Understanding Reverse Mortgages
UNDERSTANDING REVERSE MORTGAGES FOR SENIORS
Reverse mortgages are becoming very popular. Reverse mortgages are a special type of home loan that lets a homeowner convert the equity in his/her home into cash. They can give older Americans greater financial security to supplement social security, meet unexpected medical expenses, make home improvements, and more.
TEN THINGS TO KNOW IF YOU’RE INTERESTED IN A REVERSE MORTGAGE
The U.S. Department of Housing and Urban Development
(HUD) created one of the first. HUD’s Reverse Mortgage is a
federally-insured private loan, and it’s a safe plan that can give
older Americans greater financial security. Many seniors use it to
supplement social security, meet unexpected medical expenses,
make home improvements, and more. You can receive free
information about reverse mortgages by calling AARP at 1-800-
209-8085, toll-free. Since your home is probably your largest single
investment, it’s smart to know more about a reverse mortgage and
decide if one is right for you.
What is a reverse mortgage?
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. HUD’s reverse
mortgage provides these benefits, and it is federally-insured as well.
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 at 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. While your property must meet HUD minimum property
standards, 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
condominiums to qualify under the Spot Loan program. The home
must be in reasonable condition and must meet HUD minimum
property standards. In some cases, home repairs can be made
after the closing of a reverse mortgage.
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, other loan fees, 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. Nor is the loan due. 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
the interest rate, other loan fees, 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 rate, 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. Before you agree to pay a fee for a simple
referral, 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 exhausted
• Modifiedd Tenure -a combination of line of credit with monthly
payments for as long as the borrower remains in the home
• Modified Term – a combination of line of credit with monthly
payments for a fixed period of months selected by the borrower