Reverse
Mortgages are becoming popular in America. The U.S. Department of
Housing and Urban Development (HUD) created one of the first. HUD's
Reverse Mortgage is a federally-insured private loan, and it's a
safe plan that can give older Americans greater financial security.
Many seniors use it to supplement social security, meet unexpected
medical expenses, make home improvements, and more. You can receive
free information about reverse mortgages by calling AARP at: 1-800-209-8085,
toll-free. Since your home is probably your largest single investment,
it's smart to know more about reverse mortgages, and decide if one
is right for you!
1. What is a reverse mortgage?
A reverse mortgage is a special type of home loan that lets a homeowner
convert a portion of the equity in his or her home into cash. The
equity built up over years of home mortgage payments can be paid
to you. But unlike a traditional home equity loan or second mortgage,
no repayment is required until the borrower(s) no longer use the
home as their principal residence. HUD's reverse mortgage provides
these benefits, and it is federally-insured as well.
2. Can I qualify for a HUD reverse mortgage?
To be eligible for a HUD reverse mortgage, HUD's Federal Housing
Administration (FHA) requires that the borrower is a homeowner,
62 years of age or older; own your home outright, or have a low
mortgage balance that can be paid off at the closing with proceeds
from the reverse loan; and must live in the home. You are further
required to receive consumer information from HUD-approved counseling
sources prior to obtaining the loan. You can contact the Housing
Counseling Clearinghouse on 1-800-569-4287 to obtain the name and
telephone number of a HUD-approved counseling agency and a list
of FHA approved lenders within your area.
3. Can I apply if I didn't buy my present house with FHA mortgage
insurance?
Yes. While your property must meet HUD minimum property standards,
it doesn't matter if you didn't buy it with an FHA-insured mortgage.
Your new HUD reverse mortgage will be a new FHA-insured mortgage
loan.
4. What types of homes are eligible?
Your home must be a single family dwelling or a two-to-four unit
property that you own and occupy. Townhouses, detached homes, units
in condominiums and some manufactured homes are eligible. Condominiums
must be FHA-approved. It is possible for condominiums to qualify
under the Spot Loan program. The home must be in reasonable condition,
and must meet HUD minimum property standards. In some cases, home
repairs can be made after the closing of a reverse mortgage.
5. What's the difference between a reverse mortgage and a bank
home equity loan?
With a traditional second mortgage, or a home equity line of credit,
you must have sufficient income versus debt ratio to qualify for
the loan, and you are required to make monthly mortgage payments.
The reverse mortgage is different in that it pays you, and is available
regardless of your current income. The amount you can borrow depends
on your age, the current interest rate, other loan fees, and the
appraised value of your home or FHA's mortgage limits for your area,
whichever is less. Generally, the more valuable your home is, the
older you are, the lower the interest, the more you can borrow.
You don't make payments, because the loan is not due as long as
the house is your principal residence. Like all homeowners, you
still are required to pay your real estate taxes and other conventional
payments like utilities, but with an FHA-insured HUD Reverse Mortgage,
you cannot be foreclosed or forced to vacate your house because
you "missed your mortgage payment."
6. Can the lender take my home away if I outlive the loan?
No! Nor is the loan due. You do not need to repay the loan as long
as you or one of the borrowers continues to live in the house and
keeps the taxes and insurance current. You can never owe more than
your home's value.
7. Will I still have an estate that I can leave to my heirs?
When you sell your home or no longer use it for your primary residence,
you or your estate will repay the cash you received from the reverse
mortgage, plus interest and other fees, to the lender. The remaining
equity in your home, if any, belongs to you or to your heirs. None
of your other assets will be affected by HUD's reverse mortgage
loan. This debt will never be passed along to the estate or heirs.
8. How much money can I get from my home?
The amount you can borrow depends on your age, the current interest
rate, other loan fees and the appraised value of your home or FHA's
mortgage limits for your area, whichever is less. Generally, the
more valuable your home is, the older you are, the lower the interest,
the more you can borrow.
9. Should I use an estate planning service to find a reverse
mortgage?
I've
been contacted by a firm that will give me the name of a lender
for a "small percentage" of the loan? HUD does NOT recommend using
an estate planning service, or any service that charges a fee just
for referring a borrower to a lender! HUD provides this information
without cost, and HUD-approved housing counseling agencies are available
for free, or at minimal cost, to provide information, counseling,
and free referral to a list of HUD-approved lenders. Before you
agree to pay a fee for a simple referral, call 1-800-569-4287,
toll-free, for the name and location of a HUD-approved housing counseling
agency near you.
10. How do I receive my payments?
You have five options:
- Tenure - equal monthly payments as long as at least one borrower
lives and continues to occupy the property as a principal residence.
- Term
- equal monthly payments for a fixed period of months selected.
- Line
of Credit - unscheduled payments or in installments, at times
and in amounts of borrower's choosing until the line of credit
is exhausted.
- Modified
Tenure - combination of line of credit with monthly payments for
as long as the borrower remains in the home.
- Modified
Term - combination of line of credit with monthly payments for
a fixed period of months selected by the borrower.