A reverse mortgage is a loan for senior homeowners (over age 62) that allows the senior to use their home's equity as the collateral. There are no credit or income qualifications. The loan amount is a percentage of the home's value as determined by the age of the youngest homeowner and the value of the home as determined by an FHA appraisal.
The loan is not repaid until the last surviving homeowner permanently moves out of the home or passes away. When that happens, the borrower's estate has twelve months to pay the balance of the reverse mortgage or sell the home to satisfy the loan. The remaining equity is inherited by the heirs to the estate. The heirs are never liable if the home sells for less than the balance of the reverse mortgage.
Who is eligible for a Home Equity Conversion Mortgage (HECM)?
To be eligible for a HECM reverse mortgage, FHA requires that all borrowers be 62 or older. The balance on the existing loan can be paid off at closing but it must be an amount that the reverse loan can pay off entirely. That means that you must either own your home free and clear or have from a balance that is equal to 30-40% of the appraised value or less depending on the age of the youngest borrower. If there is a current mortgage and you have enough equity you can pay off the balance of the mortgage with the proceeds of the reverse mortgage. Because there are no income or credit requirements for a reverse mortgage, all you really need is a home that has a loan balance at or below the amount eligible in your equity.
To be eligible for a HECM reverse mortgage, FHA requires that all borrowers be 62 or older. The balance on the existing loan can be paid off at closing but it must be an amount that the reverse loan can pay off entirely. That means that you must either own your home free and clear or have from a balance that is equal to 30-40% of the appraised value or less depending on the age of the youngest borrower. If there is a current mortgage and you have enough equity you can pay off the balance of the mortgage with the proceeds of the reverse mortgage. Because there are no income or credit requirements for a reverse mortgage, all you really need is a home that has a loan balance at or below the amount eligible in your equity.
What types of homes are eligible?
Most home types are eligible, including 1-4 family homes, manufactured homes, mobile homes, modular homes, coops and condos. Requirements are that the home must be on land that you own or a leasehold approved by FHA, on a permanent foundation and it must pass an FHA appraisal.
What is the difference between a reverse mortgage and a home equity loan?
Home equity loans, second mortgages and home equity lines of credit have requirements for income and creditworthiness. With other types of traditional forward loans a monthly payment is required. A reverse mortgage has no income or credit requirements and instead of making monthly payments, you can receive payments.
A reverse mortgage amount is determined by a calculation from FHA that takes into consideration the age of the borrower and co-borrower(s), the current interest rate, and the appraised value of your home. The older you are, the more money is available. The more valuable your home (up to $417,000), the higher the loan amount will be. Traditional forward mortgages require a monthly payment, with traditional loans you are still required to make monthly payments, but with a reverse mortgage the loan is not due as long as you or one of the other borrowers remain in the home. A reverse mortgage cannot be foreclosed upon as long as you or any other co borrower continues to occupy the home, pay taxes and maintain the property in sound condition.
Can I outlive my reverse mortgage?
No, as long as at least one homeowner lives in the home and maintains the home, keeping taxes and insurance current there is no repayment due. In addition to that, you will never owe more than your home's value (a reverse mortgage cannot ever become "upside down"). No debt is ever left to the heirs.
What happens when I die or vacate the home?
In the event of your death or in the event that you and your co borrowers no longer use the home as your primary residence, your estate can choose to refinance the reverse mortgage balance into a traditional forward mortgage to keep the house or they can sell the home to pay the balance (the cash borrowed, interest, and fees).
In the event of your death or in the event that you and your co borrowers no longer use the home as your primary residence, your estate can choose to refinance the reverse mortgage balance into a traditional forward mortgage to keep the house or they can sell the home to pay the balance (the cash borrowed, interest, and fees).
If the remaining equity in your home is more than the amount you owe to the lender, the remaining balance would belong to your heirs. If the sale of the home is not enough to pay off the reverse mortgage, the lender must take a loss and request reimbursement from the FHA. Your estate would never be liable for any debt over and above the loan balance.
How much can I borrow?
The amount available will depend on three factors: age of youngest borrower, current interest rate, and appraised value of the home.
How do I get my payments or money from a reverse mortgage?
There are several ways to receive payment from a reverse mortgage. You may take it in any of the following ways or you can mix them and receive it as needed. Payment type can be changed at will for a sum of usually about $20.
Line of Credit - you can pull out money from line of credit as needed
Lump sum - a lump sum of cash at closing.
Tenure - equal monthly payments as long as you live in the home.
Term - equal monthly payments for a fixed number of years.
Line of Credit - take any amount you please at any time until the line of credit is exhausted.
Lump sum - a lump sum of cash at closing.
Tenure - equal monthly payments as long as you live in the home.
Term - equal monthly payments for a fixed number of years.
Line of Credit - take any amount you please at any time until the line of credit is exhausted.
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