were as high as $362,790. In that case, 2% of that amount would have resulted in an origination fee of $7255.80.
Higher lending limits combined with lower origination fees are great for those seniors whose circumstances have them looking at ways to increase their monthly cashflow without making risky investments in a roller coaster stock market.
Some new additions to the bill are for folks in co-ops and those looking to use the reverse mortgage as a finance tool to help them purchase a home, most likely in a downsizing event. Currently, only New York co-op owners are able to secure reverse mortgages because of their prevalence. There are other pockets of the country with co-ops and this will be a relief for those co-op owners as other means of financing have disappeared as most boutique programs are no longer available. In the event someone wants to downsize from a larger, more expensive home, the ability to purchase a home using a reverse mortgage is also a welcome addition. As an example, someone in a $400,000 home can sell the home, take a portion of the proceeds for purchase of a less expensive home, say $200,000, and instead of putting up the entire value in cash, they can put down a small portion, in this example, half of the value and finance the other half and not only do they eliminate monthly mortgage payments, they keep a larger portion of their cash in their pocket and in this market, cash is king. Instead of having $200,000 left over from the sale of the home, they now have $300,000 and no monthly payments as long as they live in the home. That’s also great for those that don’t currently qualify for a regular mortgage because of bad credit or insufficient fixed monthly income as those programs have gone the way of the other boutique programs once offered by most forward lending brokers.
Some other features are a prohibition against requirements to purchase additional products as a condition for HECM eligibility such as annuities or life insurance policies. That is good news as the recent negative information about reverse mortgages has been because of this very practice. Folks short on cash flow that need a reverse mortgage should not have their money tied up in any annuity, be it immediate or deferred. The reverse mortgage provides more cash flow with less restrictions than the annuity could anyway in most situations where monthly cash flow is short. Another mention is about a study to determine consumer protections and underwriting standards for HECMs which will help to insure that purchase of any additional products by a consumer is appropriate for the consumer.
We like the new changes, they are consumer protection focused and open up opportunities to help save some homeowners from increasing monthly payments on their forward mortgages that were having a harder and harder time making that increased payment amount and the homebuying function is a great tool for credit challenged or those looking to downsize into more affordable housing.
Below are some frequently asked reverse mortgage questions from visitors. In addition to these FAQ’s, we have questions and answers focusing on other reverse mortgage topics:
If you have questions about reverse mortgages not included here, you can use the form at the bottom to submit it! We’ll do our best to get you a prompt and accurate reply.
My mom is considering a reverse mortgage. Her only income is social security. What happens if the reverse mortgage leaves her with little equity in the home and she has to go into a nursing home facility? Who will pay for the nursing home expenses?
If your mother needs to move into a nursing home, the reverse mortage loan will be become due. Unless there is an alternate source to pay off the loan, she’ll probably have to sell her home. If paying off the loan uses up most of her money, she will be able to apply for Medicaid assistance. Once on Medicaid and in a nursing home, most of her social security income will go directly toward the nursing home expenses. Medicaid will pay the difference between the amount she can pay and the cost of the care.
Why can’t I get an answer from my tax consultant or reply from my reverse mortgage Lender in just asking if the interest I have been paying throughout the tenure of this mortgage would be tax deductible upon selling. This would surely benefit me with such a hefty Capital Gains Tax looming upon a future sale. Thank you for your reply.
Generally, interest on a reverse mortgage is paid when the loan terminates (sale,death of owner). So you likely haven’t “paid” any interest on your reverse mortgage, but have “accrued” an interest liability that will be paid when you sell. Interest is generally deductible for the year in which it is paid, so the deduction should be available to help offset your capital gain. You may be interested in this article which speaks to a strategy of using a reverse mortgage to avoid capital gains tax.
2 questions: 1. Can the funds be used to purchase a new principal residence? 2. Are mobile/manufactured homes, with lot, acceptable as “single-family units”?
1. Generally,no as you must own your principal residence at the time the loan is taken. The Fannie Mae HomeKeeper reverse mortgage can be used in this manner, however. For more information on how this might, see this example.
2. For Home Equity Conversion Mortgage loans (HECM), manufactured homes are eligible if they meet FHA standards, including: * borrower owns land beneath the home, and * home is permanently affixed to a foundation * home was built after June 15, 1976 - mobile homes are not eligible Other reverse mortgage programs may have different standards.
My father in law is considering getting a reverse loan. His daughter lives with him. He is 76 years old. If he should pass away, what options will she have to still have the home in the family?
When the homeowner(s) dies, the reverse mortgage will need to be repaid. Often this is done by selling the home, but other resources can be used if keeping the home in the family is the goal. Obviously, the practicality of this option depends on many factors: how large the loan balance is, availability of other resources, etc. Another option is for the daughter to refinance - i.e. take out a new loan to buy the house and retire the reverse mortgage balance. In effect, she would buy the house from herself (father’s estate).
Since interest on a reverse mortgage isn’t paid (and isn’t deductible) until the home is sold or the borrower dies or moves out, the total accrued interest can be substantial in the year paid. What happens if total interest paid is more than the borrower’s income for the year? Can the deduction be carried over to subsequent years?
Unfortunately, the interest deduction cannot be carried over. Any deductible interest amount that exceeds the borrower’s income will be lost as a tax deduction.
My husband and I are considering a reverse mortgage to bolster our monthly income. However, my husband is in poor health and may need nursing home care at some point. If he dies or moves to an assisted facility, will the loan have to be repaid?
The answer is no - assuming both you and your husband are titled owners of the home and are over 62. The reverse mortgage needs to be repaid only after the last borrower (you or your husband) passes away, moves or stops living in the home as their primary residence. So, if you elected to remain in the home, the reverse mortgage would not need to be repaid.
If the house is foreclosed will my relatives get anything after the sale of the house?
Generally a foreclosure would occur when the value of the home is less than the outstanding obligations. So, the answer to your question is most likely “No”. If the value of the home is greater than outstanding obligations, the sensible thing to do would be to sell before forclosure commences. The equity remaining after payment of the obligations would be your’s (or your estate’s) to do as you please with.
Reverse mortgages are “non-recourse” loans meaning the total amount owed on the loan can never exceed the home’s market value. Moreover, reverse mortgages require no monthly loan payments so foreclosre for reason of non-payment is not an issue. Indded, reverse mortgages are sometimes used as tools to pay off a burdensome traditional mortgage thereby avoiding a foreclosure.
Reasons for foreclosure under a reverse mortgage can include failure to: pay property taxes, keep the home in good repair, and failure to maintain adequate insurance. Lenders typically will work very hard to avoid a foreclosure scenario.
In the unlikely event you entered into a reverse mortgage, experienced foreclosure, and the home was ultimately sold off for more than the acumulated obligations, the flow of the excess funds would be governed by state and local laws.
Can we challenge a low estimate by the banks assessor ?
An estimate by a bank’s assessor on a reverse mortgage isn’t the official value holder on the property because they are not the entity that provides the home value. Since this is an FHA program it requires an FHA appraisal and inspection by an FHA approved appraiser, but the appraisal can not be ordered until the borrower undergoes independent counseling and signs the application. That counseling cert and appraisal are good for 6 months and are tied to an FHA case number that belongs exclusively to the homeowner and tied to the lender so multiple appraisals will not happen for one property (meaning you can’t pick the higher of 2 appraisals and go with that lender). The potential problem that some potential reverse mortgage clients run into is that their estimate of their home’s value and the actual home value vary considerably. They then are often disappointed by the difference and in this housing climate, its often the case that the values are not what the owner thinks it should be and there is little that can be done. You can do research on multiple sites to check home values in your area before you begin and if you don’t see the values you you think you need, you should retire to the fact that the bank has a pretty good idea of what the market will bear.
Can a homeowner with a reverse mortgage get a 2nd mortgage for home repairs?
NO, if you were to do that it would break your agreement with HUD and your lender and the reverse mortgage could be called due. Would your inquiry be based on some extra cash flow that the reverse mortgage can no longer provide? How old is your loan and would a refinance of your reverse help provide additional equity access?
Can a married couple 59 and 68 apply for a reverse mortgage under the older spouse only
They can only if the younger spouse comes off title but that can cause issues if the older spouse were to pass away before the younger spouse became age qualified. Some couples have looked at getting a small life insurance policy for the older person to compensate for the amount of reverse mortgage proceeds they think they would need until the younger spouse qualifies. Some states have a Life Estate with Full Powers capability that does help with probate after the older spouse passes but that doesn’t help with paying off any reverse mortgage for the younger spouse. This is something you should talk to your attorney about but it doesn’t keep you from doing the reverse mortgage, although you should consider the ramifications. Let us know if you have other questions about this and we can help point you in the direction you may need.
Below are some frequently asked questions and answers about reverse mortgage rates and fees. In addition to these FAQ’s, we have questions and answers focusing on other reverse mortgage topics:
If you have questions about reverse mortgages not included here, you can use the form at the bottom to submit it! We’ll do our best to get you a prompt and accurate reply.
Reverse Mortgage Rates and Fees Questions and Answers
What interest rate will I pay for this loan?
All major reverse mortgage programs have adjustable rates that are tied to a specific index. It is important to realize that, unlike traditional mortgages, there is no interest rate competition between lenders for the same type of reverse mortgage. Click here to see current rates for major reverse mortgage programs.
What costs are associated with taking out a reverse mortgage?
Following are costs typically associated with a Home Equity Converion Mortgage (HECM) - the most popular type of reverse mortgage. Most other reverse mortgage programs have similar fee structures:
Origination Fee - $2,000 or 2% of the “maximum claim amount” (basically home value).
Mortgage Insurance - initial insurance fee is 2% of home value or FHA 203b limit, whichever is lower. Also, a recurring premium equal to 1/2 of 1 percent (0.5%) of the outstanding loan balance is charged annually for mortgage insurance over the life of the loan.
Closing Costs - Appraisal, floodplain certification, title search, title insurance, recording fees, state or local taxes, attorney fees, etc. Expect these costs to total $2,000 - $3,000.
Service Set Aside - expect to pay $30 - $35 per month to cover costs associated with servicing the loan (i.e. statement preparation, loan payments, etc.).
Most of these fees can be paid either in cash at closing or financed as part of the loan balance. Of course, if fees are financed, you will pay interest on them.
Can I lock-in a the interest rate on a reverse mortgage to protect against rate increases?
On a HECM loan - the most popular type of reverse mortgage - the “initial” rate that determines how much you can borrow can be locked in for 120 days after the date of application. However, the “current” rate, which determines the total interest ultimately paid on the loan is a rate that changes (either monthly or annually) and cannot be locked in.
Is it true that once you have decided to get a HECM with either a monthly or annually adjusting interest rate, you cannot change your decision?
True. Selection of the rate adjustment period is a one-time, irrevocable decision.
Below are some frequently asked questions and answers about reverse mortgage counseling. In addition to these FAQ’s, we have questions and answers focusing on other reverse mortgage topics:
If you have questions about reverse mortgages not included here, you can use the form at the bottom to submit it! We’ll do our best to get you a prompt and accurate reply.
What is the purpose of the required counseling during the reverse mortgage process?
The purpose of counseling is to assure that borrowers fully understand the complex details of reverse mortgages, the consequences of taking one out, and the other options that might be available to them. This is a federally required 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, should 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. At the end of the counseling session you will receive a Certificate of Borrower Counseling which you will need to present to the lender.
Who must receive counseling?
Every owner shown on the title to the property is required to receive counseling. Generally, this will be the husband and wife owners of the home. In power of attorney (POA) situations, it is generally necessary for both the homeowner and the person designated POA to attend counseling. Other family members or advisors may also attend the counseling session at the homeowners invitation.
How do I find a reverse mortgage counselor?
The easiest way to find a counselor is on the internet. You can find a state-by-state directory of counselors using this link. You can also call the US Department of Housing and U&rban Development (HUD) at 800-569-4287 for information on counselors in your area. Finally, you can contact a reverse mortgage lender in your area and ask them about recommended counselors. They can give you a list of five counselors but cannot “steer” you to a particular counselor.
What qualifications should I look for in a reverse mortgage counselor?
You should always look for a counselor who is HUD approved. HUD funds housing counseling agencies throughout the country who can give you advice on reverse mortgages. You can also look for a counselor who is certified through AARP. These counselors, in addition to being HUD-approved, have scored very highly on a specialized reverse mortgage exam administered by AARP. Do not hesitate to ask the counseling agency you call about the qualifications of their staff.
Can I meet the requirement for reverse mortgage counseling by speaking to a reverse mortgage counselor on the phone?
Counseling may be done over the phone, but it is highly recommended that it be done in a face-to-face meeting. Telephone counseling is intended for situations where it is not possible to meet in person due to travel distance or health concerns. Reverse mortgages are complex and counseling should never be taken lightly. Meeting face-to-face with a counselor provides added assurance that you fully understand the options and risks. Also, “phone counseling” has been at the core of some unfortunate fraud cases involving reverse mortgages.
Is there a cost for reverse mortgage counseling?
Generally, counseling is available free of charge. Some counselors may have a nominal fee (under $100) to help defray costs. Be wary of anyone who offers reverse mortgage counseling services for a significant fee or for a percentage of the loan proceeds.
My mother had a stroke and later took out a reverse mortgage. Her mortgage payment was only $400 at the time.
Can I call off the loan based on my mothers dimenished capacity. The reverse mortgage counseling was done with a person with dimenished capacity.
The family did not know of the loan and the Mortgage company went ahead with it leaving my two disabled brothers without a home. The family can ill afford to pay off loan….what is my recourse being the eldest in the family without a will or power of attorney….
That is a concern and should be taken up with the lender but you haven’t provided all the details. Part of the counseling is to ensure that the borrower is not of diminished capacity along with making sure that no one is being coerced and that the borrower understands the reverse mortgage requirements along with other options such as downsizing or getting state assistance if available. Is your mother still alive and living in the home? Assuming your brothers are not 62 or older. Even though the mortgage payment was $400 at the time, that doesn’t sound like a situation that would cause a reverse mortgage to reach a point that no other equity is left so we would need some more details into this and can help you more.
My husband is 69 years old but I am only 56 how will this effect a reverse mortgage ?
Both persons on title will have be at least 62 years old. Some circumstances have allowed for a younger person to come off title if older person has life insurance policy that could pay off reverse mortgage balance to allow younger person to remain in the home. Consult an elder law attorney for that information but it is not a normal procedure.
Below are some frequently asked questions and answers about reverse mortgages and taxes. In addition to these FAQ’s, we have questions and answers focusing on other reverse mortgage topics:
If you have questions about reverse mortgages not included here, you can use the form at the bottom to submit it! We’ll do our best to get you a prompt and accurate reply.
What kind of income taxes do I pay on my reverse mortgage loan disbursements?
Because the reverse mortgage is a loan based on your home equity, the IRS does not consider it income and all loan funds are tax free. The Internal Revenue Service treats monies received from a reverse mortgage as loan advances and not taxable income. The payments from a reverse mortgage also should generally not be subject to state or loc income taxes. You should always consult a tax advisor about your particular situation.
Is interest paid on a reverse mortgage tax-deductible like interest paid on a regular home equity loan?
Interest is deductible in the year paid. Interest on a reverse mortgage typically is paid at the end of the loan (i.e. sale of home or death of owner). You can make partial pre-payments (including interest) on most types of reverse mortgages. This can be a sensible tax strategy in some cases. If you do chose to pre-pay be sure to direct that your payments go towards the interest you owe. Check with a tax expert concerning your specific situation.
Does taking a reverse mortgage trigger “capital gains” taxes?
No. Under a reverse mortgage, the home is not considered to be “sold” for tax purposes. Therefore, there are no capital gains tax on accumulated appreciation in the home. Further, if the home is being passed on to heirs, they may be able to sell the home without paying capital gains tax due to the “step-up”basis rule that applies to inherited property. Check with a tax expert concerning your specific situation.
Do payments from a reverse mortgage count towards the income threshhold for determining whether regular Social Security benefits are subject to federal income tax?
No reverse mortgage loan proceeds do not count towards this threshhold (exclusion ceiling). This is one advantage of reverse mortages have over annuities (which payments do count toward the exclusion ceiling).
The unused portion of a HECM line of credit grows at a rate equal to the interest rate charged on the portion of the LOC that has been drawn. Is this growth in the unused portion of a HECM LOC taxable interest income?
No, growth in the unused portion of a HECM line of credit is not considered taxable income.
Does a reverse mortgage affect property taxes on my home?
Homeowners who take out a reverse mortgage are still required to pay their property taxes in a timely manner. In fact, failure to pay property taxes under a reverse mortgage can have serious consequences. This is because tax liens are one of the few liens that stand in front of a loan, so lenders will take stern actions to ensure taxes are paid. The lender has the right to stop monthly payments to you until the taxes are paid. If you received the reverse mortgage as a lump sum, the lender can demand payment in full for non-payment of taxes. You will be given the option of having property taxes (and insurance premiums) deducted from your reverse mortgage loan payments and paid directly by the lender.
ask for 250,000 limit. use only 10,000 a
year for 10 years. at that time sell the house, and pay the loan off. how much would the balance of the loan cost.
First of all, with current lending limits at a maximum of $362,790, you would have to be in your late 70s to have access to $250,000 as a line of credit. But lets start with something kind of on the same level and see what it brings you. This would depend on how old you are when the loan closes, how much the house was worth when the loan closes and where you live.
Here’s an example- 70 year old living in Washington, DC, home is valued at $400,000. They would have access to about $213,000 out of the gate but if they took 10,000 a year or roughly $800 a month for 10 years they would owe close to $160,000 at then end of 10 years. This works better if you take the $800 a month versus $10,000 each year as any money left in the credit line grows over time. That credit line by the way would have $228,000 still available for any use you might have.
Any questions, please email us back.
What kind of income taxes do I pay on my reverse mortgage loan disbursements?
Because the reverse mortgage is a loan based on your home equity, the IRS does not consider it income and all loan funds are tax free. The Internal Revenue Service treats monies received from a reverse mortgage as loan advances and not taxable income. The payments from a reverse mortgage also should generally not be subject to state or loc income taxes. You should always consult a tax advisor about your particular situation.
Is interest paid on a reverse mortgage tax-deductible like interest paid on a regular home equity loan?
Interest is deductible in the year paid. Interest on a reverse mortgage typically is paid at the end of the loan (i.e. sale of home or death of owner). You can make partial pre-payments (including interest) on most types of reverse mortgages. This can be a sensible tax strategy in some cases. If you do chose to pre-pay be sure to direct that your payments go towards the interest you owe. Check with a tax expert concerning your specific situation.
Does taking a reverse mortgage trigger “capital gains” taxes?
No. Under a reverse mortgage, the home is not considered to be “sold” for tax purposes. Therefore, there are no capital gains tax on accumulated appreciation in the home. Further, if the home is being passed on to heirs, they may be able to sell the home without paying capital gains tax due to the “step-up”basis rule that applies to inherited property. Check with a tax expert concerning your specific situation.
Do payments from a reverse mortgage count towards the income threshhold for determining whether regular Social Security benefits are subject to federal income tax?
No reverse mortgage loan proceeds do not count towards this threshhold (exclusion ceiling). This is one advantage of reverse mortages have over annuities (which payments do count toward the exclusion ceiling).
The unused portion of a HECM line of credit grows at a rate equal to the interest rate charged on the portion of the LOC that has been drawn. Is this growth in the unused portion of a HECM LOC taxable interest income?
No, growth in the unused portion of a HECM line of credit is not considered taxable income.
Does a reverse mortgage affect property taxes on my home?
Homeowners who take out a reverse mortgage are still required to pay their property taxes in a timely manner. In fact, failure to pay property taxes under a reverse mortgage can have serious consequences. This is because tax liens are one of the few liens that stand in front of a loan, so lenders will take stern actions to ensure taxes are paid. The lender has the right to stop monthly payments to you until the taxes are paid. If you received the reverse mortgage as a lump sum, the lender can demand payment in full for non-payment of taxes. You will be given the option of having property taxes (and insurance premiums) deducted from your reverse mortgage loan payments and paid directly by the lender.
ask for 250,000 limit. use only 10,000 a
year for 10 years. at that time sell the house, and pay the loan off. how much would the balance of the loan cost.
First of all, with current lending limits at a maximum of $362,790, you would have to be in your late 70s to have access to $250,000 as a line of credit. But lets start with something kind of on the same level and see what it brings you. This would depend on how old you are when the loan closes, how much the house was worth when the loan closes and where you live.
Here’s an example- 70 year old living in Washington, DC, home is valued at $400,000. They would have access to about $213,000 out of the gate but if they took 10,000 a year or roughly $800 a month for 10 years they would owe close to $160,000 at then end of 10 years. This works better if you take the $800 a month versus $10,000 each year as any money left in the credit line grows over time. That credit line by the way would have $228,000 still available for any use you might have.
Got burning questions about reverse mortgages? There’s a good chance someone else has a similar question and may have already had it answered at Yahoo Answers! Shown below are a handful of current questions and answers. The questions and answers come from anonymous sources all aver the internet and we cannot take responsibility for their accuracy. Still, this can be a valuable resource. Use it with care and always seek help from a qualified and trusted advisor if in doubt.
Below is a listing of basic frequently asked questions and answers about reverse mortgages. In addition to these basic reverse mortgage FAQ’s, we have questions and answers focusing on more specific reverse mortgage topics:
If you have a question about reverse mortgages not included here, you can use the form at the bottom to submit it! We’ll do our best to get you a prompt and accurate reply.
A reverse mortgage is a special type of home loan that lets a homeowner convert a portion of the equity in his or her home into cash. The equity built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. The HUD HECM (home equity conversion mortgage) reverse mortgage provides these benefits, and it is federally-insured as well.
Why the name “reverse mortgage”?
These mortgages work just the reverse of regular or “forward” mortgages. Under a traditional (or forward) mortgage, an individual borrows money to buy a house and makes periodic loan payments to a lender. Under a reverse mortgage, a homeowner borrows against the equity in her house and receives money from a lender. The financial results also are the reverse of a regular mortgage: with a regular mortgage your debt decreases and your home equity rises as loan payments are made; with a reverse mortgage, your debt increases and equity declines over the life of the loan.
Why would anyone want to go deeper in debt in retirement?
Your home equity can be thought of as a form of savings - just like an IRA or 401k plan - that can be used to help finance your retirement. In fact for most Americans, home equity is their single largest form of savings. So, while a reverse mortgage is a form of debt, it is also a tool to access home equity savings that can be responsibly spent down to improve your quality of life in retirement. Two main benefits of a reverse mortgage are:
No matter how much you borrow from the progam over the course of your retirement, you will never owe more than the market value of your home.
You can tap the equity savings in your home without selling. Most senior homeowners indicate that they prefer to remain in their homes during retirement.
Can any homeowner get a reverse mortgage?
No. Here are the basic qualifications that must be met to be eligible for a reverse mortgage:
You must be a homeowner and live in the home as your primary residence;
You must ownt the home outright or have a relatively small outstanding mortgage balance that can be paid off with the reverse mortgage proceeds;
All homeowners on the title must be at least 62 years old;
The home must be in generally good repair, meet FHA property standards or be able to be brought up to standards using the reverse mortgage loan proceeds.
Will my credit score or income level be a factor?
No. Unlike regular mortgages, there are no income or credit score requirements to qualify for a reverse mortgage. This is because the expectation is that loan repayment will come from the ultimate sale of the home. There are a few basic credit standards that must be met, however:
The homeowner(s) cannot currently be in bankruptcy;
There can be no liens against the home;,/li>
The homeowner(s) cannot be delinquent on any debt owed to the federal government.
If I pass away, will my children be left with debts?
The amount owed by the estate on a reverse mortgage can never exceed the market value of the home. A reverse mortgage can actually protect your estate because the accrued loan will never exceed the value of the home. For example, if you pass away and leave to the children: A home worth: $200,000
An investment portfolio worth: $100,000
An unpaid reverse mortgage Loan worth: -$300,000
Your estate would get the full investment portfolio of $100,000, even though full repayment of your reverse mortgage is not covered by the value of your home.
Doesn’t the lender get title to my home with a reverse mortgage?
No. The lender places a lien on the home just the same as with a traditional mortgage or home equity loan. The lien ensures the loan is repaid when the property is sold. Title to the home remains with homeowner.
Isn’t a reverse mortgage a “last resort” loan intended primarily for low-income homeowners?
Some experts do place reverse mortgages in the category of “last resort” loans primarily because the associated costs and fees tend to be very high. These experts advise seniors to first consider other options such as selling the home, home equity line of credit, or tapping other savings. On the other hand, the newer generation of retirees is more accepting of using home equity for living expenses. More and more reverse mortgages are being taken out by homeowners wanting to travel, help pay for grandkids’ college, or just improve their living standard. Bottom line: No, reverse mortgages aren’t just for low-income homeowners or homeowners facing a financial emergency.
I’ve heard reverse mortgages called “non-recourse” loans. What does this mean?
This means that the only thing pledged for repayment of the loan is the value of the home when sold. The lender has no recourse against your other assets or other assets of your estate even if the amount owed exceeds the value of the home.
What are the main advantages of a reverse mortgage?
Homeowners can pull needed cash from the equity of the home, without incurring monthly expenses.
Lenders cannot force homeowners to sell the property to pay back the loan.
Reverse mortgages guarantee that the homeowner can stay on the property for as long as he or she lives, even if the outstanding loan and interest grow to exceed the value property’s value.
What are the disadvantages of a reverse mortgage?
Reverse mortgage fees can be high, although the fees are often rolled into the loan and not paid upfront. A reverse mortgage can cost thousands more than a conventional mortgage.
Reverse mortgages are complex and counter-intuitive to most people used to paying down a traditional mortgage most of their adult lives. It is particularly important for homeowners to do their homework, get sound advice and be certain they understand what they are doing.
Reverse mortgages will reduce the size of (or possibly eliminate) the estate left to heirs.
# Reverse mortgages will reduce the size of (or possibly eliminate) the estate left to heirs.
Can I qualify for a HUD reverse mortgage?
To be eligible for a HUD reverse mortgage, HUD’s Federal Housing Administration (FHA) requires that the borrower is a homeowner, 62 years of age or older; own your home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and must live in the home. You are further required to receive consumer information from HUD-approved counseling sources prior to obtaining the loan. You can contact the Housing Counseling Clearinghouse on 1-800-569-4287 to obtain the name and telephone number of a HUD-approved counseling agency and a list of FHA approved lenders within your area.
Can I apply if I didn’t buy my present house with FHA mortgage insurance?
Yes. It doesn’t matter if you didn’t buy it with an FHA-insured mortgage. Your new HUD reverse mortgage will be a new FHA-insured mortgage loan.
What types of homes are eligible?
Your home must be a single family dwelling or a two-to-four unit property that you own and occupy. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved. It is possible for individual condominiums units to qualify under the Spot Loan program.
What’s the difference between a reverse mortgage and a bank home equity loan?
With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA’s mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. You don’t make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes and other conventional payments like utilities, but with an FHA-insured HUD Reverse Mortgage, you cannot be foreclosed or forced to vacate your house because you “missed your mortgage payment.”
Can the lender take my home away if I outlive the loan?
No! You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. 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 use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs. None of your other assets will be affected by HUD’s reverse mortgage loan. This debt will never be passed along to the estate or heirs.
How much money can I get from my home?
The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA’s mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.
Should I use an estate planning service to find a reverse mortgage? I’ve been contacted by a firm that will give me the name of a lender for a “small percentage” of the loan.
HUD does NOT recommend using an estate planning service, or any service that charges a fee just for referring a borrower to a lender! HUD provides this information without cost, and HUD-approved housing counseling agencies are available for free, or at minimal cost, to provide information, counseling, and free referral to a list of HUD-approved lenders. Call 1-800-569-4287, toll-free, for the name and location of a HUD-approved housing counseling agency near you.
How do I receive my payments?
You have five options:
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 amounts of borrower’s choosing until the line of credit is exhausted.
Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the home.
Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.
How long does it take to get a reverse mortgage?
The reverse mortgage loan process consists of four steps: meeting with a counselor, meeting with the lender, getting the home appraised, and closing. The entire process will generally take at least thirty days and, more often, sixty to ninety days.
Once loan papers are signed, how long do I have to change my mind if I get “cold feet” and decide that a reverse mortgage isn’t right for me?
Like other types of loans, reverse mortgages are governed by the Truth in Lending Act (TILA) which provides consumers with a three-day right of rescission during which you can change your mind and cancel the loan. This act gives you extra time to carefully consider your new loan. Sometimes called a cooling off period, it allows you 3 extra (business) days from the date loan papers are signed to be certain the reverse mortgage is exactly what you expected.
If I cancel my loan during the three-day “right of recession” period, will I lose the fees and charges I paid?
You will be refunded most fees incurred. When a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes void and the consumer will no longer be liable for any amount, including any finance charge. Within 20 calendar days after receipt of a notice of rescission, the lender is required to return any money or property that was given to anyone in connection with the transaction and must take any action necessary to reflect the termination of the security interest.
What documents will I be required to show in order to process a reverse mortgage?
You should have available and be prepared to produce the following documents during the reverse mortgage loan process:
driver’s license or other other official picture ID;
Social Security and/or Medicare card;
current mortgage statement (or relevant contact info) if you have an outstanding mortgage on the home;
declarations page from your current homeowners insurance policy;
the original signed certificate from your reverse mortgage counseling session.
certificate of death if there is a deceased spouse on the title to the home’
copy of the original property deed;
copy of the power of attorney, living will, or trust document if these situations are applicable to you.
How do I find a reverse mortgage lender?
The market for reverse mortgages is growing rapidly, but they are still a niche financial products not available from most banks or credit unions. Assuming your first step in the loan process is to receive required counseling, you can ask your counselor for a list of qualified lenders in your area. Counselors cannot recommend or “steer” you towards a particular lender. You can also find reverse mortgage lenders at various websites such as NRMLA.
What are the top reasons most people take out a reverse mortgage?
According to a study done by AARP, the main reasons people give for considering a reverse mortgage are as follows:
Pay off mortgage (20%)
Home repairs/improvements (18%)
Improve quality of life (14%)
Everyday expenses (10%)
Emergencies/unexpected (9%)
Pay off non-mortgage debts (7%)
Health or disability (5%)
Property taxes/insurance (5%)
Financial help to family (2%)
Investments, annuities, or long-term care insurance (1%)
Household chores (1%)
The three top reasons - pay off mortgage, home repairs, improve quality of life - accounted for more than one-half of the primary uses of reverse mortgages.
what happens if i don’t pay my property taxes and insurance.and what if i don’t currently have homeowners cause it was in my payment on my mortage and my house was auction
General upkeep along with paying your taxes and insurance are required to keep a reverse mortgage in place, otherwise, the lender or HUD could require repayment for the reverse mortgage proceeds and accrued interest. For some that own their homes outright, some don’t keep even a simple policy in place but will be required to once the reverse mortgage is put into place (FHA rules). While I don’t suggest the reverse mortgage lender put taxes and insurance in an escrow account for you (BTW- they hold twice the amount and it diminishes your potential access to equity) it is an option for some.
My husband has inherited his mother’s home
and 10 acre property in a different state.
He has been looking in to getting a reverse mortgage, but, only lives there a few months out of the year. He pays all the taxes and insurance on the house. My question of concern is “Does he have to live there permanently and have a dr. license for that state?
Also, he says he can get a lump sum which he needs to pay off other bus. bills. Is that true he would get that?
Thank you
To get a reverse mortgage, the owner of the home (and those on title) would have to be 62 or older and have to be domiciled at this property which probably means that since he’s your husband you would both have to move there to consider it an owner occupied property. Otherwise its a second home and even though some lenders “say” they have will lend on second homes on a case by case scenario, I’ve never know someone to do it. Second home usually is a home in a resort environment like along the coasts or lakes or in the mountains. If you and he are 62 or older you could consider a reverse mortgage on your current property if you have enough equity.
Can you purchase a home with the money?
Do you have to remain in the property?
If you are asking if you can purchase a home with the proceeds from a reverse mortgage the answer is yes. Most current reverse mortgage programs require that you can only take out a reverse mortgage on the owner occupied property. The property must be main domicile although you can be away for extended periods of time for vacation homes or trips abroad, its important that the owner is not away from the home for 12 consecutive months.
Both my father (72y.o.)and me are on title but only me on the mortgage. Would a reverse mortgage be possibe just for my dad in this situation. My mother is 60y.o., can she be added to title since she’s not yet 62 to meet the age requirement.
No, both or any parties have to be 62 or older. For you to secure a reverse mortgage for your father, you would have to come off title. I do not automatically suggest telling someone to come off title and in almost all cases they should discuss with an elder law attorney to determine your right to the property should your father pass away before your mother turns 62. Since you mention there is a mortgage, the reverse is probably being looked at to get rid of the monthly mortgage payment. Instead of writing a check each month for the reverse mortgage you can use that money for savings, paying off other bills or if its significant, some have considered life insurance for the someone like your father to help secure the property with the life insurance proceeds should he pass before someone else turns 62. Again, consult an elder law attorney before doing this.
MY FATHER IS 72 AND MY MOTHER IS ALSO 72. SHE IS CURRENTLY IN A LONG TERM CARE FACILITY. SHE IS ON MEDICARE AND FULL MEDICAID AS THEIR MONTLY INCOME IS ONLY SOCIAL SECURITY. MY FATHER IS NOT ON MEDICAID BUT WILL PROBABLY NEED IT IN A FEW MONTHS. HE IS WANTING TO GET A REVERSE MORTAGE ON THEIR HOME THAT IS CURRENTLY PAID FOR. IF THEY GET A REVERSE MORTAGE WILL IT AFFECT MY MOTHERS MEDICAID? THEY COVER ALL HER MEDICAL BILLS. AND IF IT DOESN’T AFFECT HER MEDICAID , WILL IT AFFECT MY FATHER WHEN HE APPLIES FOR IT? BOTH LIVE IN FLORIDA.
Your folks were able to apply for and receive Medicaid with the home as an asset correct? Well then they’ll be able to secure a reverse mortgage as well BUT they need to make sure that they receive the proceeds in a fashion that doesn’t leave money in the checking or savings account that exceeds the amount that Medicaid looks for each month. They can do that by putting the “future” money they may need into the credit line method of the reverse mortgage. By doing so, they have access to their equity at any time they need it but it would only reside in a checking or savings account for a short time. Say they need $3200 to pay for a new furnace; they make the request from the credit line for the $3200, it is deposited into their checking or savings and they write a check to the furnace company for it. At the end of the month, that money is not in the checking or savings account anymore and Medicaid can’t say that they have exceeded the minimum monthly income allowance. You should also consult an elder law attorney in your area and talk with them about an Enhanced Life Estate Deed or Trust but this is a reverse mortgage should not affect your Medicaid benefits. You can find an elder law attorney for your area at www.naela.org.
My mother in law is recently diagnosed with terminal cancer; her reverse mortgage was obtained in May 2007. I realize the Note is due upon her death, however do we have some time to sell the property?
Yes, I wish that your lender would have told you that. You have 6 months to pay back or refinance that property or to sell it after her passing or if she were to move to hospice for example. If there are circumstances that prevent that from happening in 6 months you can apply for (2) 90 day extensions, technically giving you 1 year. Also know that interest will continue to accrue on any unpaid balance. My condolences to your mother and you.
What happens if there is a disabled child (53 yrs of age)living in the home, and the owner goes back and forth from the home to a Nursing Home (living in the home part-time)? Does the disabled child have rights to the home?
The reverse mortgage client must not be away from their home for more than 365 consecutive days or the loan will be called due, regardless of a less than 62 year old disabled person living in the home. If the owner goes back and forth to a nursing home, that’s alright if they can manage some days in their own home. Best wishes to all.
If we have taken loan for about $10,000 can we make repayment part by part. for ex ample I would like to make part payment $10,000 each year. If so my interest will be calculated on balance principle
Your interest is based on unpaid balance, so if you made payments (which is perfectly acceptable) you would be decreasing your unpaid balance. Any money put into the credit line would also continue to grow, so as you aged each year, your future available cash amount would continue to increase. Its not a bad plan if you can manage it.
i’m 62 years old my mortgage bal is 150,000
Depending on which county you live in and the lending limit, you may be able to pay off your existing mortgage with a reverse mortgage. If your county lending limit is somewhere over $300,000 you may qualify. Otherwise you may be short to close and have to come to the table with money. This happens often and some folks take into consideration that they no longer have a mortgage payment each month and that at some point in the near future they will have realized a break even point from the money they brought to the table and money they are now saving each month from no longer having a mortgage payment.
Please let us know what zip code you reside so we can run some preliminary numbers for you.
i’m 62 my mortgage bal is 150,000 my home value is 390,000 can i qualify for a reverse mortgage
Yes you can, depending upon the county lending limit you reside and not only that you can get extra money in a lump sum or put into your credit line that increases over time. Most folks that pay off an existing mortgage hold off on any extra money from the reverse mortgage so they can see what affect “not having to make a mortgage payment each month” makes in their monthly budget. If your mortgage payment each month is $1200 and you don’t have to make that payment anymore, imagine how fast your checking account starts to add up with the extra $1200 each month staying put instead of going to a bank somewhere.
Can we help you find a lender that would be interested in securing this reverse mortgage for you? Please send us an email.
We took out a reverse mortgage 2 years ago and the money is in a credit account. I am a legal alien and am strongly considering returning to the UK. What happens to the house and money if my husband and I do leave the USA permanently?
Thats a great question but if you leave for more than 12 consecutive months, you will forfeit the loan and they will ask that you pay back what you’ve used. If you don’t they begin foreclosure proceedings and eventually take your home just like a regular mortgage and that goes on your credit report. If you plan on leaving, just sell the home, you should have plenty of equity left in just 2 years.
I am 66 years old and my wife is 59 but is disabled and has is on medicare.Our mortage balance is $175000. Our home is worth $275,000. Can we qualify for a reverse mortage? Or do we need to place the mortage in my name(age 66) and then apply?
This does not work as a reverse mortgage, there is not enough equity in the home to allow for a reverse mortgage to pay off the existing $175,000 mortgage. You would have to come to the table with money to close and a rough estimate shows that amount would need to be in the $50,000 range. To answer your other question, 62 is the youngest age for someone to secure a reverse mortgage, regardless of the situation. If this loan did qualify, you would have to be the only person on title but you would want to consult and elder law attorney before proceeding with a transaction like this since you would put your wife in jeopardy if you passed away before she would qualify to be put on the loan at 62.
I hope that answered your question.
How soon should the heirs notify the mortgage company owner is deceased if someone is still living there not on the ded?
Since interest continues to accrue on the loan even after the borrower is deceased, its your decision as the longer its in place, the more is owed to the lender to pay off the reverse mortgage. FHA rules say that you have 6 months from the time of death to pay off the reverse mortgage either through refinance or selling the home and then you can file two 30 day extensions for a total of 12 months. By not telling them of the death they have the right to force a sale of the home in 30 days to pay off the reverse mortgage.
