FAQ2019-10-28T20:50:55+00:00

ASK & WE ANSWER

FREQUENTLY ASKED QUESTIONS

Frequently Asked Questions

Can a reverse mortgage be used to “purchase” a new home?2019-09-28T18:12:30+00:00

Yes,  you can buy a new home with a reverse mortgage, and not have to worry about making monthly mortgage loan payments as long as you live in the home.  However, you must still pay your property taxes, home insurance, and any association dues.

How do I use a reverse mortgage to purchase a new home?2019-09-28T18:12:57+00:00

The reverse mortgage for purchase allows older adults, age 62 or older, to use a reverse mortgage loan to purchase a new principal residence, and have no monthly loan payments as long as the borrowers are living in the home as their primary residence.  Borrowers are responsible to pay property taxes, home insurance, and association dues if applicable.

Reverse for Purchase: What are the down payment requirements?2019-09-28T18:13:37+00:00

The required down payment is the difference between the purchase price and the amount of funds available from the reverse mortgage.

Reverse for Purchase: Must the borrower occupy the property?2019-09-28T18:14:08+00:00

Yes.  The reverse mortgage for purchase program is only available for owner occupied properties, and the borrower must occupy the property within 60 days after closing.

When is a reverse mortgage for purchase typically used?2019-09-28T18:14:34+00:00
  • Borrowers cannot qualify for a traditional mortgage
  • Can qualify for more home than with traditional mortgage
  • Empty-nesters downsizing in retirement
  • Relocation to be near family, friends, or warm weather
  • Need single story home for physical needs
  • Need home with other senior friendly attributes such as widened doorways, safe bathrooms, ramps, limited stairs, etc.
Reverse for Purchase: What property types are eligible?2019-09-28T18:15:04+00:00

Properties that are eligible for purchase with a reverse mortgage include:

  • Existing Single Family residences
  • FHA approved condominium
  • New Construction properties where the Certificate of Occupancy or equivalent has been issued
Reverse for Purchase: Must the borrowers pay property taxes and insurance?2019-09-28T18:15:37+00:00

Yes.  Under the terms of the loan, the borrowers are responsible to pay property taxes, home insurance, association dues, or any other property obligations that may become a lien on the property.  Like any traditional mortgage, failure to do so may result in foreclosure.

Reverse Mortgage for Purchase – Scenarios2019-09-28T18:16:12+00:00

Below are just of few hypothetical scenarios illustrating the power of using a reverse mortgage to purchase a home in different circumstances.  These scenarios are only examples, and your circumstances may be different, however a reverse mortgage for purchase could help you achieve your retirement home purchasing objectives.

 

Scenario 1

  • Mr. and Mrs. Smith wish to downsize
  • They sell their current home for $400,000 and pay off their mortgage of $250,000 – leaving $150,000 cash leftover
  • Some possible options for Mr. and Mrs. Smith when buying their next home:
    • They can buy a $150,000 home for cash and have no monthly mortgage payments
    • They can buy a $250,000 home, put $150,000 down and take a traditional forward mortgage for $100,000 with monthly payments.
    • They can buy a $250,000 home, put $120,000 down, take a HECM reverse mortgage for $130,000, and have no monthly mortgage payments for as long as they live in the home – AND keep $30,000 in cash in their bank account.
    • They can buy a $280,000 home, put $150,000 down, take a HECM reverse mortgage for $130,000, and have no monthly mortgage payments as long as they live in the home.

 

Scenario 2

  • Ms. Jones wishes to relocate into a similar home in a new state or retirement location that is higher priced.
  • She sells her current free and clear home for $200,000, but similar homes in the new state or retirement location run $300,000 – $350,000.
  • Some possible options for Ms. Jones when buying her next home:
    • She can buy a $300,000 home for cash by using the proceeds of their sale and $100,000 cash from savings and have no monthly mortgage payments.
    • She can buy a $300,000 home, put $200,000 down, and take a traditional forward mortgage for $100,000 with monthly payments.
    • She can buy a $300,000 home, put $145,000 down, take a HECM reverse mortgage for $155,000, and have no monthly mortgage payments for as long as she lives in the home – AND keeps $55,000 in cash in their bank account.
    • She can buy a $400,000 home, put $200,000 down, take a HECM reverse mortgage for $200,000, and have no monthly mortgage payments for as long as she lives in the home.

 

Scenario 3

  • Mr. and Mrs. Johnson wish to purchase a second property such as a vacation home with the intention of eventually retiring, selling their primary home, and moving into the vacation home.
  • Their primary home is free and clear and worth $400,000.
  • Some possible options for Mr. and Mrs. Johnson when buying their vacation home:
    • They can buy a $250,000 home for cash by using cash from savings – no mortgage payments.
    • They can buy a $250,000 home, put $150,000 down out of savings, and take a traditional forward mortgage for $100,000 with monthly payments.
    • They can buy a $250,000 home for cash by using a HECM reverse mortgage to pull $200,000 from their current home and adding $50,000 from their savings.
    • They can buy a $350,000 home, put $150,000 down, and use a HECM reverse mortgage to finance $200,000 from their current home to cover the remainder – No monthly mortgage payments for life.
  • With the last two options, when the primary home is later sold, the proceeds can be put into savings or used to pay down the reverse mortgage balance.
What types of homes are eligible for reverse mortgage financing?2019-09-28T18:19:56+00:00

To qualify for a reverse mortgage, the home must be your primary residence. 1-4 family residences, FHA approved condominiums, however vacation homes, secondary residences and rental properties are not currently eligible.

Is it okay if I already have a mortgage on my home?2019-09-28T18:20:21+00:00

Yes.  However, any existing mortgages or liens on your home must be first paid off with the reverse mortgage proceeds before you can receive any leftover funds.  In most cases, the primary reason people take a reverse mortgage is to eliminate their existing mortgage and the monthly payment associated with it.

What if the amount of my reverse mortgage is not enough to completely pay off my current mortgage?2019-09-28T18:20:58+00:00

Since a reverse mortgage must be a 1st lien on your property, any existing mortgages and liens on your home must be paid in full. However, if the proceeds from your reverse mortgage are not adequate to pay off all current liens on the home, you can use savings or other sources of cash combined with your reverse mortgage proceeds to pay off all liens on the property at closing.

Can I lose my home?2019-09-28T18:21:24+00:00

Similar to all other types of home loans, with a reverse mortgage you retain title and control of your home.  The reverse mortgage is only a lien.  You can remain in your home for as long as you wish as long as you continue to pay your property taxes, home insurance, and association dues (if a condo) in a timely manner.  You also must reasonably maintain the condition of the property.  These obligations are exactly the same for all traditional mortgage loans.

Are there income or credit requirements for reverse mortgages?2019-09-28T18:21:47+00:00

As a protection to consumers, the U.S. Dept. of HUD has recently required borrowers to provide some limited income and credit information to insure that they are able to continue paying taxes, insurance, and other property expenses over the long term.

If I have bad credit, will my reverse mortgage be denied?2019-09-28T18:22:13+00:00

Not necessarily.  If your credit history is not satisfactory, it doesn’t necessarily mean your loan will be denied, however you may be required to have a mandatory set-aside for the lender to pay your taxes and insurance.  This set-aside would reduce the amount of funds available to you directly.

Are the proceeds from a reverse mortgage taxable as income?2019-09-28T18:22:37+00:00

No, because a reverse mortgage is a loan, you are only borrowing against the equity in your home. This is not considered income, and therefore it is not taxable as income. Contact your tax advisor.

Will my children lose their inheritance?2019-09-28T18:22:59+00:00

No.  When you leave the home or sell it, the reverse mortgage balance is paid in full and the remaining equity either goes to you or your heirs.

Will a reverse mortgage affect my Social Security or Medicare benefits?2019-09-28T18:23:21+00:00

No.  Reverse mortgages have no effect on your Social Security or Medicare benefits, however if you are receiving Medicaid benefits, you may want to consult an elder law professional before proceeding.

Can I get a reverse mortgage if my home is in a living Trust?2019-09-28T18:23:45+00:00

Yes.  As long as the living trust meets certain HUD requirement (nearly all of them do), your home qualifies for a reverse mortgage.

I know I don’t have to make monthly mortgage payments with a reverse mortgage, but are there other required obligations?2019-09-28T18:24:28+00:00

Yes.  You are responsible for paying your home insurance, property taxes, and any association dues (if a condo) in a timely manner. You are also required to maintain the reasonable condition of your home.

 

Can I prepay my reverse mortgage?2019-09-28T18:24:48+00:00

Yes.  Even though there are no required payments on a reverse mortgage, you can make full or partial payment any time you wish with no penalty.

What is the Mortgage Insurance Premium (MIP)?2019-09-28T18:25:21+00:00

The U.S. Dept. of HUD insures reverse mortgages and for that they charge a fee at closing. For this fee, they insure that you will always get your funds for the life of the loan, and that you will never have to pay back more than the value of your home at the end of the loan.

Can I ever owe more than the value of my home?2019-09-28T18:26:10+00:00

No.  A reverse mortgage is a “non-recourse” loan which means that you never have to pay back more than the value of your home at the time the home is sold. This is true regardless of your loan balance when you or your heirs sell it. Because HUD insures reverse mortgages, the government would be responsible to pay the lender the difference. This is why you pay a Mortgage Insurance Premium (MIP) to HUD.

How much do I pay back at the end of the loan?2019-09-28T18:26:33+00:00

At the end of the loan, you would pay back the total of your initial draws and any subsequent draws, plus all interest and fees accrued during the life of the loan.

Do I still own my home?2019-09-28T18:26:58+00:00

Yes.  Just like all other traditional loans, you still own your home, and have complete control over it. The reverse mortgage is only a lien on the home.

What happens to my home if I die?2019-09-28T18:27:20+00:00

At the time the last surviving borrower dies, the reverse mortgage must be paid in full with all interest and fees. This can be done by the heirs selling the home or paying off the reverse mortgage with cash or new financing.

If I die and my heirs wish to sell the home to pay off the reverse mortgage how much time will they have to do so?2019-09-28T18:27:42+00:00

If your heirs cannot afford to pay off the reverse mortgage without selling the home, HUD will give at least 6 months for the sale, and extensions can be granted in certain circumstances.

How do I know how much I owe during the term of the loan?2019-09-28T18:28:08+00:00

Each month you will receive a monthly statement which will give you the status of your account including such things as your outstanding loan balance, periodic interest charges and fees, and other pertinent information.

If I choose a credit line, how do I request funds when I need them?2019-09-28T18:28:45+00:00

Line of credit draws are typically done by mailing or by faxing a request form signed by the borrowers. The funds are commonly wired to the borrowers account within 3-5 days. For emergencies, there are expedited methods. Talk with your reverse mortgage servicer.

Can I change the way I get my money after I close?2019-09-28T18:29:07+00:00

Yes.  There are three ways to receive money from a reverse mortgage, a lump sum, a monthly payment (to you), or a line of credit. If after you close you wish to receive your funds in a manner different than the method you chose at closing, you have the option of switching methods by notifying the servicing lender at any time.

If interest keeps accruing on my reverse mortgage over time, doesn’t it become very expensive?2019-09-28T18:29:29+00:00

It depends on how you look at it. A reverse mortgage has no monthly payments, so as interest and fees accrue, your loan balance goes up over time, and your savings account stays the same. With a traditional loan, your loan balance would not go up, but you would be making monthly payments, so your savings account would be going down over time.

If my spouse is not 62 years old yet, can I obtain a reverse mortgage?2019-09-28T18:29:56+00:00

Yes.  For married couples, where only one spouse is 62 years or older, there is a “non-borrowing spouse” option.  With this option, the age qualifying spouse obtains the reverse mortgage and is the sole borrower.  The under age spouse is considered the non-borrowing spouse, and is not a borrower on the loan.  However, should the borrower pass away, the normal requirement for the loan to be repaid is “deferred” as long as the non-borrowing spouse remains living in the home.  Additionally, during the deferral period, the non-borrowing spouse may not receive any funds from the reverse mortgage.  The non-borrowing spouse option has specific requirements and may not apply to all married couples.  Contact your Reverse Mortgage Specialist for more details about your specific situation.