I’m going to post the top ten things you need to know if you’re considering a Reverse Mortgage. I’ve set it up in a question and answer format:
1. What is a reverse mortgage?
A reverse mortgage is a special type of home loan that lets you convert a portion of your home’s equity into cash. The equity that 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.
2. How do I qualify for an FHA HECM reverse mortgage?
To be eligible for an FHA HECM, you must be a homeowner 62 years of age or older, and you must reside in the home as your primary residence.
3. Can I apply if I didn’t buy my home with an FHA insured mortgage?
Yes. It doesn’t matter if you didn’t buy it with an FHA insured mortgage. Your new FHA HECM will be FHA insured.
4. What types of homes are eligible?
To be eligible for the FHA HECM, your home must be a single family or a 2-4 family home with one unit occupied by the borrower. HUD approved condominiums and manufactured homes that meet FHA requirements are also eligible.
5. What’s the difference between a reverse mortgage and a bank home equity loan?
With a traditional home equity line of credit, you must have excellent credit, sufficient income 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 credit or 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.
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 homeowner’s insurance.
6. Can the lender take my home away if I outlive the loan?
No. You do not need to repay the loan as long one of the borrowers continues to live in the house and keeps the taxes and insurance current and maintains the property.
7. Will I still have an estate that I can leave to my heirs?
When you sell your home, you or your estate will repay the principal balance, along with interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs.
8. How much money can I borrow on my home?
The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home.
9. Should I use an estate planning service to find a reverse mortgage?
FHA does NOT recommend using any service that charges a fee for referring a borrower to an FHA lender.
10. How do I receive my payments?
You have six options:
~ Lump sum.
~ 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 installments, at times and in amounts of your choosing until the line of credit is exhausted.
~ Modified Tenure – combination of line of credit with monthly payments for as long as you remain in the home.
~ Modified Term – combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.
The Reverse Mortgage Gazette 