A reverse mortgage loan is a home equity loan that allows eligible seniors to access some of the equity they’ve built in their home. This can be an attractive financial option for seniors who find themselves house-rich but cash-poor and need a supplemental income.
The following are seven things that potential borrowers should know before taking out a reverse mortgage loan.
What is a reverse mortgage and how does it work? A reverse mortgage allows seniors to convert a portion of the equity in their home into tax-free1 cash without having to make monthly mortgage payments.2
This money can be used however the borrower chooses. Many borrowers pay for:
- medical expenses
- in-home care
- home modifications
- or even for vacations
Is a reverse mortgage loan available to anyone? No. there are eligibility requirements that must be met in order to obtain a reverse mortgage loan. Borrowers must be at least 62 years old, have sufficient equity in their home, and they must live in the home full time.
The home must be a single family residence, a two to four unit home where the borrower occupies one unit, or a Federal Housing Administration (FHA) approved condominium or manufactured home. For more information about reverse mortgage eligibility requirements, contact a reverse mortgage loan advisor at 866-751-6105.
How do I apply for a reverse mortgage loan? The first step is to contact a reverse mortgage advisor to discuss your eligibility and financial situation. Next you will need to meet with a HUD-approved reverse mortgage loan counselor.
During this meeting, you can ask any questions you may have about your reverse mortgage loan before deciding to continue with the loan process. As with any major financial decision, it is a good idea to discuss your financial needs and goals with a trusted financial advisor.
Will the bank own my home if I take out a reverse mortgage loan? No. The borrower owns their home and maintains title as long as they live in the home full time, continue to pay required property taxes and insurance and maintain the home according to FHA guidelines.
When the last borrower passes away or sells or moves out of the home, the loan becomes due. At that point, the heirs to the property can either repay the loan and keep the home or the home can be sold to pay off the loan.
Will I have to pay for property taxes and homeowners insurance? Yes. All property taxes, insurance, and home owners’ association fees must still be paid throughout the life of the reverse mortgage loan.
When will I have to repay the reverse mortgage loan? The loan must be repaid when the last borrower no longer lives in the home full time. The loan will also become due if the borrower fails to pay their required property taxes or insurance or does not maintain the home in accordance with FHA requirements.
Are reverse mortgage loans expensive? There are upfront fees that must be paid including mortgage insurance premium (MIP), a loan origination fee and closing costs, as well as ongoing fees such as interest, MIP and service fees.
These fees can often be financed as part of the loan. Generally the only out of pocket expenses the borrower will have is the HUD counseling fee and the cost of the appraisal.
Reverse mortgage loans can be helpful for seniors who have sufficient equity in their homes, but need greater cash flow for every day expenses. Working with a reverse mortgage advisor and a reverse mortgage counselor can help potential borrowers decide if this is the right decision for them.
For more information, you can speak with a reverse mortgage advisor at 866-751-6105.