How Does a Reverse Mortgage Work
Reverse Mortgages are becoming popular in America. The U.S. Department of Housing and Urban Development (HUD) formed one of the first. HUD's Reverse Mortgage is a federally-insured private loan, and it's a secure plan to give older Americans better financial security. A lot of seniors use it to complement social security, make home improvements, meet sudden medical expenses, and more. You can have free information on reverse mortgages by calling AARP at: 1-800-209-8085, toll-free. Probably your home is your major particular investment, it's important to learn more about reverse mortgages, and make a decision if one is right for you!
What is a reverse mortgage?
A reverse mortgage is a particular kind of home loan that lets a homeowner transforms part of the equity in his property into cash. The equity built up over years of home mortgage payments can be paid to you. But different from a conventional home equity loan or second mortgage, no repayment is necessary until the borrower(s) no longer use the home as their principal residence. HUD's reverse mortgage gives these benefits, and it is federally-insured as well.
How do I qualify for a HUD reverse mortgage?
To be entitled 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 small mortgage balance that could be paid off at the closing with proceeds from the reverse loan; and must live in the property. 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 on 1-800-569-4287 to obtain a list of FHA approved lenders within your area and the name and telephone number of a HUD-approved counseling agency.
If I didn't buy my present property with FHA mortgage insurance, can I still apply for a reverse mortgage?
Yes. 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 properties are eligible?
Your home must be a single family dwelling or a two-to-four unit property that you live and own. Some manufactured homes, townhouses, detached homes and units in condominiums are eligible. Condos must be FHA-approved. It is likely for individual condos units to be eligible under the Spot Loan program.
What's the difference between a bank home equity loan and a reverse mortgage?
With a traditional home equity line of credit or a second mortgage, you must have enough income versus debt ratio to be eligible for the loan, and you have to make mortgage payments every month. The reverse mortgage is different in that it pays you, and is offered despite of your current income. The quantity you can borrow depends on the current interest rate, your age, and the appraised value of your home or FHA's mortgage limits for your region, whichever is less. Usually, the more valuable your home is the lower the interest, the older you are, the more you can borrow. You don't make payments, because the loan is not due as long as the property is your primary residence. You still have to pay your real estate taxes and other conventional payments like utilities like all homeowners, but with an FHA-insured HUD Reverse Mortgage, you can not be foreclosed or forced to leave your house because you "missed your mortgage payment."
Can the lender take my property away if I outlive the loan?
No! You can never owe more than your home's value. You do not have to repay the loan if you or one of the borrowers still living in the property and maintain the taxes and insurance up to date.
Will I still have an estate that I can leave to my heirs?
If you sell your property or no longer use it for your primary home, you or your estate will pay back the cash you got 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 possessions 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 quantity you can have a loan of depends on your age, the present interest rate, and the appraised value of your property or FHA's mortgage limits for your region, whichever is less. Usually, the more valuable your property is, the lower the interest, the older you are, the more you can borrow.
Should I use an estate planning professional to find a reverse mortgage?
HUD does NOT suggest 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 any charge, 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. Call 1-800-569-4287, toll-free, for the name and area of a HUD-approved housing counseling agency close to 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 home as a main residence.
• Term - equal monthly payments for a fixed period of months chosen.
• Line of Credit - unscheduled payments or in installments, at times and in amounts of borrower's choosing until the line of credit is exhausted.
• Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the property.
• Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.