The facts about FHA Reverse Mortgages:
If you are like most seniors today, you are finding it more difficult to live on a fixed income when the cost of living is anything but fixed. Energy, gasoline, medical costs, food, rising taxes – all these increases are robbing your retirement of its’ value. Nationally most seniors obtain Reverse Mortgage to get rid of their mortgage payment. That is followed by pay bills, increase the amount of monthly income, make home improvements, and take a vacation. This is your money and in most cases, children who inherit their parents homes are more likely to sell it anyway.
For many seniors today a reverse mortgage means having the peace of mind of knowing that whatever life comes up with, they are prepared for it. And best of all you won’t have to make any payments as long as you stay in your home.
- What is a Reverse Mortgage?
- A Reverse Mortgage is a federally insured mortgage loan created by the US government to allow seniors to have access to the cash value in their house without the additional burden of having to qualify based on credit or having to make monthly payments. You can receive a monthly check or take lump sum disbursements, or a line of credit which you can access whenever you wish.
It is a reverse mortgage because since no payment are made, the balance actually rises rather than decreases every month.
A senior may live in their home until the day they die if they so choose and there will never be a payment required to a bank or loan company. Once you move out of your home permanently or the last surviving spouse passes away then within the next year the loan must be paid off. The beneficiaries of your estate may refinance the balance if they choose or sell the home and keep the remaining equity.
During the time the loan is in effect, you remain responsible for real estate taxes and homeowners insurance as well as any other bills associated with the maintenance and upkeep of your home. It still is, of course, your house.
I’ve heard I must sign my home over to the bank.
Absolutely not. A reverse mortgage in this way is the same as a conventional home loan. It is your house. You control what is done with it and can name your beneficiaries in the same way. Nor does the loan company share in any of the left equity after the loan is paid off. The lender is paid only what is owed them.
- How do I qualify for a Reverse Mortgage?
- There are only a few requirements for obtaining a Reverse Mortgage. One is that all persons appearing on the Deed for the home being used for the Reverse Mortgage be at least 62 years of age. Secondly, this must be your home of residence, not an investment property. And finally, there must be equity in the home of 30-50%.
Depending on your age and the value of your home, the amount you qualify for varies. The older you are, the more you qualify for. The higher the value of your home as determined by an FHA approved appraisal, the more money you can receive. FHA loan limits for your county will also determine the maximum loan amounts available. Loan amount limits can be checked from the links at the bottom of this page.
Credit worthiness is NOT an issue. Bad or good, you can still qualify for a reverse mortgage. And since there are no payments, income doesn’t matter.
- What if I already have a mortgage?
- Any mortgages are paid off, so you never need to make a payment on it again! If you qualified for more than the amount of your outstanding mortgage(s), then that sum is also available to you as a monthly amount, lump sum or line of credit. Any outstanding property taxes are also paid for you. You start with a clean slate! We can also set up an auto payment of your homeowners insurance.
- Why is this loan FHA Insured?
- Once you have taken out your reverse mortgage, you are insured by FHA against the possibility of the loan balance growing too high. In a small percentage of cases, the loan balance can grow higher than the value of the home. The FHA insures that if you sell or pass away, you, your beneficiaries or the estate only have to pay back the value of the home. Any shortfall is paid by the FHA to the lender. National statistics however demonstrate that most loans are paid off with equity remaining.
- What interest rate will I pay?
- Interest rates are variable based on 1 month or 12 month terms. The vast majority of reverse mortgages done are one month variables because these carry the lowest interest rate and make available the largest amounts of money to borrowers. The indexes are usually tied to the 1 year Treasury or LIBOR rate. To these indexes is added a margin.
The advantage of using these indexes is that they are considerably lower than traditional indexes used for home equity lending. Most equity lines of credit are tied to the Prime Rate which historically has been higher than the Treasury rates.
You will also be billed a monthly maintenance and Mortgage Insurance fee. This amount is added to your loan balance and is not collected from you.
- Are there any other requirements?
- Yes. As part of the process of obtaining a reverse mortgage, FHA requires you receive mandatory Reverse Mortgage Counseling. This counseling usually takes 30-45 minutes and can be done by telephone. The counselor works for a non-profit agency specializing in this education and has no connection to the lender. Their only purpose is to ensure all your questions are answered and that you enter into this transaction fully informed.
In the process of conducting a certified FHA appraisal on your home, it may be determined by the appraiser that you home does not meet FHA requirements and the appraiser may stipulate certain conditions that must be repaired as part of the loan agreement. This could be something like a leaking basement to a needed roof repair to some exterior wood that needs painting and scraping. In cases like this, the lender will hold back a portion of the proceeds which will be released to the borrower or the contractor after the work is completed.
- Are there any tax consequences?
- No, you are borrowing your own money so you don’t pay taxes on the money you receive. Receiving this money will also not affect your Social Security benefits or Title XIX.
- How long before I can get my money?
- The process can take anywhere between two and four weeks. Like any loan, the more complete and accurate the information you provide, the faster the process goes.
- What if I am in foreclosure?
- It is still not too late. The faster you move on this the faster you can go from being in danger of losing your home to never having to worry again!
If you have any additional questions, please feel free to give us a call or shoot us an email. If you would like a quick quote on how much you qualify for, please complete the form below: