Frequently Asked Questions
An FHA reverse mortgage (HECM loan), in its simplest definition, is a government-insured loan. It is a financial tool that allows you to access the equity in your home and convert it into cash.
With a reverse mortgage, there are no monthly mortgage payments from you. As one of your most important assets, your home usually holds a certain amount of equity. Because of this equity, when the time comes someday for the loan to be repaid, the value of the home when sold is able to re-pay the loan. Meanwhile, you are able to live in the home for as long as you like without making monthly mortgage payments. Your only obligations as a borrower are to continue to pay taxes and insurance on the home, keep it in good condition and comply with the other loan terms.
How much money you qualify for will be dependent upon these factors:
- Your age (you must be 62 or older)
- Your home’s appraised value (an independent appraiser will visit your home and determine what the current value is)
- The current reverse mortgage interest rates
- Your current mortgage balance
The length of the loan is determined upon what disbursement option you choose. Your Reverse Mortgage funds can be disbursed to you in a few ways. You may receive:
- Full or partial lump sum
- Line of credit
- Monthly Payments (tenure or modified tenure plan)
- Combination of any of these.
The choice is ultimately yours, but your Reverse Mortgage Professional can help you decide on the disbursement method that is the best option for your unique situation. Remember, you have the option to change your disbursement method at any time.
To qualify for a reverse mortgage, you must be 62 years and older, own your home, and occupy it as your primary residence.
Your reverse mortgage loan is repaid when the last borrower leaves the home or passes away. What typically happens is that the home is sold and the proceeds pay back the reverse mortgage loan. Any remaining equity after the loan is repaid goes to you or your heirs. If your heirs choose to keep the home instead, they can pay back the reverse mortgage loan in other ways, such as refinancing to a conventional mortgage loan.
Some of the important benefits are:
- You can never owe more than the value of your home.
- As long as you reside in your home and comply with the loan terms, you do not have to make payments on the loan.
- You will not lose Social Security or Medicare benefits.
- You are afforded greater financial freedom and control, providing you with security and dignity.
Reverse mortgages are non-recourse loans. What this means for your heirs is that after the last borrower leaves the home, the proceeds from the sale of the home are the only asset that can be taken to pay the loan’s balance. If somehow the loan’s balance ends up surpassing the value of the home, the difference is covered by the Federal Housing Administration’s (FHA) insurance fund. However, if your heirs wish to keep the home, they may choose to do so by paying off the loan in full.
In general, your home must be a single family home, or a multi-family home where you reside in one unit. Mobile homes are generally not eligible, however, some HUD-approved manufactured homes that meet FHA requirements are eligible. Here are HUD’s criteria for eligible manufactured homes:
- Your home must have a HUD seal affixed on the outside of the home, which proves that the home conforms to the Federal Manufactured Home Construction and Safety Standards, under HUD code.
- Your home must be produced after January 1, 1990.
- Your home must be taxed and classified as real estate and must be designed to be used as a dwelling with a permanent foundation built to FHA requirements.
- Your home must be in its original location. The only acceptable move the home must have encountered was the move from the factory to the dealer and then to the site. Once on the site, it must have remained there permanently.
- Your home must have at least a minimum floor area of 800 square feet.
- Your home must not be in a condominium association.
- Your home must be built and must remain on a permanent chassis.
- Any wheels, axels, or a hitch must be removed from your home.
- Your home must be permanently attached to the property.
- Your home must have acceptable perimeter enclosure (skirting is a must).
- Beneath your home, the finished grade must be at or above the 100-year flood elevation.
- Your home must have an engineer’s certificate stating that the foundation meets HUD guidelines.
- Your home must have permanent installed utilities that have been protected from freezing.
- Your home must have the affixed HUD tag or data plate, and the appraiser must include the serial number on the appraisal report.
- Your home must be doublewide or bigger.
- Your mortgage must cover both the unit and its site.
- You must own the land the home rests on.
- You must meet any additional requirements specified by your lender and HUD.
There are no limitations; you can use your funds for anything you choose.
Industry rules and regulations include the obligations of the borrower as well as government requirements. The borrower must continue to pay property taxes and home insurance, keep up basic home maintenance, and complete a mandatory counseling session with an FHA-approved counselor.
There are no limitations; you can use your funds for anything you choose.
Your funds can be used for just about anything. Most common uses include:
- Paying off existing mortgages (required)
- Paying for medical bills
- Paying other debts, credit cards, and bills
- Home repair and improvement expenses
- Paying property taxes and home insurance
- Increasing monthly cash flow
- Supplementing your retirement portfolio
- Deferring accessing Social Security to qualify for maximum benefits
- Helping family members and spoiling grandchildren
- Having fun and enjoying retirement
To obtain a reverse mortgage, you must complete reverse mortgage counseling from a counseling agency that has been approved by the U.S. Department of Housing and Urban Development (HUD). Click here to find a HUD-approved counseling agency near you.
If you pass away during your loan, any part of your loan that hasn't yet been sent to you remains as equity in the home that becomes part of your estate. What immediately happens to a reverse mortgage after death is that it becomes due, and then the heirs are given at least 6 months to sell the home. They also have the option to keep the home by paying off the reverse mortgage loan. Otherwise, the home is sold and the proceeds first pays off the reverse mortgage loan, and the rest goes to the heirs.
Yes. With all HECM loans, as long as you pay your taxes and insurance and otherwise comply with the loan terms, you will retain ownership of your home. The bank only takes title of your home if you do not meet these obligations. One of the most common misconceptions about reverse mortgages is this little piece of information. The truth is, as long as you pay your taxes and insurance and otherwise comply with the loan terms, you remain the owner of the home and may live there for as long as you wish.
If you fulfill all your obligations, then no. The obligations for a HECM loan are that you continue to pay your property taxes, insurance, and keep basic maintenance and repairs. If you do not uphold these responsibilities, the loan becomes due, which may mean the selling of the home to pay the loan. If you uphold these responsibilities and obligations as agreed, you will not lose your home.
Fees and calculations are tied to fixed or variable rates, as well as a margin, and an index. Your Reverse Mortgage Professional can provide your exact fees and interest rates according to what it would be for your particular situation. Please give us a call today for an individualized consultation based on your particular situation.
During your loan period, your obligations are to continue to pay for:
- Your homeowners insurance
- Your property taxes
- Your basic home maintenance
No, this is a misconception. When used wisely, a reverse mortgage can be a very powerful and intelligent strategic financial planning tool. There is no better product more readily available to the senior population in terms of supplementing retirement income and managing retirement risks. However, the reverse mortgage should be evaluated and customized to your particular need.
A reverse annuity mortgage and a reverse mortgage are the same thing. They both refer to a loan where a homeowner borrows money against the equity of his or her home, and the homeowner receives the funds.
Instances when the loan becomes due are called 'maturity events.' Maturity events include cases when the last borrower:
- Sells or transfers the home
- Passes away
- Does not pay the home’s taxes and insurance
- Leaves the home permanently or for more than 12 consecutive months
- No longer occupies the home as the primary and principal residence
- Defaults under the terms of the reverse mortgage
No, these benefits will not be impacted, as a Reverse Mortgage is considered loan proceeds and not income. However, Medicaid and SSI may possibly be affected.
If your home gains value, then your equity increases. If your home is sold and the reverse mortgage is paid back, there could be more funds left over that would go to you or your heirs. You also have the option to refinance to pull out the additional gained equity in your home.
If you change your mind, you CAN cancel your reverse mortgage. You have what is called a rescission period, which means you have 3 days after closing on the loan to cancel if you choose, without paying interest. If you want to end the reverse mortgage after that, you may pay back the loan amount you have already received and any accrued interest.
If the lender goes out of business, your loan terms will not change. HECM reverse mortgage loans are covered by the government insurance. You will still receive your agreed-upon disbursements.
The loan is not due unless you default on paying any of your obligations such as taxes, insurance, and basic maintenance. But if you fulfill these obligations, you may continue living in the home for as long as you wish without making payments towards the loan.
An FHA reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM), is a loan insured by the United States Federal Government's Federal Housing Administration.
This offer is made by Watermark Home Loans. All approvals are subject to underwriting guidelines. Underwriting guidelines include, but are not limited to: acceptable 12-month loan payment history, individual credit scores, acceptable LTV and debt ratios, current homeowners clear title, minimum loan size, etc. Rates are very volatile and are subject to change without notice.