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Frequently Asked Questions (Pros and Cons of a Reverse Mortgage)

The following is provided for research purposes only and is meant to answer the basic facts associated with a reverse mortgage. If after reading this information you still have questions, or would like to move forward with a reverse mortgage, please submit the form at the bottom of this page and one of our select groups of providers will contact you. The information you submit is completely secure and only shared with a qualified professional and never sold for data farming.

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What is a Reverse Mortgage?
A Reverse Mortgage allows a homeowner to convert the accumulated equity of their home that has built up over the years into cash. And, 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.

How much money can I get from my home?
The amount you can borrow depends on your age, the appraised value of your home or FHA’s mortgage limits for your area, whichever is less, and the current interest rates. The Federal Government recently increased the loan limit to $625,000.

Can I qualify for a HUD Reverse Mortgage?
To be eligible for a HUD Reverse Mortgage, you must be a homeowner aged 62 or older, occupy the home as your primary residence, pay off any existing liens at the time of settlement and speak with a HUD-approved housing counselor. You may speak with the counselor either face-to-face or over the phone.

Does it matter if my credit is bad?
No! Credit history does not factor in because the lender is not considering your ability to repay the loan. Income is generally not a concern either but a Reverse Mortgage only eliminates the principal and interest payments. The homeowner must be able to continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration (FHA) requirements.

Do I have to pay income tax on the proceeds?
No! The proceeds received from a Reverse Mortgage are loan advances and not taxable income. For your specific situation, we recommend that you consult a tax advisor.

Will this income affect my Social Security or Medicare benefits?
No! Money from a Reverse Mortgage is not considered income, nor does it affect Social Security or Medicare.  However, if you are on government assistance such as Medicaid or other need-based programs it can affect those programs if too much money is withdrawn, and not spent, in one month.

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 under the Spot Loan program.

How do I receive my money?

You have 4 options:

Can the lender take my home away if I outlive the loan?
No! Not as long as one of the borrowers continues to live in the home. You are still responsible for paying your property taxes, home-owner insurance and for making property repairs. With a reverse mortgage, you remain the owner of your home just like when you had a forward mortgage. When the loan is over, you or your heirs must repay all of your cash advances plus interest. Lenders don’t want your house; they want repayment.

Can I still leave my home to my heirs?
Yes! When you no longer live in the home as your primary residence, you or your estate will repay the money you borrowed, plus interest and other fees. The money left over after you have repaid the Reverse Mortgage will belong to you or your estate. None of your other assets will be affected by HUD’s Reverse Mortgage. Also, you can never owe more than your home’s value. This is guaranteed by the Federal Government.

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Types of Reverse Mortgages

95% of all Reverse Mortgages are the HECM (Home Equity Conversion Mortgage).

The benefits are:

The other types, or remaining 5%, are private bank held Reverse Mortgages and may vary a great deal depending on the lender.

Financing Fees
You can use the money you get from a Reverse Mortgage to pay the various fees that are charged on the loan. This is called "financing" the loan costs. The costs are added to your loan balance, and you pay them back plus interest when the loan is over.

Loan Amounts
The amount of money you can get depends on the specific Reverse Mortgage program you select. It also depends on the kind of cash advances you choose.

Debt Payoff
Reverse Mortgages generally must be "first" mortgages, that is, they must be the primary debt against your home. So if you now owe any money on your property, you generally must either: pay off the old debt with the money you get from a Reverse Mortgage, or pay off the old debt before you get a Reverse Mortgage. Most Reverse Mortgage borrowers pay off any home debt with a lump sum advance from their Reverse Mortgage.

Credit cards, car payments and other debts are not required to be paid off.

Debt Limit
The debt you owe on a Reverse Mortgage equals all the loan advances you receive (including any you used to finance the loan or to pay off prior debt), plus all the interest that is added to your loan balance. If that amount is less than your home is worth when you pay back the loan, then you (or your estate) keep whatever amount is left over.

With a government insured HECM loan you can never owe more than what your home is worth at the time the loan is repaid. The lender may not seek repayment from your income, your other assets, or from your heirs. (The technical term for this cap on your debt is a "non-recourse limit." It means that the lender does not have legal recourse to anything other than your home's value when seeking repayment of the loan.)

Repayment
All Reverse Mortgages are due and payable when the last surviving borrower dies, sells the home, or permanently moves out of the home. (Typically, a "permanent move" means that neither you nor any other co-borrower has lived in your home for one continuous year.)

Reverse Mortgage lenders can also require repayment at any time if you:

These are fairly standard "conditions of default" on any mortgage. On a Reverse Mortgage, however, lenders generally have the option to pay for these expenses by reducing your loan advances and using the difference to pay these obligations. This is only an option, however, if you have not already used up all your available loan funds.

Cancellation
After closing a Reverse Mortgage, you have three (3) days to reconsider your decision. If for any reason you decide you do not want the loan, you can cancel it. But you must do this within three business days after closing. "Business days" include Saturdays, but not Sundays or legal public holidays.

If you decide to cancel, you must do it in writing, using the form provided by the lender, or by letter, fax, or telegram. It must be hand delivered, mailed or faxed before midnight of the third business day. You cannot cancel by telephone or in person. It must be written.

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7 Things to look for when considering a Reverse Mortgage

1. No Application Fees: You should not be charged a fee when applying for a Reverse Mortgage.

2. Obligation: You are under no obligation to proceed with the application.

3. Counselors Are Required: However, your lender or broker should never require you to use theirs.

4. Good Faith Estimate: All lenders and brokers must provide a Good Faith Estimate.

5. Copy Documents: Always get copies of all documents you sign.

6. Appraisal: You are allowed to receive a copy of your appraisal report.

7. Cancelation:
You have 3 business days (including Saturday) to cancel.

There are several factors that are considered when determining the amount you are eligible to borrow:

Home Value –By entering an amount of what you think your home is worth helps the Lender or Broker in providing an estimate only. An FHA appraisal of your home’s value is necessary before an accurate amount can be determined. Should you decide to proceed with a Reverse Mortgage an FHA appraisal will need to be ordered.

Age – The older you are, the more you are eligible to borrow. To be eligible for a reverse mortgage either you or your spouse must be at least 62 years of age. You may start the process 90 days prior to your 62nd Birthday but it cannot close before that date.

Interest Rate – The current interest rate plays a major role in the FHA’s formula for determining how much you are eligible to borrow. If rates rise in the future, the proceeds available could be reduced.

Reverse Mortgage Cons
With every positive there is a negative and since we aim to provide all the facts regarding Reverse Mortgages it is only right that we inform you of what some consider to be the down side of this type of mortgage.

I. Typically the fees for Reverse Mortgages are the same as traditional FHA mortgages but generally are higher than conventional mortgages. The largest costs are:

i.  FHA mortgage insurance
ii. Origination fees

II. Loan balances grow over time meaning the value of the estate, or inheritance, may decrease.

III. While there are no adverse effects on Social Security or Medicare, if you are on government assistance such as Medicaid or other need-based programs it can affect those programs if too much money is withdrawn, and not spent, in one month.

IIII. There has been a negative stigma surrounding Reverse Mortgages due to poor policies when the program was first created back in 1961. As a result of this it remains one of the most misunderstood and misrepresented mortgages offered today. The primary reason Reverse Mortgage counseling is required as part of the process is because most individuals still don’t fully understand how they work.

There are numerous options available for Reverse Mortgage barrowers today. Only a licensed Lender or Mortgage Broker can generate an estimate of the available Reverse Mortgage proceeds. Enjoying Aging is not licensed to provide such information. By submitting this form you are authorizing Enjoying Aging to pass your information to a licensed Lender or Broker that can provide you with a professional quote. If you should have any questions they will be happy to provide the answers.

This information does not come from an approved HUD or FHA government agency. For the most accurate information please submit the form below so a licensed Lender or Reverse Mortgage Broker can contact you. A Reverse Mortgage Consultant will work with you and your advisors to help you assess your individual situation and choose the product that best meets your needs.


The information you provide by submitting this form is completely safe and secure and only shared with a qualified professional and never sold or used for data farming. By submitting this form you are NOT applying for a loan and are under no obligation to proceed with a loan.
 
The above information is for research purposes only and in no way constitutes an effort on the part of Enjoying Aging to sell or promote purchasing anything.

Mortgage calculator results are an estimate only and not an offer to lend.


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