Reverse Mortgage FAQ
Reverse mortgages are a safe and secure financial tool but sometimes, consumers have misconceptions about reverse mortgages and how they work. To help you make an informed decision about using a reverse mortgage to support or improve your financial outlook, we’ve put together the following list of common questions we encounter about the reverse mortgage lending process.
If you can’t find the answers you’re looking for, you need additional information or you’re ready to get started with a reverse mortgage lending counseling session, call Consolidated Credit today at 1-800-435-2261 to speak with a housing counselor for free.
How do I qualify for FHA’s HECM reverse mortgage?
To be eligible for an HECM reverse mortgage from the FHA, the FHA requires that you be a homeowner 62 years of age or older. You must own your home outright or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, 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.
Can I apply if I didn’t buy my present house with FHA mortgage insurance?
Yes. It doesn’t matter if you didn’t buy your home originally with an FHA-insured mortgage. Your new HECM reverse mortgage will be FHA-insured.
What types of homes are eligible for a reverse mortgage?
To be eligible for the FHA HECM reverse mortgage, your home must be a single family home or a 1-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible. Mobile homes are generally not eligible for a reverse mortgage.
Does the bank own my home?
No the bank never owns your home. You remain the owner of your home and can stay as long as you wish. As the homeowner, you must continue to pay homeowner’s insurance, property taxes and continue with basic home maintenance during the loan period. When the home is sold, the loan is repaid (including accrued interest and any fees) and any remaining equity goes to you or your heirs. As the borrower, you continue to retain title and ownership of your home. Taking on a reverse mortgage does not transfer title or ownership to the bank.
Am I required to make monthly payments on a reverse mortgage?
No. There are never any monthly mortgage payments on any reverse mortgage program. However, paying taxes and insurance plus the general upkeep of the home are all still your responsibility. The loan becomes due when the last borrower permanently vacates the home.
Can I lose my home with a reverse mortgage?
Once you get a reverse mortgage, the lender can only foreclose on your home if you do not pay your homeowner’s insurance or real estate taxes. Keep in mind that you do not have to make any payments on a reverse mortgage as long as you are living in the home, so there is a low risk of default. As long as the home is your primary residence you never have to make a payment on your reverse mortgage.
Can I qualify for a reverse mortgage if I already have an existing mortgage?
The first thing that will be paid off with the money you receive from a reverse mortgage is your current mortgage and any other liens against the property. As long as you have enough equity to pay off any outstanding balances against your home, a reverse mortgage can work for you.
Are there any income/credit score requirements?
No. Since you don’t make any monthly payments on a reverse mortgage; proof of your income and/or high credit scores are NOT required. A credit check on your credit reports will only be used to confirm if you have any federal tax liens or other items that may affect qualification.
Do I need to be in good health in order qualify for a reverse mortgage?
There is no income, asset, employment, credit score, or health requirements for taking out a reverse mortgage. You can get a reverse mortgage regardless of your current state of health or any preexisting conditions you may have.
I use an estate planning service to find a reverse mortgage?
FHA does NOT recommend using any service that charges a fee for referring a borrower to an FHA lender. FHA provides this information free, and HECM housing counselors are available for free or at very low cost, to provide information, counseling, and a free referral to a list of FHA-approved lenders. Search online or call (800) 569-4287 toll-free, for the name and location of a HUD-approved housing counseling agency near you.
How much can I borrow?
Three factors are considered to calculate how much equity you can access:
- The age of the youngest borrower in the home
- Your home’s value
- Current interest rates
Although a lender will use the home value you initially provide to calculate the preliminary loan amount, an independent appraiser must visit your home to ascertain the current value of the property. Then the lender will recalculate the loan amount according to the official home value. All this will be organized by your loan officer. They can also answer any questions or concerns you may have.
The amount you borrow will also depend on which initial Mortgage Insurance Premium (MIP) option you choose: the 2% HECM Standard option or .01% HECM Saver option. You can borrow more with the HECM Standard option.
In a basic sense, the more valuable your home is, the older you are, and the lower the interest rate, the more you can borrow. If there is more than one borrower, the age of the youngest borrower is used to determine the amount you can borrow. For an estimate of HECM cash benefits, select an online calculator from the HECM Home Page. You can use a calculator like the one on the AARP website to get an idea of what you may be able to borrow.
Will a reverse mortgage affect my Social Security / Medicare benefits?
Loan proceeds are non-taxable. The proceeds do not affect Social Security or Medicare benefits in most cases. In rare cases, if you receive term advances where a certain amount of money is delivered to you each month, then you may lose your eligibility if you keep these funds in an account past the end of the calendar month where you receive them.
Will my children lose their inheritance?
The loan is repaid once the last remaining borrower moves out of the home. Normally, when the home is sold, the loan (including interest and any fees) is repaid and any remaining equity goes to you or your heirs. If your children choose to keep the home, they can pay the loan back using alternative financial tools, such as refinancing the reverse mortgage. If they choose to sell the home, they are given up to 12 months to complete the sale.
How do I receive my payments?
There are five options for how you can receive your payments; you choose the option that’s most convenient for you:
- Tenure: The money you receive is divided up into equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
- Term: The money you receive is divided into equal monthly payments for a fixed period of months selected.
- Line of Credit: You receive unscheduled payments or installments, at times and in amounts of your choosing until the line of credit has been exhausted.
- Modified Tenure: This combines a line of credit you can access when you need it with monthly payments for as long as you remain in the home.
- Modified Term: This combines a line of credit you can access anytime with monthly payments for a fixed period of months selected by you as the borrower.
What’s the difference between a reverse mortgage and a home equity loan?
With a traditional second mortgage, or a home equity loan, you must have sufficient debt-to-income 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, and the appraised value of your home, sales price or FHA’s mortgage limits – whichever is less. Generally, the more valuable your home is, the older you are and the lower the current interest rates, the more money you can borrow.
With a HECM reverse mortgage, you don’t make monthly principal and interest payments; the lender pays you according to the payment plan you select. Like all homeowners, you still are required to pay your real estate taxes, insurance and other conventional payments like utilities. With an FHA HECM you cannot be foreclosed or forced to vacate your house because you “missed your mortgage payment.”
Understanding Reverse Mortgage Scenarios
The following provide some sample scenarios you may face when there is more than one resident living in your home. These examples may make it easier for you to understand how to move forward in your own situation.
Scenario #1: My wife is only 58 years old and I am 70 years old, can I still get a reverse mortgage?
A: Yes, but only the person who is 70 can be on title or the deed because the minimum age for a reverse mortgage is 62.
Scenario #2: I took out a reverse mortgage because my husband was under 62 when we first needed the money, but time has passed and he’s over 62 now, can his name be added to the title/deed now?
A: No. You will not be able to add another name onto the title/deed of a property with a reverse mortgage lien without refinancing and incurring additional closing costs.
Scenario #3: I am 70 years old and my husband is 65, so we know we can get a reverse mortgage, but how will the loan amount be calculated?
A: The loan is based upon the age of the youngest person on the title, so in this case the loan amount would be calculated using a borrower age of 65.