Learn More About Reverse Mortgages

You are eligible for a reverse mortgage if you meet the following criteria:

1) You are at least 62 years old, or will be at the time of closing. If you are 62, but your spouse is under the age of 62, you would need to discuss this scenario with us to understand the consequences, should your spouse out live you.

2) You own a single family residence, condominium*, townhome, manufactured home*, or up to 4 unit property as your primary residence. Mobile homes that don’t have a permanent foundation do not qualify for reverse mortgage financing.

3) You must have equity in your property. The percentage of equity vs. debt isn’t a static number, but you’ll need at least 30% equity at a minimum and even more the closer your age is to 62. If you aren’t sure if you have enough equity to qualify, email us mentioning this concern and we’ll be able to tell you.

*If a condominium is not currently FHA approved, it will need to become FHA approved during the processing of the reverse mortgage loan. It would be wise to speak with your homeowner’s association about FHA approval before applying. Manufactured homes have very specific requirements to be approved including being on a permanent foundation. Please email us to learn more about the minimum requirements for manufactured homes.

The good news is that your credit scores and income are not currently used as part of the qualification process.

While there can be proprietary reverse mortgages that are available, in general, we are talking about the Home Equity Conversion Mortgage (HECM), aka the Federal Housing Administration (FHA) reverse mortgage. The HECM was created by the Department of Housing & Urban Development (HUD) in 1987, and lenders began offering the program in 1989. The HECM is a federally insured reverse mortgage which allows the program to be non-recourse.

A reverse mortgage is simply a loan that uses your home as collateral and doesn’t require monthly repayment. The interest that would usually be paid on a monthly basis is deferred and will be repaid when you pass away, sell the home, or no longer occupy it as your primary residence. The loan provides you with a way to access the equity in your home without burdening you with 15 or 30 years worth of mortgage payments.

There is not just one description of what a reverse mortgage can do, as it can be used to do many different things. There are also different types of reverse mortgages, some with adjustable rates and some with fixed rates, and they carry different options as to how you receive the proceeds. Fixed rate reverse mortgages currently require you to take a lump sum at closing. Adjustable rate reverse mortgages allow you to take a lump sum, line of credit, monthly payments, or even a combination of these options.

We can accept applications in any state with the lone exception being North Carolina.

A home equity line of credit will also release equity in your home in the form of cash to be spent as you like. The main difference is that a home equity line of credit will need to be repaid monthly as do all conventional mortgages. A reverse mortgage does not have to be repaid until you sell your home or no longer occupy the residence. You will also need to have sufficient income & credit scores to qualify for a HELOC.

The only debt that is taken into consideration during the reverse mortgage process is the debt that is listed against your home. We will pull a credit report and match it up with the home’s title report to determine what needs to be paid “in full” at closing. Generally speaking, these items must be paid off at the reverse mortgage closing; mortgages, HELOCS, city or county tax liens, federal debt (IRS tax liens), open bankruptcies, etc. Credit card debt is not taken into consideration when you apply for a reverse mortgage.

As part of the reverse mortgage process, we can help point you in the right direction to get the title corrected prior to closing.

Any funds you’ve received plus accrued interest, mortgage insurance, and closing costs will be repaid once you sell or no longer occupy the residence. You will be able to keep up with your mortgage balance because post-closing you will receive a monthly statement.

Reverse mortgages are considered non-recourse loans meaning you cannot owe more than the value of your home. Your home serves as the only collateral for the transaction. Any losses at the time of repayment are covered by the FHA mortgage insurance fund.

Upon your death, your estate will repay the loan balance with cash, proceeds from the sale of the property, or by refinancing the loan (usually with a conventional mortgage). If they decide to sell, the estate will retain any additional proceeds from the sale. If your estate decides to & qualifies for a refinance, they will retain the home and any additional equity.

The estate is given six months with up to two three month extensions, allowing for a full year to sell the home. They must make an effort to sell the home to qualify for the extensions. A limited time period is given, so an unrealistic sales price isn’t set, allowing the heirs to live in the home indefinitely.

No, reverse mortgage proceeds are not income, no matter how they are received. The funds are considered loan proceeds and are not taxable.

Social security and Medicare benefits are not affected by a reverse mortgage. Qualification for Medicaid or supplemental social security, among other needs based benefits, could be jeopardized by a reverse mortgage. It depends on many factors, including how the proceeds are distributed. Should you have any questions about how your benefits would be affected, please contact an elder law attorney or your Area Agency on Aging.

You can do some preliminary research before speaking with us about your situation. The most common places to look are your county’s tax assessment, Zillow, and Yahoo, among other places. You can even speak to a real estate agent in your area that has access to MLS to see what your neighbor’s are selling for. Keep in mind, we will order an FHA appraisal as part of the process to determine the actual value. The appraisal will look for three comparable sales in the past 6 months to a year to compare your home to.

That depends on the language in the trust, the state you reside in, and whether the trust is revocable or irrevocable. If you submit a fully executed copy over to us, we can have it reviewed before you make application.

First, make sure you have a durable general power of attorney that gives you the ability to encumber the property in question. Second, make sure the document has been executed before you look to obtain a reverse mortgage for him. Third, we’ll need to know if your father is considered “of competent mind” or not by his physician.

If he is competent, HUD requires him to participate in the counseling and application process. You will be given the authority to sign a majority of the application documents and all of the closing documents on his behalf. We are not aware of any exceptions to this rule.

If he is incompetent, HUD will allow you to handle the entire transaction on his behalf with two doctor’s notes. The first will need to say that he was of competent mind when he signed the POA document. The second note will need to say that he is no longer competent due to a specific reason.

If you have any questions about these requirements, please email us.

In very rare circumstances, we’ll escrow for taxes and insurance for an estimated amount of time. The vast majority of reverse mortgages don’t have escrow accounts, leaving the customer responsible for their own taxes and insurance.

It really depends on whether you’ve been through the counseling session or not. If you’ve been counseled prior to applying with our company, we’ll be able to close within 2-3 weeks. If you apply for a reverse mortgage prior to being counseled, the process is more along the lines of 4-5 weeks.

It depends on how severe the “maintenance” is. Cosmetic issues like carpet cleanliness, interior wall paint, stained drywall, damaged gutters, etc. are often ignored during the transaction. The appraiser, when valuing your home, will make note of any FHA repair issues. Those items will need to be fixed in one of two ways, before closing, or after closing where we hold back an escrow to cover the cost.

If the total cost of the repairs are greater than 15% of the appraised value or the issues affect the livability of the property (structure, heating / air, plumbing, etc), the requirement will be that they be fixed prior to closing. If the repairs are of a less urgent nature, a contractor’s estimate is required. The contractor is chosen by you and must be licensed in the area.

You are given 12 months after closing to make sure the contractor completes the work. Once the work is finished, the original appraiser will visit again to certify the completeness of the repairs. If the inspection is satisfactory, the contractor is paid in full and any additional funds in the escrow are paid to you.

The FHA lending limit used to be based on Metropolitan Statistical Area (MSA), but it is now a national lending limit. Email us to find out what the current national limit is, because it can change at any time by an act of Congress.

The proceeds can only be taken as a lump sum when opting for a fixed rate reverse mortgage. When choosing the adjustable rate programs, you can elect to receive a lump sum, line of credit, monthly payments or a combination of these options. It is not unusual, for example, to see an adjustable rate customer choose to receive $10,000 at closing, $20,000 on a line of credit, and $500 per month for X months.

Keep in mind that until the funds are received, the interest does not accrue. Electing to take an adjustable rate reverse mortgage with a line of credit or monthly payments can drastically decrease the amount of interest that will accrue over a long period of time.

No, there are no prepayment penalties on FHA reverse mortgages. You can pay the interest as you go along if you’d like to have the deduction on your tax return for that year. Keep in mind that your payments will be applied to closing costs, FHA insurance, or interest. Speak with your loan servicer for more information about what category your payment will be applied to.

The terms of the reverse mortgage state that you must keep the home as your primary residence. You cannot be outside of the home for 12 months consecutively or the loan can be called due.

No. The terms of the reverse mortgage state that as long as one customer meets the terms of the loan, it will continue as we have offered it.

Yes, but only with much consideration. You and your wife would need to understand the consequences of the decision. In this scenario when the sole homeowner on the loan passes away, the loan is called due and the younger spouse must pay it off. Should you have a life insurance policy or other contingency plan in place, the loan might make more sense. If you are hearing that wife can be added when she turns 62, that information is not correct and is highly unlikely. You would have to refinance years down the road and hope that the two of you would qualify for a larger enough loan to pay off the first one in full. Proceed with caution in this scenario and speak with us and a HUD approved counselor before applying.

No, you cannot be kicked out of your home at any time due to your spending of the proceeds. You only have to meet the terms of the loan and you can live in your home for the rest of your life. The terms include keeping the home your primary residence, not being out of the home for twelve consecutive months, not letting the home fall into disrepair, paying your taxes and insurance, and not changing the title into someone else’s name.

No, we cannot use the old appraisal or take any appraiser referrals. We will have to order an FHA appraisal as part of the processing of your loan. The appraiser will be randomly assigned and we will not be allowed to have contact with this individual.

The process of obtaining a reverse mortgage can take anywhere from 3-6 weeks. It really depends on how quickly you address step two. In most states our recommendation is to complete the process as follows –

1) Loan Application - Provide us your information either online or via the telephone, so we can work up an application. Once you’ve signed the application and provided us with a few documents, you can move on to step two.

2) HUD Approved Counseling - We will provide you with the national agencies that can counsel you in person or on the phone. We will also give you a list of at least 5 local agencies that can meet with you, should you prefer to complete this requirement in person. We ask that you mail us a signed & dated copy of the certificate as soon as your receive it in the mail. Once we have it, we can move on to step three.

3) Appraisal - We will place the order for the appraisal and you will be contacted by the appraiser to schedule the appointment. The appraisal management company will look to collect payment from you via credit card or eCheck. Once we have the completed appraisal in our possession, we will send you a copy along with your updated loan information.

4) Closing - We will schedule the closing for a time and location that makes sense for you, whether that be at your home or at the title company’s office. At the closing you’ll need to have your identification and a voided check on hand.

1) Remain In Your Home - When you look at the alternatives to a reverse mortgage, what other options keep you in your home? The vast majority of homeowners surveyed mentioned that they want to remain in their home for as long as possible. Using the equity to stay in your home, keep it attractive to you, and keep up your quality of life are all important features.

2) No Monthly Payments - Have you ever been able to borrow money in the past without having a monthly mortgage payment? The reverse mortgage is safe way of accessing the equity in your home, because you only have to pay the taxes and insurance every year. There is very low risk of foreclosure. That’s definitely a positive when you have a limited, fixed income.

3) Qualifying - You don’t need to show us any income documentation or have sufficient credit scores. You can even have a recent discharged bankruptcy, and it won’t stop you from obtaining a reverse mortgage. That’s a far cry from the normal lending standards of conventional loans.

4) Flexible & Tax-free Proceeds - You have the option to receive your proceeds in a variety of ways that can fit most needs, whether they are in a lump sum, line of credit, monthly payments, or a combination of those options. The equity in your home is available to you tax-free, because it isn’t considered income, but instead loan proceeds. Compare that feature with potential early withdrawal penalties of your other assets.

5) Non-recourse - A very positive feature of all FHA reverse mortgages is that they are non-recourse in nature. The only collateral used in the transaction is your home. Should it ever be sold for less than is owed to the lender, the FHA mortgage insurance fund will cover the loss. Should you take out a reverse mortgage, you can rest assured that your heirs will never owe more than the house is worth.

1) Cost - If you are leaning towards taking a reverse mortgage with a line of credit or monthly payments (i.e. the adjustable rate product), you will have substantial closing costs. One of the major costs is the upfront FHA mortgage insurance premium, calculated as 2% of the appraised value or national lending limit (whichever is lower). The other negative in the cost column is the compounding interest accrual.

2) Now vs. Later - Should the equity in your home be used freely or only as a last resort? That’s a very personal question that an outsider shouldn’t attempt to answer for you. If you use it now, and for good reasons, you obviously won’t have it later in life, should you have to sell and move elsewhere.

3) Inheritance - There’s an obvious downside to taking out a reverse mortgage if you intend to leave the home free and clear to your heirs. You would be borrowing a large portion of the equity, and in some cases all of the equity, leaving your family with little in the way of inheritance. We suggest having a conversation with your loved ones to clear the air on inheritance expectations vs. current quality of life.

4) Interference with Benefits - Be very aware of how your Federal, State, County, and/or City benefits are calculated. Consider what will happen to them if you are to receive funds from a reverse mortgage. More importantly, speak with a professional that is intimately familiar with the laws to make sure you are making the right decision.

5) Mortgage Interest Deduction - You can only deduct mortgage interest in the year in which you paid it. Reverse mortgage interest is deferred, and typically only paid when the loan is paid off. The annual mortgage interest deduction that one might desire is less likely to make sense with this product.

In the past it was very simple to list out all of the closing costs associated with reverse mortgages. Every lender charged the same set of fees and shopping around was likely to get you nowhere. That’s not the case anymore due to a healthy secondary market for reverse mortgages. You will need to be provided an estimate from a reverse mortgage specialist that is specific to your home and the product that best fits your needs.

Adjustable rate reverse mortgages can carry a different amount of fees from fixed rate reverse mortgages because lenders will pay a portion of the closing costs on fixed rate reverse mortgages. Here are the typical closing costs that you’ll see and who charges them –

Lender
Origination fee
Appraisal (often paid out of pocket by the customer)
Document preparation
Credit report
Flood certification
MERS

Federal Housing Administration (FHA)
FHA upfront mortgage insurance premium

Title
Closing fee
Lender’s title insurance
Title search
Title binder
Endorsements

County
Recording fees
Taxes
State per loan fee

One of the main requirements of obtaining an FHA reverse mortgage has always been the required counseling session that is independent from the lender. If you are trying to obtain a reverse mortgage, you will have to complete, over the telephone or face-to-face, a counseling session with a non-profit HUD-approved counseling agency. In this section we will provide you with a link to find local agencies and the list of national agencies that are offering counseling. Keep in mind that not all of the agencies will charge a fee for their session.

You can do a state by state search for counseling agencies in your area by clicking here.

The national counseling agencies are as follows –

CredAbility – (800) 252-2227
Money Management International – (877) 908-2227
National Council on Aging – (800) 510-0301
National Foundation for Credit Counseling – (866) 698-6322

A reverse mortgage can be used to purchase a new home. Learn more about the requirements here.

Here is a PDF version some of the better material that we’ve found about reverse mortgages. Keep in mind that much of it was written years ago. To download a free copy of adobe acrobat, go here.

National Reverse Mortgage Lender’s Association (NRMLA)
Just the FAQs: Answers to Common Questions About Reverse Mortgages
The NRMLA Guide to Aging in Place
Using Reverse Mortgages for Health Care

American Association of Retired Persons (AARP)
Home Made Money - A Consumer’s Guide to Reverse Mortgages

National Council on Aging (NCOA)
Use Your Home to Stay at Home – A Guide for Older Homeowners Who Need Help Now
Use Your Home to Stay at Home – A Planning Guide for Older Consumers

National Reverse Mortgage Lender’s Association (NRMLA)

Department of Housing and Urban Development (HUD)

Administration on Aging (AOA)

National Council on Aging (NCOA)

National Aging in Place Council (NAIPC)