Top Ten Things to Know if You're
Interested in a Reverse Mortgage
Reverse Mortgages are becoming popular in America. The U.S. Department
of Housing and Urban Development (HUD) created one of the first. HUD's
Reverse Mortgage is a federally-insured private loan, and it's a safe
plan that can give older Americans greater financial security. Many
seniors use it to supplement social security, meet unexpected medical
expenses, make home improvements, and more. You can receive free
information about reverse mortgages by calling AARP at: 1-800-209-8085,
toll-free. Since your home is probably your largest single investment,
it's smart to know more about reverse mortgages, and decide if one is
right for you!
1. What is a
reverse
mortgage?
A reverse mortgage is a special type of home loan that lets a homeowner
convert a portion of the equity in his or her home into cash. The
equity built up over years of home mortgage payments can be paid to
you. But unlike a traditional home equity loan or second mortgage, no
repayment is required until the borrower(s) no longer use the home as
their principal residence. HUD's reverse mortgage provides these
benefits, and it is federally-insured as well.
2. Can I
qualify for a HUD
reverse mortgage?
To be eligible for a HUD reverse mortgage, HUD's Federal Housing
Administration (FHA) requires that the borrower is a homeowner, 62
years of age or older; own your home outright, or have a low mortgage
balance that can be paid off at the closing with proceeds from the
reverse loan; and must live in the home. You are further required to
receive consumer information from HUD-approved counseling sources prior
to obtaining the loan. You can contact the Housing Counseling
Clearinghouse on 1-800-569-4287 to obtain the name and telephone number
of a HUD-approved counseling agency and a list of FHA approved lenders
within your area.
3. Can I
apply if I didn't
buy my present house with FHA mortgage insurance?
Yes. While your property must meet HUD minimum property standards, it
doesn't matter if you didn't buy it with an FHA-insured mortgage. Your
new HUD reverse mortgage will be a new FHA-insured mortgage loan.
4. What types
of homes are
eligible?
Your home must be a single family dwelling or a two-to-four unit
property that you own and occupy. Townhouses, detached homes, units in
condominiums and some manufactured homes are eligible. Condominiums
must be FHA-approved. It is possible for condominiums to qualify under
the Spot Loan program. The home must be in reasonable condition, and
must meet HUD minimum property standards. In some cases, home repairs
can be made after the closing of a reverse mortgage.
5. What's the
difference
between a reverse mortgage and a bank home equity loan?
With a traditional second mortgage, or a home equity line of credit,
you must have sufficient income versus debt 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, other loan fees, and the appraised
value of your home or FHA's mortgage limits for your area, whichever is
less. Generally, the more valuable your home is, the older you are, the
lower the interest, the more you can borrow. You don't make payments,
because the loan is not due as long as the house is your principal
residence. Like all homeowners, you still are required to pay your real
estate taxes and other conventional payments like utilities, but with
an FHA-insured HUD Reverse Mortgage, you cannot be foreclosed or forced
to vacate your house because you "missed your mortgage payment."
6. Can the
lender take my
home away if I outlive the loan?
No! Nor is the loan due. You do not need to repay the loan as long as
you or one of the borrowers continues to live in the house and keeps
the taxes and insurance current. You can never owe more than your
home's value.
7. Will I
still have an
estate that I can leave to my heirs?
When you sell your home or no longer use it for your primary residence,
you or your estate will repay the cash you received from the reverse
mortgage, plus interest and other fees, to the lender. The remaining
equity in your home, if any, belongs to you or to your heirs. None of
your other assets will be affected by HUD's reverse mortgage loan. This
debt will never be passed along to the estate or heirs.
8. How much
money can I
get from my home?
The amount you can borrow depends on your age, the current interest
rate, other loan fees and the appraised value of your home or FHA's
mortgage limits for your area, whichever is less. Generally, the more
valuable your home is, the older you are, the lower the interest, the
more you can borrow.
9. Should I
use an estate
planning service to find a reverse mortgage?
I've been contacted by a firm that will give me the name of a lender
for a "small percentage" of the loan? HUD does NOT recommend using an
estate planning service, or any service that charges a fee just for
referring a borrower to a lender! HUD provides this information without
cost, and HUD-approved housing counseling agencies are available for
free, or at minimal cost, to provide information, counseling, and free
referral to a list of HUD-approved lenders. Call 1-800-569-4287,
toll-free, for the name and location of a HUD-approved housing
counseling agency near you.
10. How do I
receive my
payments?
You have five options:
Tenure
- equal
monthly payments as long as at least one borrower lives and continues
to occupy the property as a principal residence.
Term
- equal
monthly payments for a fixed period of months selected.
Line of Credit
-
unscheduled payments or in installments, at times and in amounts of
borrower's choosing until the line of credit is exhausted.
Modified
Tenure -
combination of line of credit with monthly payments for as long as the
borrower remains in the home.
Modified Term
-
combination of line of credit with monthly payments for a fixed period
of months selected by the borrower. |
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