A reverse mortgage is a unique loan that allow homeowner(s) 62 years of age and older to draw on the equity in their home, which is paid to the homeowner(s) in a variety of payout options. One aspect of this loan is that it does not require repayment until the homeowner(s) no longer reside in the residence or does not comply with the loan program obligations such as paying property taxes and insurance, and maintaining the property to FHA guidelines. Created by The U.S. Department of Housing and Urban Development (HUD), this federally insured loan helps those in the senior population meet their financial needs and may ease money worries for greater peace of mind.
Prior to applying for the loan, it is required that you are made aware of the terms and conditions of the loan through sources provided by HUD. Contact the Housing Counseling Clearinghouse at 1-800-569-4287 to obtain the name and telephone number of a HUD-approved counseling agency. You may also contact our office and we will provide you with the list of HUD-approved reverse mortgage counseling agencies.
Homes eligible for a reverse mortgage include single-family homes, detached homes, townhouses, and two-to-four unit properties that are owner-occupied. Condominiums must be FHA-approved.Some manufactured homes are eligible but must meet FHA guidelines. Contact your loan officer for more details on manufactured home eligibility.
Reverse mortgages have become more popular because they allow the borrower to receive loan proceeds that do not require immediate repayment as long as you remain in your home as your primary residence and follow loan guidelines. On the other hand, obtaining a home equity loan (or home equity line of credit or second mortgage) requires that you have sufficient income to cover the debt- plus, you must continue to make monthly principal and interest mortgage payments. With a reverse mortgage you do not make monthly principal and interest payments. Keep in mind you must continue to pay all property related fees, taxes and homeowner’s insurance and maintain the property in good condition.
The cash you can potentially receive is based onThe age of the youngest borrower, the current expected interest rate, the mortgage option selected, amount of home equity and the appraised value of the home. For instance an older individual with a higher value home typically will be eligible for more than a younger person with the same home value at the same expected interest rate. How much money you can take in the first year is limited. For more information on distribution limits go here.
No. As long as one of the borrowers on the loan note lives in the home, continues to pay the taxes and insurance and maintains the home in good condition, you will not need to repay the loan. Once the last surviving borrower passes away, the home is sold or the obligations of the loan are not met, the loan must be repaid.
No. You do not need to pay off your home to qualify. However, the loan proceeds you receive from a reverse mortgage must be used to pay off the existing mortgage or liens (if there is a mortgage balance owing). You will continue to hold title to your home.
The cash or proceeds you receive from a reverse mortgage typically is not subject to individual income taxation. But, since you hold the title to your home, you are still responsible for property taxes, insurance, utilities, fuel, maintenance, and other home-related expenses. Interest on reverse mortgages is not deductible on income tax returns until the loan is paid off in part or whole.We suggest you consult with your tax advisor to provide guidance for your particular situation.
Once the last surviving borrower dies, sells your home, or no longer resides there as the primary residence, you or your estate is responsible for repayment of the money you received from the reverse mortgage, plus interest and other fees. Any remaining equity belongs to either you or your heirs. A “non-recourse” clause can prevent either you or your estate from owing more than the value of your home when the loan is repaid.
HUD advises against using any service, that charges a fee, especially any service that requests a lender referral fee, to obtain a reverse mortgage. HUD provides this information free of charge and can direct you to HUD-approved housing agencies that offer approved reverse mortgage counseling or additional services that are free or have a minimal cost. You can find a HUD-approved housing counseling agency near you by calling 1-800-569-4287 toll free.
Reverse mortgage payments can be received in one of five ways: