Reverse mortgage loans are a way for senior citizens to convert their home's value into tax-free cash, without having to sell or move. Insured by the U.S. government, the Department of Housing and Urban Development (HUD) allows Homeowners who are 62 or older to borrow against the equity of their homes.
Here’s how it works:
Qualifying homeowners can choose to receive tax-free payments from reverse mortgage lenders either on a monthly basis, in a lump sum, or as a line of credit.
No income or credit checks are required.
No repayments are required while a borrower lives in the home.
Social Security and Medicare benefits are not affected.
Reverse mortgage lenders recover the loan amount, plus interest when the home is sold (because owners choose to move, or pass away)
When the loan is paid in full, all equity associated with the property will be distributed to your heirs.
Keep in mind:
Reverse mortgage borrowers continue to own their homes. Because there are no monthly loan payments due, the amount owed grows over time. That means that the amount and the remaining equity in the home decreases.
Borrowers must continue to pay homeowner’s insurance and property taxes during the loan period. It is also the borrower’s responsibility to keep up with repairs. In fact, if a borrower fails to adhere to any of these obligations, it may become immediate cause for the loan to become due. In which case, it would become payable in full.
Does my home qualify for a reverse mortgage?
First of all, your residence must meet HUD standards. The reverse mortgage must also be the only mortgage held against the residence. That means that if there is a current mortgage on the property, it may be able to be paid off with the proceeds of the reverse mortgage.
Examples of qualifying homes:
- Single Family One-Unit Residences
- 2-4 Unit Owner-Occupied Residences
Ask your lender if these residences qualify:
- Condominiums and
- Planned Unit
Do I qualify for a reverse mortgage?
You must be age 62 or older. If you are married your spouse must also be 62. You must occupy the home as your primary residence – for the majority of the year. Borrowers must own the home outright or have a low enough balance on the existing mortgage that it can be paid off from the proceeds of the reverse mortgage.
Each borrower listed on the title must apply for the reverse mortgage loan, attend a free HUD counseling session and sign the loan papers. The HUD counseling is either handled in person, or over the telephone.
How is the loan amount determined?
The amount of the loan is based on:
- The age of the youngest borrower
- The appraised amount of the property
- No income or credit is required.
What are my reverse mortgage options?
HECM -- The Home Equity Conversion Mortgage (HECM) is the only reverse mortgage that is insured by the Federal Housing Administration (FHA). The FHA guarantees that HECM lenders meet their obligations, governs how much HECM lenders may loan to qualified borrowers, and limiting loan costs. Because this is a government insured program, loan counseling is required, by an approved HUD counselor.
HECM offers 4 draw options:
- Monthly income for a fixed term, or life
- Line of credit
- Lump sum
- Any combination of the above 3