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Reverse Mortgage FAQ

Reverse Mortgage FAQs

Previous chapters in this guide covered some pretty detailed reverse mortgage information. This FAQ section provides quick recap. It’s also for folks who just have one or two questions. Without further adieu, here are the most frequently asked questions.

How old do you have to be to get a reverse mortgage?

Borrowers must be 62 years-old or older. There’s a provision to protect non-borrowing spouses who are not yet 62 years-old and/or not on the deed.

What is a Home Equity Conversion Mortgage (HECM)?

HECMs are FHA-insured reverse mortgages. There are a few proprietary reverse mortgages on the market but the vast majority are HECMs and insured by the Federal Housing Administration.

How much money can I get?

It depends. For FHA-insured mortgages there is a high end cap of $625,000. Some proprietary products (not FHA insured) like Jumbo Reverse Mortgages go much higher. Loan amounts are determined by the age of the youngest borrower, current market interest rates and the home’s appraised value.

How will I receive the loan proceeds?

Borrowers have several choices. Money can be taken out of a portion of a home’s equity as a lump sum, in equal payments every month or from open line of credit which an be used as needed.

Are there any restrictions on how I spend the money?

There are no restrictions.

Is my home eligible?

Eligible homes include single family residences, 2-4 unit properties (with one unit occupied by the borrower), HUD-approved condos and some manufactured homes (if they meet FHA requirements).

Will the lender own my home?

Nope. Just like “forward” mortgages, your name will remain on the title to your home.

Will I be able the property to my heirs?

When the loan comes due, the loan must be paid off. If the loan amount exceeds the value of the home, FHA insurance pays off the lender and no debt is passed to your estate or heirs. Another option if for your heirs to sell the home. If they do that, they receive any remaining equity after the loan is paid in full. If they want to keep the home, would pay 95% of the appraised value or the loan balance, whichever is less.

Will my heirs be on the hook for the loan when I pass away?

Reverse mortgages are non-recourse loans. Meaning, your estate or heirs are not liable for the loan when you pass away.

Can I get a reverse mortgage if I currently have a regular mortgage?

Reverse mortgages must be the only lien on the property. If there’s an existing lien, it will need to be paid off from the reverse mortgage proceeds. This happens quite often.

What happens if I live to be 100 years old?

As long as you maintain your home and pay property taxes and homeowner’s insurance, you may continue to live in your home. You cannot have it taken away from you.

Do I need good credit to get a reverse mortgage?

There’s no credit score requirement, but lenders are required by HUD to evaluate every borrower’s financial situation through a process called a Financial Assessment. Lenders will pull your credit report and look at credit history. They’ll also look at assets, income and expenses.

When must a reverse mortgage be paid back?

  • If the borrower(s) move out permanently, the loan is due. So this doesn’t apply situations like spending part of the year at a winter home in places like Florida or Arizona.
  • When the home is sold.
  • When the last borrower on the title moves out or passes away.
  • Breach of contract. If property taxes and/or homeowner’s insurance goes unpaid, the note is due immediately. HUD requires this of lenders.

What happens if the loan amount for a reverse mortgage exceeds the value the home?

Nothing happens. Borrowers are protected against this scenario as long as they still live in the home.

Can a borrower qualify for a reverse mortgage if there’s still debt on his or her home?

Yes, in some cases. Borrowers can pay off an original mortgage with a reverse mortgage if the loan amount is high enough to cover the balance of the original mortgage.

Isn’t a reverse mortgage for people with financial difficulties?

Not necessarily. Built up home equity is often the biggest asset available to seniors. So in some cases of financial, tapping into equity certainly helps them when there is no other source of reserves. However, reverse mortgages are also a savvy financial instrument because cash can be pulled from a home tax-free. That’s not the case with a tax-deferred retirement plan. Access to tax-free retirement income can be a pretty smart move.