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Reverse Mortgage

What is a Reverse Mortgage?

Until Recently there were two main ways to get cash from your home, you could sell it and find a new place to live or borrow against it and make regular monthly loan payments. Now there is a third option that does not require you to move or make regular monthly loan payments, it is called a Reverse Mortgage.

A Reverse Mortgage (also known as a HECM loan) is a special type of home loan insured by the US Government and available only to Seniors 62 or older. A HECM Reverse Mortgage is a loan against your home that does not have to be paid back as long as the last surviving borrower continues to live in the home. HECM reverse mortgages can be used to finance or refinance your current home and can also be used to help finance the purchase a new home.

Here we will describe the use of a reverse mortgage to finance or refinance your current home.  Please visit the Reverse for Purchase page for more information on using a Reverse Mortgage to Purchase a home.

Access to the equity in your home

A reverse mortgage will allow you to access the equity in your home in several ways:

  • Lump Sum at closing including paying off any existing mortgage and equity loans
  • Regular scheduled monthly payments to you
  • A credit-line you can access as needed at any time in the future
  • Any combination of the above

What are the qualifications for a Reverse Mortgage?

  • AGE – You must be 62 years of age or older to qualify (guidelines do allow spouses who are younger than 62)
  • OCCUPANCY – You must occupy the home as your primary residence
  • COUNSELING – You must complete a counseling session by a HUD approved counselor
  • INCOME – Traditional loans require the lender to determine if you have sufficient income to make the monthly loan payments. While reverse mortgages do not require monthly mortgage payments of principal and interest, we must still do a financial assessment to document income sufficient to meet ongoing housing obligations such as property taxes, homeowners insurance and mandatory association dues (if any) as well as other non-housing related expenses.  There are additional options for borrowers who can not document sufficient income to have funds set aside for housing obligations.
  • CREDIT – Traditional loans have minimum credit score requirements, reverse mortgages have none. Credit requirements are significantly more lenient than with other loan types.
  • OTHER – As with any financing, other conditions may apply depending on your individual situation.

What are the ongoing obligations of a Reverse Mortgage after closing?

There are three basic requirements of borrowers after closing.  You must continue to:

  • occupy the home as your primary residence
  • pay your property taxes, home owners insurance and HOA dues (if any)
  • maintain your home (this is a requirement of all traditional mortgages as well)

What can the money be used for?

There are no limitations on what the funds can be used for except that all existing housing related debt must be paid off at closing.  Typical uses are:

  • Elimination of existing mortgage and /or home equity loans to eliminate monthly payments
  • Pay off non-housing debt such as credit cards, installment loans and car loans
  • Help children or grandchildren buy a home or pay for college expenses
  • Purchase second home or investment property
  • Help pay for in-home care of other medical expenses
  • Creation of a financial safety net through the line of credit feature
  • Increase monthly income

What does HECM stand for?

HECM stands for Home Equity Conversion Mortgage.  It is a reverse mortgage that follows guidelines set by the Federal Housing Administration (FHA), part of the United States Department of Housing and Urban Development (HUD).   HECM loans are government insured loans offered only by FHA approved lending institutions.  Other types of reverse mortgages may be available depending on your situation.

Will the bank own my house?

No, although this a very common misconception.  Just as with a regular mortgage, your lender will have a lien against your home but you will retain full title and control of your home.  You are free to refinance or sell it whenever you wish.  When you do eventually sell your home, the loan is paid back and all remaining equity goes to you or your heirs.

How much money can I borrow?

We will help you calculate the exact amount but it works out to between 50% and 60% of the value of your home.

Video: Using a Reverse Mortgage as a Retirement Planning Tool:

Reference:
Use Your Home To Stay at Home: A Guide For Older Homeowners:

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