What is a reverse mortgage?
- A reverse mortgage is a home-secured loan that's exclusively for homeowners and homebuyers age 62 and older. It allows you to convert some of the equity in your home into income-tax-free funds you can use as you choose, while you continue to own and live in your home. Most reverse mortgages are Home Equity Conversion Mortgages (HECMs), which are insured by the Federal Housing Administration (FHA).*
*This is not tax advice, please consult a tax professional.
What are the basic requirements?
- You may be eligible for a reverse mortgage if you are at least 62 years old, own and have sufficient equity in your home, and live in the home as your primary residence.
What if I still owe money on a first or second mortgage?
- You may still be eligible. Proceeds from your reverse mortgage would first be used to pay off any existing mortgage(s). This means the balance of your existing mortgage(s) will be added to the balance of your reverse mortgage.
How much money can I get?
- The specific amount depends on several factors, including your age, the type of reverse mortgage you select, the value of your home, prevailing interest rates and FHA lending limits.
How is reverse mortgage different from a traditional home equity line of credit?
- A reverse mortgage offers certain advantages that provide greater flexibility and financial control:
- With a reverse mortgage line of credit, the unused amount in your credit line actually grows over time - giving you access to more available funds.
- No monthly principal and interest payments are required, and there is not a pre-defined loan maturity date. You can choose to pay down the loan at any time, or defer repayment. (As with any home-secured loan, you must keep current with property taxes, insurance and maintenance for the loan to remain in good standing.)
- A reverse mortgage can't be canceled or reduced, as long as you meet your loan obligations and live in the home as your primary residence - so it will be there when you need it.
- With an FHA-insured reverse mortgage, you're not responsible to pay the difference if the loan balance ever exceeds the value of your home when the loan becomes due - known as the non-recourse feature.
How can I receive the funds from a reverse mortgage?
- You can take your funds as a lump sum, line of credit, monthly advances, or any combination of these.
Will a reverse mortgage affect my government benefits?
- The funds from a reverse mortgage generally do not affect regular Social Security or Medicare benefits. However, needs-based benefits, such as Medicaid and Supplemental Security Income (SSI), may be impacted. We can provide additional general information, but you should contact a financial professional or government benefits specialist about your particular situation.
How can I use the proceeds?
- You can use the proceeds however you choose. For example: to supplement your retirement income, establish a "rainy day" fund, or cover healthcare or in-home-care costs. You can even use a reverse mortgage to purchase a new home that better fits your needs and wants; ask us about our HECM for Purchase option.
Will I have to pay any fees?
- With the exception of a fee for government-required reverse mortgage counseling, most of the fees associated with a reverse mortgage can be financed with your loan, so there's no immediate out-of-pocket expense. The costs are added to the loan amount ("principal") and paid along with the accrued interest when the loan becomes due. These fees may include a loan origination fee, closing costs, a mortgage insurance premium (required for HECM loans) and a monthly servicing fee.
What has to be repaid when the loan becomes due?
- You'll repay the loan balance, any fees that have been added, and the accrued interest. Homeowners (or their heirs) usually choose to do this through the sale of the home. Repaying the loan with other assets or by refinancing through a conventional mortgage is also an option, if you or your heirs want to keep the home.
What if one of the co-borrowers passes away or must move out for health reasons?
- The other borrower continues to own and live in the home - and enjoy all the benefits of their reverse mortgage.
What types of properties are eligible for a Reverse Mortgage?
Family Homes: Single-family homes are eligible for reverse mortgages. Multifamily homes can also qualify if they have no more than four units and the borrower is using one of the units as his primary residence. A primary residence is defined by the Department of Housing and Urban Development, or HUD, the federal agency which oversees the FHA, as being the place where the borrower lives for the majority of the year.
Community Properties: Someone who owns a condominium or townhouse can receive a reverse mortgage, but for condominiums, the development has to be approved by HUD. A home in a planned unit development, known as a PUD, is also eligible. PUDs are communities built by developers with common areas that all residents share, such as a park or recreational center. These housing communities are legally similar to townhouses, but can be different in structure and carry different levels of owner responsibility. PUDs are usually single family homes or a mix of both single and multiunit homes, while townhouses can share common walls. Typically, major repairs to townhouses are the obligation of the homeowner's association, but in a PUD, the homeowner is responsible for repairs.
Manufactured Homes: Manufactured homes, where the pieces of the home were built in a factory and later assembled on site, are eligible for reverse mortgages as long as the residence meets FHA requirements. The home must have been built after June 1976, be attached to permanent framework, have a floor area of at least 400 square feet, and meet the FHA safety and flood standards. A manufactured home must also be classified and taxed as real estate in the area where the home is located.
Cooperative Housing: These property types are currently not eligible for reverse mortgage financing.
What is a jumbo reverse mortgage loan?
- FHA-insured Home Equity Conversion Mortgages (HECM) have a loan limit of $679,650, regardless of the borrower’s home value. Proprietary jumbo reverse mortgages are available and allow qualified borrowers to obtain a reverse mortgage on properties valued at up to $6 million.
- Condominiums that are valued over $500,000, whose association is not FHA-approved, may also be candidates for a proprietary reverse mortgage.
Are reverse mortgages considered a “last resort”? Are they only for desperate and poor seniors?
- This is the number one misconception about reverse mortgages. When used wisely, they can be a powerful and strategic financial planning tool for eligible homeowners. There is no better product that is more readily available to seniors, in terms of supplementing retirement income and managing retirement risks. However, it is recommended that you complete a thorough reverse mortgage consultation with a reverse mortgage specialist. This is where a Family First Funding LLC representative will have a discussion with you on your current situation and needs, and be able to guide you in the right direction. Contact us to get started.