Reverse Mortgages are becoming popular in
America. 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. Since your home is probably your
largest single investment, it's smart to
know more about reverse mortgages, and
decide if one is right for you!
1. What is a reverse mortgage?
Unlike an ordinary mortgage, which involves
payments by the borrower to the lender, a
reverse mortgage involves payments by the
lender to the borrower. It is an arrangement
whereby homeowners get cash (usually in the
form of monthly payments or a lump sum) in
return for a mortgage on their home, which
is used as security against the loan. This
is a strategy sometimes used by retired
homeowners who need to supplement their
income. A reverse mortgage is one way of
tapping into the value of a home.
2. 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.
3. 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.
4. 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.
5. 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."
6. 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.
7. 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.
8. How much money can I get from my home?
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.
9. Should I use an estate planning service
to find a reverse mortgage?
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.
10. 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 is exhausted.
Modified Tenure - combination of line of
credit with monthly payments for as long
as the borrower remains in the home.
Modified Term - combination of line of
credit with monthly payments for a fixed
period of months selected by the
borrower.
How Much Can You Borrow
The maximum loan amount depends on your age,
the interest rate at the time you close and
the equity in your home.
A borrower who uses an FHA-insured Home
Equity Conversion Mortgages (HECM) will
receive a reverse mortgage amount based on a
formula, which includes a Maximum Claim
Amount. In general, this means the maximum
amount you can receive will be determined by
factors including the age of the borrowers,
and the appraised value of the property (or
the maximum FHA mortgage amount for your
area, if lower). You should discuss the
formula with your lender and your
FHA-approved housing counselor.
The maximum amount that you can receive
depends on your age, the interest rate at
the time you close, and the appraised value
of your home. For example, based on a loan
at recent interest rates, a 65-year-old
could borrow up to 60 percent of the home's
value, a 75-year-old could borrow up to 70
percent of the home's value, and an
85-year-old could borrow almost to 80
percent of the home's appraised value --- up
to the FHA loan limit for each city and
county.
