Who insures Reverse Mortgages?
The FHA HECM, Home Equity Conversion Mortgage, is regulated by the United States Department of Housing and 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 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 and protect portfolios are all candidates for a reverse mortgage. Many borrowers enjoy having a line of credit for unforeseen emergencies, knowing the unused line of credit will be available to them and will grow larger over time.
Are there any restrictions on how I can use the funds from a Reverse Mortgage?
No, there are no restrictions. 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 current mortgage. It's your equity to use any way you choose.
What types of homes qualify for a Reverse Mortgage?
Single Family homes, 1-4 unit dwellings, town houses, detached homes, condominiums, PUD's and most manufactured homes are eligible for reverse mortgages. Some mixed used residential properties can qualify for 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 called single-unit approval. Regarding jumbo reverse mortgages on higher value homes, there is a qualifying process for condominium approval with certain documents required. Co-ops are approved for reverse mortgages but only in New York state. Mobile homes are also not eligible for a reverse mortgage as most are not on a permanent foundation and the land is leased rather than owned.
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, not be delinquent on any federal debt, complete HUD-required HECM counseling by an independent and approved HECM counselor, and meet the financial eligibility criteria established by HUD. 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 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 a borrower's 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 also end.
How much money can I borrow with a Reverse Mortgage?
The amount of proceeds available to you known as the Principal Limit are determined by the following:
* age of the youngest borrower
* the lesser of the appraised value of your home or the current maximum FHA lending limit
* current interest rates
* balances on any current liens (mortgages, equity loans, and judgments).
Naturally, you do not receive the entire current maximum FHA lending limit which is $1,209,750 set by HUD but a portion based on the above parameters. Because the loan is based on age, the older you are, the more money you receive of the proceeds. For example, if you are in your nineties, you would receive more proceeds than if you were in your sixties. 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. Please refer to the Jumbo Reverse Mortgages page for more info. (Note: With co-op reverse mortgages in New York, there is no maximum home value cap).
What are the Reverse Mortgage disbursement options?
You may choose from the following options:
* a lump sum* fixed monthly payments (tenure)
* a line of credit
* or a combination of all three
* Modified tenure - Set up a line of credit and also receive a monthly payment for as long as you and your co-borrower live in the home.
* Modified term - Add a line of credit along with monthly payments for a specified amount of years. You can have your money disbursed over a shorter period rather than over the term of the loan. A shorter loan term increases your monthly proceeds. However, when the term loan ends, the monthly payments cease and the line of credit ends, however, you are permitted to remain in your home and remain on title.
How is my money disbursed to me?
HUD has designed the HECM program with two HECM loan options. HUD offers the Fixed Rate HECM and the Adjustable (variable) Rate HECM. The FIXED rate HECM has an interest rate that will never change, but it does not have the flexibility of the ARM option. There is no line of credit available with the fixed rate HECM, there is no monthly proceeds option, and no other types of disbursement options are available after loan closing as there is no line of credit option. It is a basic cash-out loan and limited to a one-time lump sum disbursement at closing with no other disbursements available afterward. The Adjustable Rate HECM can be tailored to your needs and your lifestyle due to the flexibility of the program. Your proceeds come in two disbursements: one limited to funds the first year and another draw of proceeds 365 days after the funding of your loan.
Borrowers may access 60% of the principal limit (the funds available to you after mortgages, liens, and closing costs have been deducted) or all mandatory obligations (whichever is greater), as defined by the HECM requirements, plus an additional 10% during the first 12 months after loan closing. The combined total of mandatory obligations plus 10% cannot exceed the principal limit amount established at loan closing.
Can my reverse mortgage interest rate be locked?
According to the FHA, lenders may lock the expected interest rate on an FHA HECM for 120 days following the date of case number assignment. You will receive either the interest rate you signed for at application or the interest rate at closing, whichever is less.
How will the proceeds from a Reverse Mortgage affect my taxes, social security, or other assistance programs?
Proceeds from a reverse mortgage are not considered taxable income by the IRS but equity from your home. Therefore, your income taxes are not affected. Your Social Security and Medicare benefits are also not affected. However, your eligibility for certain financial assistance programs such as Medicaid could be in jeopardy if you have a reverse mortgage; although they are not considered income, reverse mortgage proceeds can be counted as assets. Check with your financial advisor and Medicaid to discuss Medicaid's eligibility requirements.
Can I Have a Life Estate Deed or Power of Attorney With My Reverse Mortgage?
Life Estate Deeds, Powers of Attorney, and Guardianship are all acceptable with a reverse mortgage. All must be submitted during the application-underwriting review process for approval. A Power of Attorney must be durable, meaning the incapacitation must have occurred prior to the Power of Attorney.
Is the application complicated? What types of documents will I be required to provide?
The application is lengthy, but you will be given assistance on completing the application. HECM applications can be completed in person, by mail, or online as an e-doc application. There will be documents required such as identity documents, income documents, real estate tax documents, homeowner's insurance documents, and also HOA documents. It's always a good idea to gather your documents together at the beginning of the process so you will have them for your loan specialist. You will receive a Documents Required list 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 documents such as life estate, power of attorney, guardianship. You may also need to provide your marriage certificate in the case of a non-borrowing spouse or where a borrower retained their maiden name.
Can the lender or servicer pay the property charges on my home?
You are required to 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 on 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 request the trifold entitled HOW DO I QUALIFY FOR A REVERSE MORTGAGE which will be provided free of charge along with other resources). Note: If there is the possibility of default on your taxes and homeowner's insurance indicated by your tax history, a LESA will be automatically set up. The lender will take care of paying your taxes and insurance.
Can I change how I receive my money after closing?
Yes, you can. There may be a small fee for this service, however, you can change from monthly proceeds to a line of credit and vice versa. You cannot, however, change from a fixed rate to an ARM (adjustable rate ) or vice versa without refinancing.
Does the lender own my home if I have a Reverse Mortgage?
The lender does NOT own your home if you have a reverse mortgage! Just as with any other mortgage, you retain title as the owner, not the bank. The ONLY way a lender can ever own your home is to foreclose on the home for various reasons.
CAN I LOSE MY HOME IF I HAVE A REVERSE MORTGAGE?
Yes, but only if you fail to pay the taxes on your home, insurance on the home, fail to repair the home from a disaster, allow the home to fall into disrepair, or violate the reverse mortgage agreement. The lender will make every effort to help your avoid these situations. Lenders are not interested in owning your home!
