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Reverse Mortgages

What is a Reverse mortgage?

A reverse mortgage is a special type of home loan, Aging in Place, that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you.  However, unlike a traditional home equity loan or second mortgage, Home Equity Conversion Mortgage (HECM) borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage.  You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing. When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid.  All proceeds beyond the amount owed belong to your spouse or estate.  This means any remaining equity can be transferred to heirs.  No debt is passed along to the estate or heirs.

What are the reverse mortgage requirements?

To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, have the financial resources to pay ongoing property charges including taxes and insurance, and you must live in the home. You are also required to receive consumer information free or at very low cost from a HECM counselor prior to obtaining the loan. A list of counselors is given to you from your Reverse Mortgage Specialist at Community Mortgage Solutions or you can find a HECM counselor online or by phoning (800) 569-4287.

What will my interest rate be?

There is a fixed rate and an adjustable rate choice for borrowers to choose from.

What types of properties are eligible?

To be eligible for the FHA HECM, your home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.

What is the maximum loan amount?

The limit for HECM will remain at a maximum claim amount of $625,500, with actual loan limits based on property value, borrower age and current interest rates, according to HUD. Funds can be received in all cash at closing (lump sum), monthly payments structured as needed, line of credit (with a growth rate), or a combination of these.

What kinds of loans do Reverse programs offer?

 How much you can borrow with a HECM or proprietary reverse mortgage depends on several factors, including your age, the type of reverse mortgage you select, the appraised value of your home, and current interest rates. In general, the older you are, the more equity you have in your home, and the less you owe on it, the more money you can get.

The HECM lets you choose among several payment options. You can select:

  • A “cash” option that allows you to get cash at closing from the equity from your home.
  • A “term” option – fixed monthly cash advances for a specific time.
  • A “tenure” option – fixed monthly cash advances for as long as you live in your home.
  • A line of credit that lets you draw down the loan proceeds at any time in amounts you choose until you have used up the line of credit.
  • A combination of monthly payments and a line of credit.
    You can change your payment option any time.

What is a Reverse Mortgage for Home Purchase?

HECM for Purchase allows seniors, age 62 or older, to purchase a new principal residence using loan proceeds from the reverse mortgage .  The program was designed to allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction. The program was also designed to enable senior homeowners to relocate to other geographical areas to be closer to family members or downsize to homes that meet their physical needs, i.e., handrails, one level properties, ramps, wider doorways, etc.

 Frequently Asked Questions about Reverse Mortgages:

  • A reverse mortgage is a mortgage just like any loan against the home where the borrower is using the equity of their home to meet their needs and desires now, but with special terms for seniors 62 and older.
  • The lender or bank does NOT own the home – YOU OWN THE HOME, you keep the title
  • There are no income or credit score requirements to qualify.
  • No monthly mortgage payments are required.
  • The home does not have to be free and clear or have a lot of equity.  Although enough equity is needed to pay off current liens and/or mortgages.
  • There is no limitation on how the funds can be used.  Some common uses include paying off a current mortgage, paying for home repairs or modifications, home health care or adult day services, medical expenses, every day living expenses and even to purchase a home.  Whatever one needs or wants.
  • More options are available than with a conventional or home equity mortgage – Funds can be received in all cash at closing (lump sum), monthly payments structured as needed, line of credit (with a growth rate), or a combination of these.
  • Social Security and Medicare are not affected because it is a loan, and not considered income.
  • Borrowers can stay in the home as long as it is their primary residence or in the case of a couple as long as one borrower is still in the home as their primary residence.  The due date on the mortgage is the youngest borrower’s 150th birthday.
  • At the time of sale if the home is sold for more than the loan balance, the borrower(s) or their heirs receive the difference.  The bank does NOT keep the difference!
  • The loan is non-recourse which means there is no personal liability to the borrower or their heirs.  So borrowers or their heirs don’t have to come up with the difference if the loan balance is higher than what the home is sold for (at fair market value).  Borrowers are not leaving a debt to their children.
  • Just like any mortgage, borrowers are responsible for property taxes and insurance, association dues (if applicable), maintaining the property and abiding by the terms of the loan.
  • As borrowers use the funds/equity and are not making monthly payments the loan balance increases meaning because they used the money now, there will be less available when the loan is being repaid.  (With a conventional mortgage one is using the equity but making monthly payments which repays the interest and a portion of the principal each month.)
  • Closing costs are comparable to an FHA mortgage – they compare to conventional loans, the difference comes down to the FHA Mortgage Insurance Premium.  Fees are regulated and only HUD allowed fees are permitted with no mark-ups or junk fees.
  • FHA offers and insures through HUD the majority of reverse mortgages known as the Home Equity Conversion Mortgage or HECM, making it the most highly regulated mortgage available.

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