Answers & Information ~ Reverse Mortgage Long Island.com

Who insures Reverse Mortgages? The FHA HECM, Home Equity Conversion Mortgage, is administered through the United States Department of Housing and Urban Development (HUD) and insured by the FHA (Federal Housing Administration).

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.

Who Benefits from Doing a Reverse Mortgage?

Many people do Reverse Mortgages in order to make their retirement even better. But here are some examples of borrowers who have chosen to do a Reverse Mortgage: Widows or widowers who no longer receive their spouse's social security check and in some cases, no longer receive their spouse's pension, borrowers who want to renovate their homes, those with little money set aside for retirement, and those who just want a financial tool to maximize their retirement. Many borrowers like the line of credit feature for unforeseen emergencies, knowing the line of credit will grow. Converting the equity in your home and having no monthly mortgage payment is attractive to many seniors no matter what their financial status. 

What types of homes qualify for a Reverse Mortgage? Single Family homes, 2-4 unit dwellings, townhouses, detached homes, condominiums, and most manufactured homes are eligible for Reverse Mortgages. (Condominiums must be FHA approved.) (Co-ops are not currently approved for Reverse Mortgages. Mobile homes are also not eligible for a Reverse Mortgage.)

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.

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, or pay off your mortgage.  

How much money can I borrow?  

That depends on a few factors: age of the youngest borrower, the appraised value of your home, current interest rates, and balances on current liens. With the FHA Reverse Mortgage there is a maximum lending limit of $679,650. Naturally, you do not receive ALL the equity or the entire lending limit or there would be no equity left. But the older you are, the more money you receive of the lending limit. So if your home is worth $765,600, and you are in your nineties, you would receive more proceeds than if you were only in your sixties or with a lower appraised value. Now, there are also Reverse JUMBO loans for homes in the millions, and that often works out better than the standard reverse. 

How is my money disbursed to me?

You may choose a lump sum, fixed monthly payments, a line of credit, or a combination of all three. You can also choose o have your money disbursed over a shorter period rather than a lifetime.  A specified loan term will increase your monthly proceeds. For example, ten, fifteen, twenty year terms or any term may be chosen.  Although with term loans, the monthly payments cease when the term expires, you can still remain in your home.

How long does it take to close a Reverse Mortgage?
It generally takes 30-45 days to close a Reverse Mortgage. It can take more or less time. Any application with special circumstances involves more care and can take longer.  

What happens at the closing? Mortgage documents are signed at the closing, and taxes are paid if due,. You receive your proceeds after a three day right to cancel period known as the right of rescission period. 

Who Insures Reverse Mortgages?
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.

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.)

Who Pays My Real Estate Taxes If I Take Out a Reverse Mortgage?
You continue to pay your real estate taxes along with your homeowner's insurance and maintain your property. If you live in a condo or are part of an association, those fees must also be paid.

My wife is not yet 62. Can I still get a Reverse Mortgage? What happens if I pass away? With the new regulations FHA has put in place, spouses under the age of 62  and not listed on the HECM reverse mortgage can remain in the home after a borrower passes away through a deferral period set by HUD. The remaining spouse will be required to pay taxes and homeowners insurance on the home as well as maintain the home.  There are other parameters.  (HUD  Mortgagee Letter   2014-07 , April 25 , 2014.

Can I deduct the Reverse Mortgage interest from my income taxes? Will my heirs have to pay tax on the proceeds I received from my Reverse Mortgage?
Because you are not currently paying interest on your Reverse Mortgage, you will be unable to deduct the interest from your income taxes. However, your heirs may be able to deduct all the interest that has accrued, however, they will need to consult a tax advisor. Reverse Mortgage proceeds are tax free; there is no tax on the proceeds.

When is the Reverse Mortgage repaid? Repayment occurs when your home is no longer your primary residence or when the loan is refinanced. This includes the death of the last borrower or when the borrowers moves or refinances.

What will I owe at the end?

What monies are owed the lender at the end of the Reverse Mortgage  are as follows: Principal, interest, mortgage insurance, and monthly services fees that have accrued over the life of the loan.

What if I owe more than my home is worth when I sell?
A Reverse Mortgage is a "non-recourse" loan which means the house stands for the debt. You can never owe more than your home is worth upon the sale of the property even if your home's value is less than what is owed the lender. Mortgage insurance, required by the FHA, protects borrowers from owing more than the value of the home. 

Your home must be debt free to qualify.

FALSE. If you have an outstanding mortgage or equity loan balance, and as long as there is enough equity, you may be able to pay off your mortgage and qualify for a Reverse Mortgage. All current mortgages and judgments or liens must be paid from the Reverse Mortgage proceeds and are then added to your Reverse Mortgage balance. A Reverse Mortgage specialist will advise you of the amount you qualify to receive and if your current mortgage balances cause a shortfall. 

Only senior citizens low on cash can benefit from a Reverse Mortgage.

FALSE. Seniors from all walks of life are taking advantage of Reverse Mortgages. Even though some borrowers may have greater needs than others, a Reverse Mortgage can be an excellent financial or estate planning tool for anyone. Even millionaires are getting Reverse Mortgages! Homeowners with high value homes are using Reverse Mortgages in a variety of ways. Protecting their estate from some of the estate tax after their passing can be accomplished with a Reverse Mortgage since a Reverse Mortgage places a lien on the property, and that lien is not subject to estate tax. (Consult with your tax advisor.)

Only those who have excellent credit, sufficient income, and good health can qualify for a Reverse Mortgage.

FALSE. Although there will be a Financial Assessment to determine whether a reverse mortgage borrower can maintain the taxes and insurance on their home, you can still obtain a Reverse Mortgage. 

Bankruptcy, foreclosure, and judgments prevent you from obtaining a Reverse Mortgage.

FALSE. Borrowers who are currently in bankruptcy or foreclosure may be able to secure a Reverse Mortgage. Your bankruptcy trustee may give permission for the Reverse Mortgage to go forward. But you must show you've been on time with your payments for 12 months.  Consult with your attorney and your Reverse Mortgage specialist for details.

I will have to make monthly payments if I have a Reverse Mortgage.

FALSE. With a Reverse Mortgage, you never make any mortgage payments. However, if you desire to make payments or defray the costs, the lender will accept them.

The lender will take title to my home and own my home if I take out a Reverse Mortgage.

INCORRECT. You retain title and ownership of your home throughout the life of the Reverse Mortgage. The ONLY way any mortgage company can take your home from you is through a foreclosure action, whether forward or reverse.

My heirs will be personally responsible for my debt. 

FALSE. 

Since the Reverse Mortgage is a non-recourse loan (a loan secured by collateral, usually real property, in this case a home), your heirs are not personally responsible for the loan. The lender can only look to the sale of the property for repayment of the debt. Your heirs, however, may wish to keep the remaining equity by selling the home or they might decide to keep the home by obtaining their own mortgage. (In the case of keeping the home, the full balance of the Reverse Mortgage will be due.)