Senior Lending
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. 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 individual condominiums units to qualify
under the Spot Loan program.
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, 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! 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, 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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