Who Insures Reverse Mortgages? The FHA HECM, Home Equity Conversion Mortgage, is administered through the United States Department of Housing & Urban Development (HUD) and insured by the FHA (Federal Housing Administration).
Who Benefits from Doing a Reverse Mortgage?
Many people do reverse mortgages in order to make their retirement even better. Some choose a reverse mortgage who are widowed and no longer receive two social security checks each month due to the death of their spouse. Borrowers who wish to renovate their homes, those with little money set aside for retirement, and those who just want a financial tool to maximize their retirement are all candidates for a reverse mortgage. Many borrowers like the line of credit feature for unforeseen emergencies, knowing the unused line of credit will be available and even grow larger over time.
What types of homes qualify for a Reverse Mortgage? Single Family homes, 1-4 unit dwellings, townhouses, detached homes, condominiums, PUD's and most manufactured homes are eligible for reverse mortgages. Some mixed used residential properties can also have a reverse mortgage (an underwriter will determine this.) Condominiums must be FHA approved, but if they are not, there is a process to get approval with FHA. Co-ops are not currently approved for reverse mortgages. Mobile homes are also not eligible for a reverse mortgage as most are not on a permanent foundation and the land is leased. Regarding jumbo reverse mortgages on higher value homes, there is a qualifying process for condominium approval with certain documents required.
How do I qualify for a Reverse Mortgage?
You must be at least 62 years of age, own your own home, and use it as your primary residence for at least six months of the year and not be delinquent on any federal debt. You must also attend by phone or in person HUD required HECM counseling by an approved HECM counselor before the reverse mortgage can be processed or any fees charge. NOTE: There are proprietary reverse mortgages for those as young as 60 years of age, however, the proceeds would be lower especially if you have a sizeable mortgage balance. It is possible you might not qualify.
My wife is not yet 62 years of age. Can I still get a Reverse Mortgage? What happens if I pass away? Through the Reverse Mortgage Stabilization Act of 2013, there was a change in reverse mortgage parameters so that non-borrowing spouses not listed on the HECM reverse mortgage can remain in the home after a borrower passes away through a deferral period set by HUD. By being listed on the HECM as a non-borrowing spouse, he/she will be able to remain in the home, and the reverse mortgage will not become due and payable upon your passing. The remaining spouse will be required to keep paying taxes and homeowners insurance on the home as well as maintain the home. However, if you have a HECM line of credit, it would no longer be accessible, and any monthly proceeds would end. Speak to your reverse mortgage professional about these issues to see if a Reverse Mortgage is still a viable option for you. Please refer to HUD.gov: https://www.hud.gov/sites/dfiles/OCHCO/documents/2021-11hsgml.pdf
How much money can I borrow?
That all depends on a few factors: age of the youngest borrower, the appraised value of your home, current interest rates, balances on any current liens (mortgages, equity loans, and judgments). Naturally, you will not receive ALL of the lending limit or all of the equity in your home or there would be no equity left if you decided to sell. Because the loan is based on age, the older you are, the more money you receive of the current lending limit. For example, if your home is worth $822,375 (which is the current maximum FHA lending limit) and you are in your nineties, you would receive more proceeds than if you were in your sixties. Now, there are also reverse mortgage JUMBO loans for homes in the millions with a maximum lending limit of $4,000,000 and maximum home values up to $10,000,000. Rates are higher than FHA rates, but these work better for value homes.igher
Are there any restrictions on the use of funds with a Reverse Mortgage? No. You can use the proceeds of a reverse mortgage any way you like. Help a family member, travel, pay bills, fix up the house, buy a second home, or pay off your mortgage. It's your eqauity to use as you wish.
Does the lender own my home? No, the lender does NOT own your home! Just as with any mortgage on your home, you retain title as the owner, not the bank. For some reason, there has been a misconception about reverse mortgages as if they are a foreign product as to home ownership. The most common statement we hear is, "I am going to lose my home if I do a reverse mortgage! The lender will own my house." However, a reverse mortgage is a mortgage like any other mortgage but in reverse as to mortgage payments since they are not required. The ONLY way a lender can ever own a home is to foreclose on the home. WARNING! You can lose your home to foreclosure if you default on your HECM obligations by not paying your real estate taxes, homeowner's insurance, not living in the home as your primary residence, and not maintaining your home according to FHA requirements.
How will the proceeds from a Reverse Mortgage affect my taxes, social security, or other benefits? Proceeds from a reverse mortgage are not considered taxable income so your income taxes are not affected. Your Social Security and Medicare benefits are also not affected. The impact on other federal, state, or local assistance programs such as Medicaid should be discussed with a financial advisor. NOTE: Your Medicaid benefits may be affected if your Reverse Mortgage proceeds are not spent down in the month they are received. (Check with your tax advisor.)
Is the application complicated, and what types of documents are needed by the lender?
The application is lengthy, but you will be given assistance on how to complete it if necessary. Your HECM application can be completed in person, by mail, or online as an e-doc application. Your reverse mortgage specialist will walk you through the entire process. There will be documents required such as identity documents, income documents, tax documents, insurance documents on your home, and also HOA proof of payment. It's always a good idea to gather all your documents together at the beginning and have them ready for your loan specialist. You will receive a Documents Required form indicating which documents are needed to begin the reverse mortgage process. If you cannot locate certain necessary documents, you might contact your attorney to obtain those that apply to your situation such as wills, life estate, power of attorney, guardiansip. You may also need to provide your marriage certificate (where applicable as in non-borrowing spouse situations or where you retained your maiden name) as these documents will be reviewed by an underwriter for identity purposes. (Speak with your Reverse Mortgage specialist for details and to get your questions answered.)
If I decide to do a Reverse Mortgage, will there be an inspection of my home? Yes, there will be an inspection of your home known as an appraisal. Your home, inside and out, will be evaluated to determine its value. (Due to COVID-19, most appraisals are only exterior, but that will eventually change to exterior and interior). NOTE: There are times that a second appraisal will be required by the underwriter. The appraisal fee, however, will not be passed on to you.
Who Pays the Property Charges on My Home?
You will pay your property taxes, homeowner's insurance, condo fees where applicable, flood insurance, HOA fees, etc. You must be able to verify (through required documentation to the lender) that you are able to pay your real estate taxes, homeowner's insurance, flood insurance where applicable, condo fees, HOA fees, and any fees related to owning your home. You can opt for having taxes and insurance placed in a set aside account called a LESA, Life Expectancy Set Aside. However, since it is a lifetime account, the set aside removes proceeds from your reverse mortgage which lessens your cash out amount. Further, once set up, the LESA cannot be removed; it is there for the life of the loan based upon your life expectancy. (Please refer to the section about LESA and the trifold called HOW DO I QUALIFY FOR A REVERSE MORTGAGE which can be provided free of charge by email or mail along with other informative literature) .
What is an Index and a Margin on Adjustable Rate HECM's Utilized by Mortgage Lenders?
A mortgage index is the benchmark interest rate an ARM, adjustable-rate mortgage, is based on such as CMT/Constant Maturity Index or LIBOR/London Interbank Offered Rate (used for all ARM products, not just HECM's). An ARM mortgage's interest rate consists of an index value plus a margin. A margin is the number of fixed percentage points lenders add to an index to set your interest rate on an ARM. This fee is a charge for providing the mortgage and will not change after closing although the adjustable index rate will change as it fluctuates with economic conditions. The margin tends to be constant, but the index's value is variable, hence the term adjustable rate mortgage. Several benchmark interest rates serve as mortgage indexes. For example, the CMT (Constant Maturity Index) and the LIBOR (London Interbank Offered Rate) are two of some of the indexes used by mortgage lenders. Amother is COFI, Cost of Funds Index. To calculate your fully indexed interest rate on your ARM: Total the Index + Margin = Your Fully Indexed Rate. At any point in your loan, you can calculate your interest rate by adding together the current index and the lender's margin together giving you your interest rate. You can find most rates on http://www.Treasury.gov For other adjustable rates, do an online search for that index. When you get your monthly statement, you can check the interest rate for yourself.
How is my money disbursed to me?
HUD has designed the HECM program with two choices of HECM'S. HUD offers the Fixed Rate HECM and the Adjustable Rate HECM. Each has its advantages. The FIXED rate doesn't have the flexibility of the ARM option. There is no line of credit available, there is no monthly payment option, and no other types of disbursement options. It is a basic cash out and limited to a one-time lump sum disbursement with no other disbursements available after that. The Adjustable Rate HECM has several options so you can tailor your proceeds as you wish. Your proceeds come in two disbursements, one limited to funds the first year and another draw of your proceeds 365 days after funding your loan. (NOTE: On all HECM for Purchase, all the proceeds come as one lump sum in one transaction at closing.)
On refinances of your home with the FHA HECM: Disbursements at loan closing are limited within the first 12 months of closing and CANNOT EXCEED THE GREATER OF: 60% of the Principal Limit or Mandatory obligations plus 10% of the Principal Limit (payoffs, judgments, mortgages). This pertains to ALL payment options including lump sum, term, tenure, line of credit, modified term and modified tenure. Note: Borrowers with outstanding mortgages in excess of 60% can take an additional 10% as long as disbursements do not exceed the Net Principal Limit or Principal Limit.IMPORTANT: If the borrower takes more than 60% of the Principal Limit, the cost of MIP or Mortgage Insurance increases significantly. If the disbursement is 60% or less, MIP is 0.50 of the Principal Limit. It increases to 2.00% if the disbursement exceeds 60%. Mandatory obligations for traditional and refinance transactions include customary closing costs, plus any liens on the property and so forth.
