Benefits of Reverse Mortgages
- Payment options depend on product choice but can be obtained as a cash lump sum, monthly, in a line-of-credit or any combination; and, you can change your payment options with certain product types.
- Under certain payment options, reverse mortgage payments can be in excess of the home's value, never owing more than the home's value.
- Doesn't require loan repayment until the last surviving borrower dies, the home is sold, or the borrower permanently moves out of the home; and, there is no pre-payment penalty.
- No increased risk of missing payments and defaulting on the loan - risking of loss of the home. This can only happen by defaulting on property taxes, homeowner insurance or failing to maintain the home.
- Your name will always remain on title, meaning the bank does not own your home, and in most reverse mortgage situations, the borrower keeps the family home for their heirs.
Getting Started - Reverse Mortgages By the Book
- Application - We will help you choose the best type of reverse mortgage loan for your needs.
- Counseling and Guidance - The Department of Housing and Urban Development requires that all applicants receive third-party counseling to explain all the available options and details. We offer a list of counselors for you to choose from (price will vary by office and location)
- Appraisal and Inspection - Your home will be appraised to determine market value, making sure it fits within government guidelines. Appraiser costs run $475, the minimum amount to cover the cost.
- Underwriting and Closing - We will work behind the scenes to finalize the details of the RM loan once we've gathered all the required documents and set everything up for closing.
- Disbursement and Repayment - Requested debts are paid off and for the life of the loan, you don't ever make a monthly mortgage payment to your mortgage lender.
10 Common Myths
If I get a reverse mortgage, the bank will own my home.
NOT TRUE - This is just a mortgage loan and you retain ownership for as long as you live. Then your estate determines its fate.
My home must be free and clear to get a reverse mortgage.
NOT TRUE - While you must have equity in your home, we can pay off the current mortgage with the reverse mtg. We do this frequently.
When a reverse mortgage comes due, the bank will sell my home.
NOT TRUE - When it comes time for you or your heirs to pay off your loan, it can be paid in full, refinance or sell - it's your choice.
Reverse Mortgages are only for desperate seniors who are house rich and cash poor.
NOT TRUE - I personally work with a lot of Financial Planners to increase financial stability in different ways. Many senior are concerned about outliving their assets, using their home equity will help preserve their liquid assets which is critical in our current economic environment.
My Social Security and Medicare benefits will be affected.
NOT TRUE - These are considered loan proceeds and not income, so they do not affect your benefits. It's tax free income.
My heirs wont inherit anything, the bank will take it all.
NOT TRUE - Your heirs are entitled to all the equity in your home once the reverse mortgage is paid off.
I might "outlive" my loan.
NOT TRUE - If you live to be 150 years old, you can never be forced out of your home and no mortgage payments are ever due.
I could be forced out of my home.
NOT TRUE - As long as you keep your property taxes and insurance current and live in the home you can never be forced out.
If I live a long time, I could owe more than what the house if worth.
NOT TRUE - There are specific provisions guaranteed by FHA that you can never owe more than what the house is worth.
This loan will cost me a lot of money out of pocket.
NOT TRUE - The cost has been significantly reduced in recent years and the costs are deducted from loan proceeds. You do not pay these out of pocket.
Reverse Mortgage FAQ
What is HECM for Purchase?
HECM for Purchase allows seniors, age 62 and older, to purchase a new principal residence using loan proceeds from the reverse mortgage.
What is the purpose of the program?
The program was designed to allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction by eliminating the need for a second closing.
What property types are eligible?
Existing one-to-four unit properties where construction has been completed and the property is habitable. See ML 2007-06.
Can a HECM for purchase be used to satisfy outstanding payment obligations associated with a land contract?
Yes. If the property will be used as collateral for the HECM and the mortgage will be held in fee simple, or on a leasehold under a lease for not less than 99 years which is renewable, or under a lease having the remaining period of not less than 50 years beyond the date of the 100th birthday of the youngest mortgagor.
Can a lender take application on a property that is under construction and not habitable?
No. The lender may only take application once the Certificate of Occupancy or its equivalent has been issued.
What property types are ineligible?
- Newly constructed residence where a Certificate of Occupancy or its equivalent has not been issued by the appropriate local authority;
- Cooperative units;
- Boarding houses;
- Bed and breakfast establishments;
- Existing manufactured homes built before June 15, 1976; and
- Existing manufactured homes built after June 15, 1976 that fail to conform to the Manufactured Home Construction Safety Standards, as evidenced by affixed certification labels (e.g., data plate and HUD certification label) and/or lack a permanent foundation as required in HUD's Permanent Foundations for Manufactured Housing Guide.
Are set asides for property charges (i.e., tax and insurance) allowed?
Are gifts an acceptable source of funding?
No. Prospective mortgagors may only use their own money or money obtained from the sale of assets. FHA prohibits the use of loan discount points, interest rate buy downs, closing cost assistance, builder incentives, gifts or personal property given by the seller or any other party.
What would be an "allowable FHA funding source" for gap financing of the equity portion?
A withdrawal from the mortgagor's savings or retirement account would be an acceptable funding source.
Can prospective mortgagors apply credit card cash advances towards the required monetary investment or closing costs?
No. This would be a violation of 24 Code of Federal Regulations 206.32(a), which requires all outstanding obligations connected to the HECM transaction, purchase or otherwise, to be satisfied prior to or on the date of closing
Are seller concessions allowed?
No. Seller concessions are applicable to forward mortgages only.
Is seller financing permitted?
Is the Real Estate Certification required?
When purchasing a new principal residence, if the HECM proceeds do not cover the sales price, can part or all of the property's indebtedness be subordinated behind the first and second HECM liens if the existing lien holder is willing to execute a subordinate agreement?
No. All existing liens must be satisfied at the HECM closing.
Can prospective mortgagors obtain a secured or non-secured loan from another asset (i.e., car, home equity line of credit, or investment property or second home) to satisfy the monetary investment or closing costs?
No. Consistent with existing policy, bridge loans and other interim financing methods associated with HECM transactions are prohibited, unless the unpaid or outstanding obligation can be satisfied prior to or on the day of closing.
Should the lender obtain a credit report for non-borrowing spouses?
Yes. Although one spouse will become the HECM mortgagor, the lender must obtain the credit report for a review of financial obligations, monetary judgments and liens that could jeopardize the HECM lien status/clear and marketable title.
Under what conditions may a senior cancel the purchase transaction?
The senior may decide to cancel the purchase transaction at any time prior to the date of closing. If the senior decides to cancel the transaction, he/she must notify all parties in writing. Where earnest money has been provided, the senior should review the sales contract to determine if the earnest money is refundable. The Federal Reserve Board of Governors should be contacted for right of rescission and Truth in Lending Act guidance.
Can the HECM mortgage participate in a rent back/leaseback agreement with the seller?
No. When purchasing a new principal residence, the HECM mortgagor has 60 days to occupy the home. Unlike a forward mortgage, there is an increased risk to FHA when the home is not occupied by the HECM mortgagor. Prior to closing, the HECM mortgagor and seller should agree to a date for physical occupancy of the property and the lender should confirm occupancy prior to their submission of the case binder to the local HOC for endorsement.
Are the mortgage proceeds paid to the seller through escrow?
The title company (settlement agent) is responsible for disbursing funds in accordance with State law.
Are there special procedures for foreclosure homes that will serve as collateral for a purchase transaction?
No. FHA has sufficient valuation guidelines related to comparable sales and declining markets to address the resale of foreclosed properties. HUD has imposed a standard of accountability to which lenders, sponsor lenders, and loan correspondents will be held is the same as the standard used to impose civil money penalties for program violations, and that standard is one of knowing (actual knowledge) or had reason to know.
Does FHA have special eligibility requirements for first-time homebuyers?
No. FHA encourages all first-time homebuyers to meet with a reverse mortgage counselor that offers pre-purchase counseling to educate themselves on the responsibilities of becoming a homeowner. Prior to signing a sales contract, FHA encourages a home inspection of all properties that will serve as collateral for HECM for purchase transactions. The inspection serves two purposes, to determine the magnitude, if any, of repairs and/or rehabilitation the home as well as helps the buyer to negotiate the purchase price in situation where a home requires repair or rehabilitation.