Reverse Mortgage Frequently Asked Questions
We will use the age of the youngest person for qualifying.
If you are married at the time of closing a Reverse Mortgage, you can protect the younger spouse’s interest in the home in the case of death of the older spouse. This can be accomplished by qualifying using the younger spouse’s age. Effective October 2nd, the younger spouse (also referred to a Non-Borrowing Spouse) will be allowed to be on title to the home. In addition, if the older borrower were to pass away before the younger borrower, FHA does allow the non-borrowing spouse to qualify for a due and payable deferral. The younger spouse will participate in the required mortgage counseling, and will be required to execute certain documents as determined by FHA at application and at closing. Within 90 days of death or vacancy of the borrowing spouse, the non-borrowing spouse will need to establish that he or she is married to the borrower and can establish legal ownership (not necessarily transfer of ownership); occupancy, that the loan is not in default for any reason (i.e.delinquent property taxes, homeowner’s insurance and/or condo dues).
If you are not married at the time of closing a Reverse Mortgage, the younger resident CANNOT be on title and mortgage, but MAY live in the home with the borrowing resident. A form must be signed stating that the non-borrowing resident is aware that if borrowing resident vacates the home for more than 12 consecutive months, that the loan will become due and payable and that they too would have to vacate the home. All other terms and conditions apply.
Yes, a credit report will be pulled and your credit will be scored by the 3 bureaus. The lender is looking for federal liens including tax liens. Any federal lien would need to be satisfied before the Reverse Mortgage would be approved. Credit scores are not a factor, but delinquent credit depending on how recent the delinquencies, may need to be addressed and documentation may be requested.
Unlike a traditional mortgage, a Reverse Mortgage is not awarded based on credit scores. A Chapter 7 bankruptcy appearing on your credit report will require a letter of explanation, and must be discharged or dismissed. If an FHA, VA, or USDA mortgage is included in the Chapter 7 bankruptcy, then the date of discharge will need to be at least 3 years old. A Chapter 13 bankruptcy will require a letter of explanation. If you are currently in a Chapter 13, then the Trustee will need to write a letter stating that using the Reverse Mortgage is permitted. Unresolved Federal Tax liens must be satisfied prior to closing.
You can use a Reverse Mortgage to refinance or purchase any new or existing single family, 2-4 unit residence, any new or existing FHA approved condo or manufactured home. Planned Unit Development or PUD’s are also allowed. If you are currently living in or looking at a particular condo community and want to know if it is FHA approved, you can learn more by going to the HUD website to learn more. If the condo association you live in or are interested in purchasing is not FHA approved, don’t panic. We have helped many builders and homeowner’s associations with this approval process. Contact me to learn more.
Both a Reverse Mortgage and a Home Equity loan use the equity you have in your home to generate loan proceeds. With a home equity loan, you ARE required to make monthly payments, where as with a reverse mortgage, you ARE NOT required to make payments as you live in the home. With a home equity loan, the balance is reduced as long as you make payments in excess of the required interest only payment. With a Reverse Mortgage, your loan balance increases each time you receive proceeds, and interest on the loan is added to the balance. The home equity loan line of credit can be frozen or reduced at any time by the lender. With the Reverse Mortgage, you are never at risk of having your line of credit frozen or not made available, unless there is default.
You have a range of options on how you may receive money from the Reverse Mortgage. Lump sum payment, monthly payments set up as a term or tenure (lifetime) payment, line of credit (take funds when you need them) or any combination of these.
The amount you may receive depends on several factors; The age of the youngest borrower, the type of reverse mortgage you select (Fixed or Adjustable), the current interest rates and the appraised value of your home. If you want to see how much you qualify for, complete the Quote Request form.
You may still be eligible for a reverse mortgage depending on the amount of your remaining mortgage balance(s) in relation to the value of your home. The funds from the reverse mortgage would first be used to pay off any existing mortgage(s) or liens you have on the property.
The funds from a reverse mortgage generally do not affect Social Security or Medicare benefits. However, needs-based benefits, such as Medicaid and Supplemental Security Income (SSI), may be affected. Contact me to learn more about your individual situation.
Most reverse mortgage interest rates are adjustable and tied to a financial index. They will vary according to market conditions. However, there are options for fixed rate mortgages as well. I can provide you with the interest rates for the various loan types and explain the potential implications of these rates based on your individual circumstances.
Costs may vary by lender and may include an origination fee, closing costs, and mortgage insurance premium. All of these costs are up-front and can be rolled into the reverse mortgage and paid (with interest) when the loan becomes due.
When using the Reverse Mortgage for Purchase (H4P) loan, the purchase contract cannot contain any language about seller concessions or seller paid closing costs. In addition, there cannot be any exchange of personal property or builder incentives. Any repairs to the property must be completed and paid for by the seller. The seller is NOT allowed to give the buyer any credits due to repairs. I will work with your realtor or builder and guide them through the contract so as to avoid any issues.
IMPORTANT: If you are working with a builder and they are providing incentives,
then a simple purchase price addendum can be created. (see me for more details).
Most builders require an earnest money deposit in order to begin the building process. You will be required to pay those deposits up front to the builder. At the time of closing, you will simply deduct all deposits made to the builder from the down payment required to close. One thing you should know is that your Reverse Mortgage loan process cannot begin until the builder has been issued a FINAL Certificate Of Occupancy by the city or village where the property is located. If you or your builder are uncertain about this, please contact me for more details.
The down payment required is determined by three factors: Age of youngest borrower or non-borrowing spouse, purchase price or value of the home, and current prevailing interest rate.
For a Traditional Reverse Mortgage refinance, verification of income will be required as evidenced by 2 years complete personal tax returns. SS Awards letters, Pay stubs, W-2’s or Pension Statements may also be requested. In some circumstances verification of assets via 2 months complete bank statements may be required.
For a Reverse for Purchase, verification of income will be required as evidenced by 2 years personal tax returns. SS Awards letters, Pay stubs, W-2’s or Pension Statements may also be requested. Verification of Assets will need to be verified along with bank statements covering the past 60 days. If the down payment is coming from a gift, sale of a home or liquidation of a 401k or other non-liquid account, a sufficient paper trail documenting that will be required. I will provide a more specific and detailed list of what you will need based on your individual situation.
If you are refinancing, there should be NO money brought to closing. If you are purchasing, the borrower is responsible for bringing the down payment via a wire transfer. I will provide you further details as the closing date gets closer.
The closing costs are similar to a traditional FHA mortgage. A one time upfront fee up to 2.5% of the lesser of the sales price or appraised value of the home goes toward the mortgage insurance fund. There are also third party fees associated with any transaction including but not limited to title insurance, appraisal, credit report, flood certification and recording fees. These fees may average between $2,000-$3,500. For a refinance these costs are rolled in to the loan and netted out of any proceeds available at closing. For a purchase, these costs are also included and DO NOT get added to the number shown as “cash to close”. The only money you will be bringing to closing is estimated as shown loan comparison.
If you are refinancing the answer is YES. Your current home or the home you live in will be the property that secures the Reverse Mortgage financing.
If you are purchasing the answer is NO. You are permitted to retain title on both the home you are vacating and the one you are buying. You may be planning to rent your current home or not sell it PRIOR to buying your new home. In either circumstance, the only disqualifying issue would be if your current home has an FHA mortgage OR you do not earn enough income to support the debt on both homes. An FHA mortgage on your current home or any other home, would require you to refinance that home into a non-FHA mortgage or sell that home before securing a Reverse Mortgage on a new home. If you own other real estate at the time you close on a Reverse Mortgage, your income will need to support the PITI (principal, interest, taxes and insurance) on any existing real estate as well as the property taxes, insurance and/or condo dues on your new property.
The borrower(s) are fully vested on the title of the home. You can never lose your home provided all taxes, insurance and any homeowner association dues are kept current and the home remains in good repair and is your primary residence. You may also hold title in a trust, living or land, depending on the state you reside.
The house will be sold for fair market value and the proceeds will pay off the mortgage. Any deficit will be paid by FHA to the lender.
No! This is NOT a tax payer funded program. Every person that acquires an FHA mortgage loan contributes to the FHA mortgage insurance fund. In the case of Traditional FHA mortgage loans, the borrower has part of their monthly payment go toward the FHA mortgage insurance fund. In the case of the Reverse Mortgage loans, the lender pays FHA 1.25% of the loan balance per year (and adds this to your loan balance) which creates a continuous stream of dollars to the insurance fund.
When that unfortunate event occurs, the heirs must decide what they intend to do with the home. In the case of death, the house will be left to the estate and will be settled the exact same way as any other estate with a house involved. An appraised value will be determined and the house will be sold for fair market value. If the sale price exceeds the mortgage balance, then the remaining equity will go to the estate. If the sale price is LESS than the mortgage balance, the estate will NOT be responsible for that deficit as long as they exercise their non-recourse.
This program is being used by middle income earners as well as millionaires. On the refinance side, a Reverse Mortgage allows those who have equity in their home to put it to good use as they age in place. For those purchasing a home, a Reverse Mortgage allows active adults to use their savings and retirement fund for other things rather than tying a large portion of it up in their home.
The Reverse Mortgage interest is accruing over time which causes the balance to grow over time. The bank or lender make their money on the total interest accrued at the time the house is sold and the loan paid in full.
YES! You can use the Traditional Reverse Mortgage option to pay off an existing mortgage and access your home’s equity. If you have no mortgage on that dream home, that’s even better. Contact me today to learn more!