WHAT TO KNOW ABOUT REVERSE MORTGAGES
What is a Reverse Mortgage?
A program designed and insured by FHA (the Federal Housing Administration) that allows qualified senior borrowers to access the EQUITY in their home, while RETAINING TITLE to their home and not having to make mortgage payments for as long as they live in their home.
What are the Benefits of a Reverse Mortgage?
- The borrowers retain title to their home.
- There are NO monthly payments with a Reverse Mortgage.
- There are NO income qualifications for a Reverse Mortgage.
- Neither the borrower nor their heirs will ever owe more than the home’s appraised value (FHA Insured non-recourse loan).
- The loan proceeds from the Reverse Mortgage are tax free and will not affect Social Security or Medicare Benefits. (Borrower should always consult their financial or tax advisor).
- The loan is not due until the last borrower permanently leaves the home.
- The borrower has flexibility in how the loan proceeds are received and used.
What does it take to Qualify?
- The age of the youngest borrower on the title must be at least 62 years of age.
- A Reverse Mortgage is only available if the home is the borrower’s primary residence.
- The amount of the Reverse Mortgage is determined by:
- The age of the youngest borrower (minimum of 62 years of age).
- The current appraised value of the home (equity or the difference between the appraised value and the balance due on any existing liens on the property).
- The current interest rates.
How does the Borrower Receive the Proceeds from the Loan?
- If the borrower chooses the FIXED RATE option, the proceeds must be withdrawn as a LUMP SUM at time of closing.
- With a VARIABLE RATE the borrower has several options:
- LUMP SUM or PARTIAL withdrawal at the closing of the loan. Typically, initial proceeds will be used to pay off any existing mortgage balance, with the remainder drawn as a lump sum.
- FIXED TERM PAYMENTS for a specific term, determined by the borrower.
- FIXED MONTHLY PAYMENTS for as long as the borrower lives in the home.
- LINE OF CREDIT, which can be accessed at any time. The unused balance will grow at the approximate rate of interest being charged on the loan. This will give the borrower access to additional cash benefits in the future.
- A COMBINATION of any of the above options.
What are the Steps in getting a Reverse Mortgage?
- Borrower needs to learn about Reverse Mortgages. It is important for borrower to understand the loan and the process of getting the loan.
- Broker will provide contact information for third-party counseling by a certified HUD approved Counselor.
- Borrower will get a Counseling Certificate from the certified HUD approved Counselor.
- Broker will complete an application (1009 form). Broker will work with the borrower to personally help borrower through the application and documentation process.
- Credit report is ordered. Title insurance is ordered. Appraisal is ordered.
- Once all documentation is completed and collected, the file is submitted and an underwriter will review the data and issue a conditional approval.
- Broker will help borrower complete any lending conditions required by the underwriter;
- Once all the conditions are satisfied, the loan documents will be issued for borrowers’ signature and the loan will be closed.
- The loan documents will clearly disclose all of the benefits which the borrower will receive, and the funds will be disbursed.