It can be scary making a major decision concerning your biggest investment, the place that means the most to you. Deciding whether a reverse mortgage is right for you takes much thought and consideration. We hope the following questions and answers help you in this endeavor.
1. What Is A Reverse Mortgage?
A reverse mortgage is a unique loan that allows homeowner(s) 62 years of age and older to draw on the value of their home, which is paid to the homeowner(s) in a variety of payout options. One aspect of this loan is that it does not require repayment until the homeowner(s) no longer reside in the residence, the last surviving borrower passes away or does not comply with the loan obligations such as paying property taxes and insurance, and maintaining the property to FHA guidelines. Regulated by the U.S. Department of Housing and Urban Development (HUD), Home Equity Conversion Mortgages are insured by the Federal Housing Administration (FHA) and may help older qualified homeowners meet their financial needs easing money worries for greater peace of mind.
Prior to applying for the loan, it is required that you are made aware of the terms and conditions of the loan through sources provided by HUD. Contact the Housing Counseling Clearinghouse at 1-800-569-4287 to obtain the name and telephone number of a HUD-approved counseling agency. You may also contact our office and we will provide you with the list of HUD-approved reverse mortgage counseling agencies.
2. Is My Home Eligible For A Reverse Mortgage?
Homes eligible for a reverse mortgage include single-family homes, detached homes, townhouses, and two-to-four unit properties that are owner-occupied. Condominiums must be FHA-approved. Some manufactured homes are eligible but must meet FHA guidelines. Contact your loan officer for more details on manufactured home eligibility.
3. What Are The Differences Between A Home Equity Loan And A Reverse Mortgage?
Reverse mortgages have become more popular because they allow the borrower to receive loan proceeds that do not require immediate repayment as long as you remain in your home as your primary residence, do not sell your home, at least one borrower lives in the home, you meet the basic income and credit standards, and follow loan guidelines.
On the other hand, obtaining a home equity loan (or home equity line of credit or second mortgage) requires that you have sufficient income to cover the debt- plus, you must continue to make monthly principal and interest mortgage payments.
With a reverse mortgage, you must meet basic income and credit guidelines but you do not make monthly principal and interest payments. Keep in mind you must continue to pay all property related fees, taxes and homeowner’s insurance and maintain the property in good condition.
4. How Much Cash Can I Expect To Get?
The cash you can potentially receive is based on the age of the youngest borrower, the current expected interest rate, the mortgage option selected, and the appraised value of the home. For instance, an older individual with a higher value home typically will be eligible for more than a younger person with the same home value at the same expected interest rate. How much money you can take in the first year is limited. For more information on distribution limits go here.
5. What Happens If I Outlive The Loan? Will I Have To Repay The Lender?
No. As long as one of the borrowers on the loan note (or original non-borrowing spouse) lives in the home, continues to pay the taxes and insurance and maintains the home in good condition, you will not need to repay the loan. Once the last surviving borrower passes away (and any non-borrowing spouse), the home is sold or the obligations of the loan are not met, the loan must be repaid.
6. Must My House Be Paid Off For Me To Qualify For A Reverse Mortgage?*
At the time of application, your home mortgage balance does not have to be paid off to qualify. However, the loan proceeds you receive from a reverse mortgage must be used to pay off the existing mortgage or liens (if there is a mortgage balance owing). You will continue to hold title to your home subject to the mortgage securing the reverse mortgage loan.
7. Do I Have To Pay Taxes On The Cash Payments I Receive?
While the proceeds you receive from a reverse mortgage are typically not subject to individual income taxation, you will need to consult your tax advisor.
8. How Will This Loan Affect My Estate And How Much Will Be Left To My Heirs?
Once the last surviving borrower dies, sells your home, or no longer resides there as the primary residence, you or your estate is responsible for repayment of the money you received from the reverse mortgage, plus interest and other fees. Any remaining equity belongs to either you or your heirs. A “non-recourse” clause prevents either you or your estate from being responsible for more than the value of your home when the loan is repaid. If the ending loan balance exceeds the home's value, the estate (heirs) can sign a deed in lieu of foreclosure releasing the property or, pay 95% of the home's appraised value, less customary closing costs & real estate commissions.
9. Should I Use An Estate Planning Service To Find A Reverse Mortgage?
HUD advises against using any service that charges a fee (except required HECM counseling) or any service that requests a lender referral fee to obtain a reverse mortgage. HUD provides this information free of charge and can direct you to HUD-approved housing agencies that offer approved reverse mortgage counseling or additional services that are free or have a minimal cost.
There is typically a reverse mortgage (HECM) counseling fee of up to $125. If the borrower cannot afford this fee, some counseling agencies will waive the fee for qualified applicants. You can find a HUD-approved housing counseling agency near you by calling 1-800-569-4287 toll free.
10. How Do I Receive My Payments?
Reverse mortgage payments can be received in one of five ways:
Tenure: equal monthly payments
Term: equal monthly payments for a fixed period of months as decided by the borrower
Line of Credit: payments made in installments or at various times and in amounts dictated by the borrower(s)
Modified Tenure: monthly payments with a line of credit
Modified Term: monthly payments for a fixed period of months with a line of credit
There are some circumstances that will cause the loan to mature and the balance to become due and payable. Borrower is still responsible for paying property taxes and insurance. Credit is subject to age, minimum income guidelines, credit history, and property qualifications. Program rates, fees, terms and conditions are not available in all states and subject to change.
This information is not intended to be a substitute for legal, tax or financial advice. Consult with a qualified attorney, accountant or financial advisor for additional legal or tax advice. These materials are not from HUD or FHA and were not approved by HUD or a government agency.
* There are some circumstances that will cause the loan to mature and the balance to become due and payable. The borrower(s) must continue to pay for property taxes and insurance and maintain the property to meet HUD standards or risk default. Credit is subject to age, minimum income guidelines, credit history, and property qualifications. Program rates, fees, terms and conditions are not available in all states and subject to change.
Mary Jo Lafaye
Retirement Funding Solutions
1000 4th Street Suite 875
San Rafael, CA 94901
Synergy One Lending Inc. d/b/a Retirement Funding Solutions, NMLS 1025894. 3131 Camino Del Rio N 190, San Diego, CA 92108. Alabama Consumer Credit License #22123; Arizona Mortgage Banker License 0926603; Arkansas Combination Mortgage Banker/Broker/Servicer License 109250; Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act – California License 4131356; District of Columbia Mortgage Dual Authority License MLB1025894; Hawaii Mortgage Loan Originator Company License #HI-1025894; Illinois Residential Mortgage Licensee #MB.6761115; Maine Supervised Lender License 1025894; Maryland Commissioner of Financial Regulation - Mortgage Lender License 21678; Minnesota Residential Mortgage Originator Exemption #MN-OX-1025894; Nevada Exempt Company Registration 4830. Licensed by the New Hampshire Banking Department 19926-MB; Licensed by the New Jersey Banking and Insurance Department – New Jersey Residential Mortgage Lender License 1025894; New Mexico Mortgage Loan Company License 1025894; Oregon Mortgage Lending License ML- 5208; Rhode Island Lender License #20163229LL. Rhode Island Loan Broker License #20163230LB; Vermont Lender License 6891. Washington Consumer Loan Company License CL-1025894. (866) 200-3210. Subject to Credit Approval.
Charges such as an origination fee, mortgage insurance premiums, closing costs and/or servicing fees may be assessed and will be added to the loan balance. As long as you comply with the terms of the loan, you retain title until you sell or transfer the property, and, therefore, you are responsible for paying property taxes, insurance and maintenance. Failing to pay these amounts may cause the loan to become immediately due and/or subject the property to a tax lien, other encumbrance or foreclosure. The loan balance grows over time, and interest is added to that balance. Interest on a reverse mortgage is not deductible from your income tax until you repay all or part of the interest on the loan. Although the loan is non-recourse, at the maturity of the loan, the lender will have a claim against your property and you or your heirs may need to sell the property in order to repay the loan, or use other assets to repay the loan in order to retain the property. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. www.nmlsconsumeraccess.org
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Your Reverse Mortgage Specialist serving Marin County, San Rafael, Novato, Larkspur, Corte Madera, Mill Valley, Sausalito, San Anselmo, Fairfax, Belvedere, Palo Alto, San Mateo, Redwood City, Mountain View, the Bay Area, and the surrounding Northern California area.