How a Reverse Mortgage Loan Works
Making the most of your retirement.
A reverse mortgage is a loan for senior homeowners that uses the home’s equity as collateral. The loan generally does not have to be repaid until the last surviving homeowner permanently moves out of the property or passes away. At that time, the estate has approximately 6 months to repay the balance of the reverse mortgage or sell the home to pay off the balance. Any remaining equity is inherited by the estate. The estate is not personally liable if the home sells for less than the balance of the reverse mortgage.
The federal government has put in place several safeguards in the reverse mortgage loan program to protect and shield homeowners from predatory lending practices. Chief among them is the mandate that a third-party counseling session must occur with an independent HUD-approved counselor before an application can be processed
Benefits of a Reverse Mortgage Loan
A reverse mortgage loan through Liberty Reverse Mortgage gives you the ability to enjoy financial security, peace of mind and the ability to remain in your home during your retirement years.
You have the freedom to use the net proceeds however you.*
- Supplement your retirement income
- Consolidate debt
- Pay for medical care, prescription drugs and in-home care
- Cover large or unexpected expenses
- Make home improvements
- Modify your home for better accessibility
- Travel to visit family and friends or take vacations
- Contribute to your grandchildren’s college education
- Buy that new car you need or want
- Gifts for the children/grandchildren
- Live a more comfortable lifestyle
*If your home is in need of FHA-required repairs or you have an existing lien, judgment, or taxes that are due, those must be satisfied, either through the reverse mortgage loan proceeds or prior to obtaining a reverse mortgage loan.
The basic eligibility requirements to purchase a home with a reverse mortgage loan are:
- All titleholders must be aged 62 years or over
- The purchased home must be your principal residence
- The purchased home must meet HUD’s minimum property standards and be either a single-family residence, a residence in a 2- to 4-unit dwelling.
- The down payment must be from qualifying sources
- You must complete a HUD-approved counseling session
Calculating the Minimum Down Payment
Since the funds available from a reverse mortgage loan are dependent on a number of factors, there is no single “rule of thumb” to determine the minimum down payment amount. The calculation to determine how much is available is based on the following:
- The age of the youngest borrower on the title
- Current interest rates
- The lesser of the home’s appraised value, purchase price, or FHA national lending limit
- Loan fees
The older the borrower, the less will be required for the down payment. Based on current interest rates, a 65 year old borrower would typically need a down payment of roughly 35%-40% of the purchase price of the home.
* some exceptions may apply