Ten Main Things Seniors Should Know About Reverse Mortgages
The Department for Hosing and Urban Development (HUD) recently released a list of 10 things that seniors should know about reverse mortgage loans.
HUD offers reverse mortgage loans insured through its FHA division (Federal Housing Administration). Reverse mortgages are loans which are designed to help seniors supplement their social security and pension income. These forms of loans are becoming more and more popular and are usually used to cover medical, home repair costs as well as other necessary expenses.
1. What is a reverse mortgage loan?
This is a special type of mortgage loan that allows seniors who own homes to convert a part of their equity into cash. It reverses the equity of the home and pays the senior from the equity built over the years.
Its main difference from regular mortgage loans is that no repayment is required as long as the borrower(s) reside in the home as place of principal residence. HUD reverse mortgage loans provide the beneficial features of reverse mortgages and are federally insured.
2. How can one qualify for a HUD reverse mortgage?
To qualify for a HUD reverse mortgage, the Federal Housing Administration (FHA) requirements include that the intending borrower is -
● a owner of his/her own home,
● at least of 62 years of age;
● have paid off all or most of the home mortgage so that the mortgage balance can easily be paid off with part of the reverse loan;
● must reside in the home.
3. Is one who did not buy their house with FHA mortgage insurance eligible to apply?
Yes. The reverse mortgage loan will serve as a new FHA-insured mortgage loan.
4. What types of homes are eligible?
Homes that are eligible include single family dwellings or a two-to-four housing unit that the borrower owns and resides in. Also eligible are detached homes, townhouses, some manufactured homes and condominiums. Individual condominiums can also be used to apply for the loan under the Spot Loan program although they may need to be FHA approved.
5. How does a bank home equity loan differ from a reverse mortgage?
A regular loan requires that you must have good credit balance. Your income versus your debt ratio must be impressive and then you need to make regular monthly payments.
A reverse mortgage on the hand does not depend on your income or credit balance. What you can borrow depends on the value of your home, your age, the FHA borrowing limit of your area and current interest rates. A reverse mortgage pays you while the usual bank loans requires you make monthly contributions.
You will still need to take care of your property taxes and utility bills but with a reverse mortgage loan, your home cannot be foreclosed or reclaimed because you missed monthly payments.
6. Can the lender take my home away if I outlive the loan?
No! As long as you or any of the borrowers of the loan still lives in the home and keep tax and insurance payments up to date you cannot lose your home. You can also never owe more the value of your home.
7. Will I still have an estate that I can leave to my heirs?
When you decide to sell your home or it is no longer your primary place of residence and it is sold, the proceeds is used to pay off the loan you have received thus far from the lender plus associating interest and fees.
The balance is available to you or your heirs. You cannot owe more that the value of the home so your other assets cannot be affected and your heirs cannot inherit the loan debt.
8. How much can I get from my home?
The reverse mortgage loan amount you get depends on your age, the current rate of interest, plus the lesser of either the value of your home or the FHA borrowing limits applicable to your area. The higher the value of your home and the higher your age, the more you can receive.
9. Can estate planning services be used to find a reverse mortgage?
HUD does not recommend using such services as they will charge a service cost for referring you to a lender. You can get that information for free or at very little cost by contacting any approved HUD housing counseling agencies.
10. How can I receive my reverse mortgage payments?
There are five options available:
● Tenure - fixed monthly payments received as long as one borrower lives and resides in the home as place of principal residence.
● Term - fixed monthly payments for selected specific months.
● Line of Credit - open credit line to be drawn upon with schedule fully based on discretion of borrower until credit line is used.
● Modified Tenure - a combination of an open line of credit with fixed monthly payments.
● Modified Term - combination of line of credit with fixed monthly payments for a selected period of months.
