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Reverse Mortgage Facts & FAQs
Below are some of the most frequently asked questions regarding reverse mortgages. Reverse mortgage FAQs are provided by Senior Reverse Mortgage Online, a nationwide provider of reverse mortgages.
Common Reverse Mortgage Questions
How do I qualify for a reverse mortgage?
One of the great benefits of a reverse mortgage, is the fact that you do not need to qualify based upon credit history, income, or the amount of assets you have. The only qualifications are as such: You must be 62 or older, your home must have equity, the home must be your primary residence, the home cannot be a manufactured home built before 1977.
Will the bank own my home?
The bank or lender does not own or take your home, nor do they have any rights to it. The lender simply has a lien against your property. The title is all yours. Eventually, when the mortgage ends upon the death of last person living in the home, you voluntarily sell your home, or if you move out of the home for at least 12 months, will the lender want their money back and will use the house as collateral. At this point the home is usually sold. The bank get's what is owed to it, and you or your heirs get the remaining proceeds.
Will my heirs owe the bank?
Reverse mortgages are known as "non-recourse" loans, meaning if, under the circumstance more is owed to the lender than the home is worth, and the loan is due based upon death, sale, or vacating the premises, the maximum amount the heirs are required to pay the lender is the value of the home at the time of repayment. The bank cannot come after the family ("non-recourse") for the difference. So, the necessary course of action is typically to sell the home, and the heirs are then free from obligation.
Is income from a reverse mortgage taxable?
Income from a reverse mortgage is not considered true income by the IRS. Therefore, it is non-taxable income. Does my home need to be free and clear of mortgages to qualify for a reverse mortgage? Not at all. In fact, many get a reverse mortgage specifically to pay off a mortgage to remove the burden of that payment.
Are reverse mortgages safe?
Reverse mortgages are insured and regulated by HUD (Housing and Urban Development). HUD instituted safeguards for consumers. For one they regulate the amount of closing costs a lender may charge. Also, HUD requires you to have a free counseling session, with a HUD approved counselor, prior to obtaining a reverse mortgage.
What are the costs?
Like any other mortgage there are closing costs. You can expect an origination fee, appraisal fee, underwriting fees, servicing fee, title fees, mortgage insurance fee, and recording costs.
How much money will I receive?
This is determined by a combination of several factors: 1. By your age or the age of your younger spouse, value of the home, and interest rates at the time you close on your reverse mortgage. When you call in I can go over this with you and give you a close approximation. Generally speaking you can expect somewhere between 45% to 75% of your home's value.
Why get reverse mortgage rather than a home equity line?
The biggest reason is you don't have pay the money back to the bank until you either pass away, move, or sell your home. Home equity lines of credit (aka second mortgage) will create another monthly bill for you. Also, you will have to go through the income and credit qualification process with the home equity line. Additionally, a bank can repossess your home if you fail to make these payments on the home equity line of credit. Since you have no payments to make for the reverse mortgage, there is no fear of the bank taking back your home.
What are my payment options?
You can receive payments in three different ways: 1. Fixed Monthly Payments: This offers you a monthly, tax free, income for life. In this instance a calculation will be made, based upon your age, interest rate, and the value of the house, as to how much tax-free income you will receive, for life, on a monthly basis. 2. Lump Sum: You may take entire amount out all at one time. 3. Line of Credit: Allows you to take money out at any time, and interest is accrued only on moneys taken out. This has become the most popular plan because it allows you to take money out on an "as needed
basis". Also, any unused portion of the line of credit actually accrues interest.
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