WHO INSURES REVERSE MORTGAGES?
The FHA (Federal Housing Administration) insures Reverse Mortgages. The FHA HECM, Home Equity Conversion Mortgage, is administered through the United States Department of Housing and Urban Development (HUD).
WHAT IS THE HISTORY OF REVERSE MORTGAGES?
The Reverse Mortgage program has changed over the past 50 or so years. In 1961, Nellie Young got the first Reverse Mortgage through a company called Deering Savings & Loan in Portland, Maine. The loan officer was Nelson Haynes. Nellie happened to be the widow of Nelson's high school football coach, and Nellie needed to supplement her income after the death of her husband. Getting a Reverse Mortgage helped Nellie to remain in her home.
During the 1970's, several banks offered Reverse Mortgage styled loans, but they didn't provide the layer of protection that the FHA reverse mortgage provides today; there was no FHA mortgage insurance on Reverse Mortgage loans at that time.
A special committee in the 1980's called the U.S. Senate Special Committee on Aging issued a report on Reverse Mortgages. It stressed the importance of having a Reverse Mortgage program that was standardized with FHA mortgage insurance as well as uniform lending practices. In 1987, Congress passed the FHA insurance bill so that Reverse Mortgages could be insured. President Ronald Reagan signed the FHA Reverse Mortgage bill into law on February 5, 1988. Marjorie Mason of Fairway, Kansas was issued the very first FHA insured HECM by James B. Nutter Co.
How do I qualify for a Reverse Mortgage?
You must be at least 62 years of age, own your own home, and live in the home as your primary residence or at least six months per year, and not be delinquent on any federal debt.
What types of homes qualify for a Reverse Mortgage?
Single Family homes, 2-4 unit dwellings, townhouses, detached homes, condominiums, and most manufactured homes are eligible for Reverse Mortgages. (Condominiums must be FHA approved- ask your condo board or HOA about status .) (Co-ops are not currently approved for Reverse Mortgages. Mobile homes are also not eligible for a Reverse Mortgage but manufactured homes are. See Manufactured Homes page.
What types of plans are there for Reverse Mortgages?
Here are the payment plans for the adjustable rate HECM (Note: The Fixed Rate HECM does not have the flexibility as does the adjustable rate HECM. See below.
* Lump Sum - an amount of cash at closing (you can choose a portion and keep the rest in a line of credit).
* Tenure- equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
* Line of Credit- draw any amount at any time until the line of credit is exhausted.
(NOTE: In 5 or 10 years, you may decide to convert your line of credit into a steady stream of monthly funds. It's your money. You choose how to appropriate your own funds.)
* Term - In order to increase your monthly proceeds, you may choose a term loan which will expire at the end of the term. However, the borrower does not have to leave the residence but can continue to live there.
* Fixed interest rate HECM mortgages: You will receive the Single Disbursement Lump Sum at closing. The fixed rate HECM does not have the flexibility of the adjustable rate HECM. There is no line of credit and no monthly stipend available with this program.
If I decide to do a Reverse Mortgage, will there be an inspection of my home?
Yes, there will be an inspection of your home known as an appraisal. Your home, inside and out, will be evaluated to determine its value.
Is there a minimum credit score to qualify?
No. However, HUD has instituted a financial assessment to determine if borrowers can pay their taxes and homeowner's insurance, thereby protecting their home from foreclosure due to non-payment. LESA, Life Expectancy Set Aside, is a good safeguard which sets aside money for taxes/insurance, HOA fees, etc., which is determined by the lender if required and after the financial assessment. Your lender will deduct a particular sum of money from the maximum lending limit you qualify for (based on age and life expectancy) and will pay your taxes/insurance for you. Some borrowers will be required to have a LESA while others have actually requested it.
HUD established this new rule so borrowers will never have to fear not meeting their obligations as regards taxes and homeowner's insurance and thereby defaulting on their reverse mortgage. The LESA can provide peace of mind.
How much money can I borrow?
At present, the maximum lending limit is $726,525, but you'd have to be very old to get all of that sum. The cash out in a Reverse Mortgage depends on a few factors:
1. age of the youngest borrower
2, appraised value of your home
3. current interest rates
4. balances on current liens and mortgages
With the FHA Reverse Mortgage, the older you are, the more money you receive. So if your home is worth $726,525, and you are in your nineties, you would receive more proceeds than if you were only in your sixties. Typically, you can expect to receive anywhere from 38% to 68% of your home's equity (age 62 to 93 as an age range of how much you'd receive.
Now, to protect your equity, HUD has split the proceeds up into two disbursements. There is a 60% cap on your funds for the first year which is 60% of the Principal Limit. After 365 days, your remaining proceeds can be accessed.
Can the interest rate be locked? Although you cannot lock interest rates with a reverse mortgage, you will receive either the rate at application or the rate at closing, whichever is lower.
How is my money disbursed to me?Typically, borrowers choose to have their money directly deposited into their checking account. You may choose a lump sum, fixed monthly payments, a line of credit, or a combination of all three. You can also choose a specified loan term. For example, ten, fifteen, twenty year terms or any term may be chosen. A shorter term will increase your monthly proceeds. Although with term loans, the monthly payments cease when the term expires, you can still remain in your home.
Does the lender own my home?
The lender does NOT own your home. Just as with any mortgage on your home, you retain title as the owner, not the lender.
How will the proceeds from a Reverse Mortgage affect my taxes, social security, or other benefits?
Proceeds from a Reverse Mortgage are not considered taxable income so your income taxes are not affected. Your Social Security and Medicare benefits are also not affected. The impact on other federal, state, or local assistance programs such as Medicaid should be discussed with a financial advisor or attorney . NOTE: Your Medicaid benefits may be affected if your reverse mortgage proceeds are not spent down in the month they are received. (Check with your tax advisor.)
Who Pays My Real Estate Taxes If I Take Out a Reverse Mortgage?
You continue to pay your real estate taxes along with your homeowner's insurance and maintain your property. If you live in a condo or are part of an association, those fees must also be paid by you. After a Financial Assessment, and if the lender finds there is not enough income to pay your ongoing taxes/insurance, a LESA, Life Expectancy Set Aside, will be established to be sure that these will be paid throughout the life of the loan.
What if I need to go into a nursing home?
As long as the borrower is not in a nursing home for 12 consecutive months, the loan will not become due. In the final mortgage documents, it states the 12 months must be consecutive for the lender to call in the loan to be paid. So if you go into a nursing home for six months, the reverse mortgage is not affected.
I cannot qualify for the HECM since I owe too much on my current mortgage. Is there a Jumbo HECM?
Yes, there is. Contact Advisors Mortgage to see if you will qualify with the jumbo product. Rates are higher, but it may work perfectly. (All Jumbo loans arranged through third party providers.)
When is the Reverse Mortgage repaid?
Repayment occurs when your home is no longer your primary residence, when the loan is refinanced, or when the last living borrower has died. This is called a Maturity Event.
What will I owe at the end?
What monies are owed the lender at the end of the Reverse Mortgage are Principal, interest, and FHA mortgage insurance premiums that have accrued over the life of the loan. If you opted for a line of credit, you will only repay the portion of the credit line that was actually used. For reference, see: https://reversemortgagehelpline.com/what-is-a-maturity-event%3F for when a HECM qualifies for a "maturity event" or becomes due.
Are my heirs responsible for the reverse mortgage debt? No. The loan is not in their name so they are not personally liable.
Are my heirs responsible for the debt if the loan balance is more than the value?
Neither you nor your heirs are liable if the outstanding loan is more than the house is worth. The FHA mortgage insurance covers any remaining balance. If the house ends up being worth less than what is owed, and if the heirs decide they don’t want to keep the house, the borrower’s estate is not responsible. On the other hand, if your heirs want to keep the house, they have the option of paying off the loan for the existing balance or 95% of the current market value, whichever amount is less.
But I want to leave my house to my kids! What will be left for them?
The Reverse Mortgage is a rising debt loan as NO monthly mortgage payments are required. Your equity could be substantially reduced as the balance grows over time. However, if you want to leave more equity to your heirs, you can opt to pay any amount to the lender whether per month or at various times throughout the year thereby preserving more equity for your heirs. There is no pre-payment penalty. If, however, you have intentions of leaving a substantial amount of equity to your children or grandchildren, a Reverse Mortgage may not be a viable option for you,
Will I be able to change to monthly proceeds if I closed with a line of credit?
Yes! Even after you close, you can change how you receive your money, after all, it's yours to do with what you want. You may want to receive monthly proceeds even though you have a line of credit with your HECM. There is a small fee for doing this, but it's your money to tailor to your needs exactly as you wish.
Can I deduct the Reverse Mortgage interest from my income taxes? Will my heirs have to pay tax on the proceeds I received from my Reverse Mortgage?
Because you are not currently paying interest on your Reverse Mortgage, you will be unable to deduct the interest on your income taxes. However, your heirs may be able to deduct all the interest that has accrued, however, they will need to consult a tax advisor. Reverse Mortgage proceeds are tax free; there is no income tax charged on the proceeds to you or your heirs.
The HECM program has safeguards built into the loan for your safety. We consider the Reverse Mortgage to be one of the safest loans there is. Click below for safeguards.
We hear potential borrowers decrying closing fees, but when you consider the benefits to the loan and what you can achieve, it's all relative. All closing costs can be financed into the loan except the appraisal fee and counseling fee. HECM Counseling, which is required by HUD, is a fee that can be waived based on income status, and if requested the counseling free can be part of the closing fees. Here are typical reverse mortgage fees:
FHA MORTGAGE INSURANCE
This fee is calculated at 2% of the appraised value of the home up to the lending limit and 1/2% of the outstanding balance per year as the loan accrues. Mortgage Insurance protects you as follows:
a) If you or your heirs sell your home, your total debt owed to the lender will not be greater than the value of your home.
b) Should your lender go out of business, you will continue to receive your proceeds from the federal government.
Note: You will receive a statement each month showing the balance of the loan, the costs of the loan as it accrues, the current interest, the line of credit balance (if any), and all particulars regarding your HECM.
THE ORIGINATION FEE
This fee is the lender’s fee for doing your loan. The maximum fee is set by FHA and is 2% of the first $200,000 of your property's appraised value and 1% over $200,000. The maximum origination fee is $6,000.
FEES & OTHER FEES
(Appraisal Fee) / see below *
Manufactured Home Inspection (If a manufactured home)
Lender's Title insurance
Settlement or closing fee (attorney or title company)
NEW YORK BORROWERS: You are required to obtain your own attorney to attend the closing and walk your through the process. You will be responsible for paying your attorney which can be included in your closing costs and added into your loan.
Courier fee / Overnight
Tax Cert Fee
* APPRAISAL FEE
A home appraisal (interior and exterior) will determine the value of the property. An FHA appraisal has different parameters than a conventional appraisal. It is required to be done by an FHA-approved appraiser, and the appraisal must meet FHA guidelines. Costs vary between $430 up to $800 depending on property type and location of your property.
Reverse Mortgages and Equity Loans - Similar, But Different
Although a Reverse Mortgage is a lot like an Equity Loan, there are some significant differences.
(a) With a Reverse Mortgage, your credit score is not a determining factor although a Financial Assessment is done to ensure you have enough funds each month to pay your real estate taxes, homeowner's insurance, condo fees, HOA fees, and flood insurance (if any).
(b) Unlike an equity loan, you make no monthly mortgage payments.
(c) With an Equity loan, you would have to refinance to increase your line of credit or get more proceeds. With a Reverse Mortgage, your unused line of credit increases year after year thereby giving you access to more funds without the need to refinance.
Compare the different programs for equity loans from various lenders. Compare them to the Reverse Mortgage program and weigh all the benefits and review the pros and cons. You'll find the Reverse Mortgage offers lots of advantages. Maybe that's why many senior borrowers choose the HECM program.
Peace of mind comes from having less stress and as we age, that's a plus. Consider the HECM as your peace-giving alternative.
3330 Park Avenue, Suite 1, Wantagh, New York 11793
ADVISORS MORTGAGE GROUP, LLC Branch NMLS 1833015, 3330 Park Avenue, Suite 1, Wantagh, NY 11793 Licensed Mortgage Banker. Licensed by the New York State Department of Financial Services, Licensed by the New Jersey Dept of Banking and Insurance
FOR CONCERNS OR COMPLAINTS, CONTACT: ADVISORS MORTGAGE 800-778-9044
NOTE: Website authorization by New York State Dept of Financial Services is pending. Until this website is authorized, no mortgage loan applications for properties located in New York will be accepted through this site.