Reverse Mortgage Frequently Asked Questions
Q: How does a reverse mortgage work?
A: A reverse mortgage works by allowing someone aged 62 or older access to a portion of the equity in their home with no monthly mortgage payments due on what is borrowed. Many people use reverse mortgages to get rid of their current monthly mortgage obligation, open a line of credit that cannot be frozen, can grow over time, and requires no monthly mortgage payments; you can even purchase a new home with a reverse mortgage and live there with no monthly mortgage payments.
Q: When should someone get a reverse mortgage?
A: The optimal time to get a reverse mortgage is when home values are high and interest rates are low- this allows borrowers to maximize their benefit.
Q: How will a reverse mortgage affect social security or retirement funds?
A: A reverse mortgage can provide additional discretionary income by eliminating a current monthly mortgage payment or giving access to home equity as cash, a line of credit, or monthly payments to the borrower allowing for more wiggle room in a budget and possibly giving the client the option of delaying social security or accessing other retirement funds.
Q: Can I sell my home and move later?
A: Yes. You can sell the home at any time you decide. When the home is sold, the loan balance must be paid in full to satisfy the contract. Anything earned from the sale over the amount due on the loan is yours to keep.
Q: How do I get money from the Line of Credit?
A: When you would like to access funds, you will contact your servicing company and the funds will be directly deposited into your bank account.
Q: Can I make some/any monthly mortgage payments while I’m still working to protect/ build my equity?
A: Yes. With reverse mortgages, payments are optional. You can make payments in the amount and frequency of your choosing, if you like but monthly mortgage payments are never required.
Q: How much do I qualify for?
A: The amount you qualify for depends on your home value, the age of the youngest borrower, and the current interest rates. To find out how much you may qualify for, fill out the form HERE to request a loan snapshot from one of our local reverse mortgage experts.
Q: How much are the costs? Are they standard among lenders? Can you reduce them?
A: The costs included in a reverse mortgage are the origination fee, appraisal fee, and standard 3rd party title and escrow fees.
The origination fee is regulated at up to 2% of the first $200,000 and 1% thereafter of the maximum claim amount. The maximum allowed origination fee is $6,000. 100% of closing costs are allowed to be financed into the loan amount. There may be a servicing fee depending on the type of loan and in those cases, an amount sufficient to fund the servicing fee for the duration of the mortgage must be set aside. Some of the fees may be able to be reduced depending on certain factors and this must be discussed with your loan officer.
Q: Does the lender own my home?
A: No. You will retain the title and ownership of your home.
Q: What happens if I/my spouse and I pass away? What happens to my spouse if he/she is under 62?
A: When both borrowers pass away the loan will become due and must be paid. The home can be sold or refinanced by the family if they would rather keep the home. If one spouse passes away and the other spouse is included in the loan, they will still be able to stay in the home as long as they want and access any available balance in the line of credit. If the spouse is considered non-borrowing, they will be able to stay in the home as long as they would like but they will not have any access to any additional funds that may have been available before the borrower passed. All loan obligations must continue to be met or the loan could be called due.
Q: What are my out-of-pocket costs?
A: Before a reverse mortgage application can be taken, a person has to complete a third-party counseling session over the phone or in person with a counselor of their choosing to ensure they understand the terms of the loan. This session usually has a cost that must be paid to the counselor at the time of service. A certificate of completion will be given at the end of the session and must be provided to complete your reverse mortgage application. All other loan fees can be financed into the loan to be paid at closing.
Q: Can I access more of the equity in my home in the future?
A: You may be able to refinance depending on your situation and home value. One of our reverse mortgage experts can help you decide when and if a refinance could be feasible.
Q: How does my credit affect my eligibility for this loan?
A: With reverse mortgages, there are very minimal credit qualifications. Your credit score will not be considered for eligibility. We will consider your ability to make and continue to afford the property taxes, homeowners insurance, and upkeep of the property to ensure the reverse mortgage is a good fit.
Q: Can I qualify for a HECM loan if I currently have an existing mortgage on my home?
A: Yes, but the existing loan must be paid off prior to or at the time of settlement of the loan.
Q: My property is held in a living trust. Do I qualify?
A: Yes, as long as you are the primary trustee and you are 62 or older.
Q: To avoid probate, my children and I own the property in joint tenancy. Do we qualify?
A: Yes, if the children are age 62 and older and live in the property. Otherwise, they need to be taken off title prior to settlement.
Q: Does the IRS consider the monthly advances from the HECM as income?
A: No. Cash advances are not counted as income because they are actually loan distributions.
Q: Are manufactured homes eligible?
A: Yes. There are a few requirements they have to meet. Each situation needs to be reviewed for eligibility.
Q: My spouse is permanently in a nursing home. Can we participate?
A: Yes, as long as one owner occupies the property as the principal residence.
Q: Are there restrictions on how I can use the money?
A: No. It’s your money. You can spend it as you wish.
Q: What are the downsides of a reverse mortgage?
A: HECM reverse mortgages are FHA-insured loans and they do have costs that include origination fees (capped at $6,000 and vary depending on your loan amount), FHA mortgage insurance premiums, and standard 3rd party closing costs. Although these costs are included in the loan balance and the client does not need to pay these costs out of their own pocket in most cases. If the loan is short to close, they can elect to bring cash to closing. There may be a servicing fee depending on the type of loan and in those cases, an amount sufficient to fund the servicing fee for the duration of the mortgage must be set aside. Some of the fees may be able to be reduced depending on certain factors and this must be discussed with your loan officer. Proprietary reverse mortgages often are less expensive that the HECM and share the same non-recourse protection for your heirs. Learn more about proprietary reverse mortgages available to homeowners aged 55+ on our website here: https://www.nwreverse.com/proprietary-reverse-mortgages/
Q: Why do people get a reverse mortgage?
A: A reverse mortgage can provide additional income during retirement years. Many homeowners get a reverse mortgage to use the funds to supplement their income, pay for vacations, meet medical expenses, get rid of their monthly mortgage payments, pay for in-home care, and make home improvements. Quality of life and financial stability are highly valued by those who get a reverse mortgage and they seek to remain independent and in their own homes for as long as possible.
Q: When is the best time to get a reverse mortgage?
A: The answer to this question is: It depends. Timing the reverse mortgage depends on your goals, age, equity position, and current interest rates. the HECM reverse mortgage minimum age requirement is 62 but some proprietary reverse mortgages are available to those as young as 55. Reverse mortgage guru Wade Pfau suggests getting a reverse mortgage as early as possible and making voluntary payments on the loan balance throughout your life. To figure out when the right time for you to get a reverse mortgage is, give us a call and we will provide you with a no-obligation loan snapshot of your options. There is no credit check or documents required to receive a loan snapshot.