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General HECM FAQs
What is a reverse mortgage?
- A Reverse Mortgage is a unique type of loan that allows homeowners to use the equity in their home to eliminate monthly mortgage payments and/or supplement their income without having to sell their home or give up title. Unlike traditional mortgages, a reverse mortgage does not require a monthly payment. In fact, in circumstances where a sufficient amount of equity exists, the lien holder will actually disburse payments to homeowner. The loan balance does not need to be repaid unless and until none of the original borrowers remain living in the home; at which time, the amount owed cannot exceed the value of the home. To find out how much you could receive from this product, visit our reverse mortgage calculator now!
How is a reverse mortgage different from a traditional mortgage?
- The primary differences are that, on a reverse mortgage, there are no monthly payments, there are no income or credit score requirements and the homeowner is not liable to the lender for any amount over the value of the home.
Is it true that I can never owe more than my home is worth?
- As long as you, as the homeowner, adhere to specific portions of the mortgage contract, you cannot be held liable for any balance that exceeds the value of your home. The following violations can result in full liability: Becoming delinquent on real estate taxes, Becoming delinquent on homeowners insurance, Allowing the home to fall into disrepair.
What is equity?
- Equity is the amount of monetary ownership a homeowner has in their property and is determined by subtracting the balance of any liens against the property from the home's market value. Note: A homeowner's rights as owner are not dependent on the amount of equity they have in their home.
What is the benefit of a federally insured reverse mortgage?
- The federal insurance on a FHA reverse mortgage provides protection for both the borrower and the lender. In a case where a borrower is receiving monthly installments or has a line of credit, the insurance guarantees availability of funds. In a case where the reverse mortgage balance exceeds the value of the home, the insurance compensates the lender for the difference between what they are allowed to collect from the homeowner and the actual balance of the loan.
How can a reverse mortgage help me?
- Homeowners seek reverse mortgages for a variety of reasons. This type of financing can be used to supplement a fixed income, receive money to cover expenses, or simply to eliminate monthly housing costs.
What can I do with the money from my reverse mortgage?
- There are absolutely no restrictions on how reverse mortgage proceeds can be used. Some of the most common uses for reverse mortgage proceeds are to cover every day expenses, home improvement, health care, major purchases and travel.
Under what circumstances should I not consider a reverse mortgage?
- The length of time you maintain your reverse mortgage can play a large role in determining the value of its benefit to you. If you intend to sell or otherwise vacate your home within the next two to three years, there may be better options to consider. Such options may include traditional home equity loans, government or non-profit assistance programs and tax deferral programs.
Can I get expert advice before I apply for a Reverse Mortgage?
- A unique feature of the Reverse Mortgage approval process is the counseling in which the homeowner is required to participate in order to ensure that they are able to make a well-informed decision. Lenders are required to assist potential applicants with this step by providing a list of ten counseling centers, five of which must be within driving distance. While this may seem burdensome to some, pre-loan counseling serves a very important purpose. Counselors are obligated by law to discuss the implications of this type of financing, as well as any other options that may be available.
Can the lender take my home away if I outlive the life of the loan?
- Absolutely not! As long as at least one of the borrowers resides in the property, keeps taxes and insurance current and keeps the home in good repair, there is no need to repay a reverse mortgage.
Could I lose government assistance by choosing to get a reverse mortgage?
- A reverse mortgage does not affect Social Security or Medicare benefits. If you receive any other state or federal income, your case worker can help you determine if it will be adversely affected.
Will I still have an estate that I can leave to my heirs?
- When the home is sold, either you or your estate will repay the reverse mortgage loan balance to the lender. The total due will include any amounts that were disbursed to the homeowner, as well as any interest that has accrued. Any surplus will be disbursed to either yourself or to your heirs.
What happens to my existing mortgage?
- When pursuing a reverse mortgage, any existing mortgages will need to be satisfied so that the new mortgage is the only lien attached to the property. If there is not enough equity in the home to pay off the existing mortgage, you will be required to use your personal liquid assets to satisfy the difference.
Can an individual appointed as Power of Attorney handle a reverse mortgage transaction on someone else's behalf?
- A person holding power of attorney can be the main contact for this process; however, the person listed on the title of the home must be the one to attend counseling, as well as to sign all application and closing documents. The US Department of Housing and Urban Development (HUD) requires the homeowner to act on their own behalf unless a doctor's note is supplied citing a specific condition which deems the homeowner unable to make their own decisions during this process.
HECM Eligibility FAQs
Am I eligible for a reverse mortgage?
- To be eligible for a reverse mortgage, you must own your home and all owners listed on title for the home must be at least 62 years of age. The home must be your primary residence, meaning that you must live there for a minimum of 6 months out of each calendar year.
Can I get a reverse mortgage on a second home, investment or resort property?
- No; only a primary residence is eligible for a reverse mortgage.
What types of homes are eligible for the reverse mortgage program?
- To be eligible for an FHA reverse mortgage, the subject property must be a 1- 4 unit home, a manufactured home constructed after 1976, or a condominium. Condominiums must be approved by the Department of Housing and Urban Development (HUD) and all eligible property types must meet FHA requirements. Typically, properties located in cooperative developments are ineligible for this type of financing. If you have specific questions regarding your property and its eligibility, discuss these concerns with your HUD-approved counselor before paying for an appraisal.
How many people can I have on my reverse mortgage?
- The federally insured reverse mortgage allows up to three homeowners to be on the note. All homeowners on the note must be at least 62yrs of age and occupy the home as their primary residence.
Can I add anyone to the title for the home after obtaining a reverse mortgage?
- It is possible to add owners to the title of the home after obtaining a reverse mortgage. However, anyone added to title must also be added to the reverse mortgage, which means that they must be eligible for reverse mortgage financing. Provided the individual being added to title is eligible, they can be added to the reverse mortgage by doing a streamline refinance, which requires minimal processing.
Can a non-relative be on the reverse mortgage with me?
- Yes; as long as the applicant meets all age and occupancy requirements, relation has no bearing on their ability to be on the title or the note.
Can I use the FHA Reverse Mortgage program to finance business or commercial property?
- No; the reverse mortgage is only available for use on residential property.
HECM for Purchase FAQs
What is a FHA reverse mortgage for purchase?
- The FHA reverse mortgage purchase product allows eligible seniors to obtain a new residence using the proceeds of a reverse mortgage. Because you must have at least some equity in the home in order to obtain a reverse mortgage, a down payment on the new home will be necessary. Borrowers are required to occupy the new residence within sixty days of closing.
What is the purpose of the FHA reverse mortgage purchase program?
- The FHA reverse mortgage purchase program was developed to enable eligible homeowners to purchase a home that better suits their needs without having to take on new mortgage payments.
What if the subject property requires repairs?
- If there are any repairs necessary for reasons of health, safety, or structural integrity, they must be completed by the seller prior to closing. The buyer cannot pay for any repairs before taking ownership and the necessary repairs must be noted in the purchase agreement. Necessary repairs include issues such as: lack of running water, leaking roof, absence of a heat source, inadequate electrical systems, inoperable doors or windows, etc.
Can the seller contribute to closing costs?
- No; seller contributions are not allowed on FHA reverse mortgage for purchase transactions.
Are there any restrictions regarding the funds due at closing?
- The source of any funds that are due at closing must be verified and must either be cash on hand or proceeds from the sale of a home. Gift funds are allowed only if they are not received from anyone with a financial interest in the purchase transaction. With the exception of sale proceeds, all funds must be seasoned for sixty days prior to closing.
HECM Refinance FAQs
Can I ever refinance after obtaining reverse mortgage?
- Yes; there may be a time when your financial needs change in such a way that you decide to make changes to your home financing. A reverse mortgage can be refinanced into a new reverse mortgage or into a traditional mortgage, provided you qualify for the new mortgage.
What is involved in refinancing an FHA reverse mortgage with another FHA reverse mortgage?
- Refinancing an FHA reverse mortgage with another FHA reverse mortgage is much like refinancing a traditional loan with an FHA reverse mortgage. The main differences are that you will have a much lower up front mortgage insurance charge than on the original FHA reverse mortgage and, depending on how much you are benefiting from the refinance, you may be able to have the pre-loan counseling requirement waived. When you call, you will need to know the original claim amount, the current principal limit, and the current balance due. The current market value and birthdates of all homeowners will also be helpful. Using this information, we can help you to determine whether this type of refinance would benefit you.
What are the closing costs?
- The fees that your lender or broker can charge are strictly regulated. There will be the typical fees paid to third parties for providing services necessary for the processing of your loan (title insurance, credit report, etc) and an up front mortgage insurance premium equal to 2% of the lesser of either the property value or $625,000. In addition, your lender or broker will charge you an origination fee of between $2,500 and $6,000, depending on your property value. This should be the only fee that is paid directly to your lender or broker.
Am I eligible for an FHA reverse mortgage if I am in default on my taxes or insurance?
- Homeowners are ultimately responsible for keeping taxes, insurance, and repairs up to date for the duration of their reverse mortgage. If you are currently delinquent on either taxes or insurance, you will need to become current either prior to or at your reverse mortgage closing.
Reverse Mortgage Application & Approval FAQs
What steps are involved in obtaining a Reverse Mortgage?
- There are six basic steps in this process: 1. First is your free consultation with a reverse mortgage specialist. Your specialist can explain your options, answer your questions and provide you with any additional resources you need in order to determine whether you are interested in pursuing a reverse mortgage. 2. Second, you will complete a counseling session with a HUD approved counselor. We will provide you with a list of counselors from whom you can receive your counseling either over the phone or face-to-face at a time that is convenient for you. 3. Once you have completed your counseling session, you will need to submit your application and have your home appraised. We will provide you with the application and disclosures to be reviewed, signed and returned and will have a local appraiser contact you to make arrangements to perform the appraisal. 4. Once your application is returned and the appraisal complete, these documents, as well as any other documentation required by the lender, such as proof of insurance, will be submitted to an underwriter for review. 5. Once everything has been satisfactorily documented, the underwriter will issue a final approval and a notary will meet with you to witness your signing of the closing documents. 6. Finally, you will receive your first disbursement and/or your funds will be come available approximately 30 days after closing.
Is my information completely confidential?
- Your privacy is of utmost importance to all of us. The information we obtain from you is kept strictly confidential and is used only as necessary to secure your reverse mortgage. Your information is stored and transmitted in accordance with all applicable state and federal regulations.
How can I receive my money?
- You can receive your money in four different ways: 1. You may receive a single lump sum of cash that is paid to you shortly after closing. 2. You may set up a credit line. This option enables you to access the funds at your convenience. 3. You may receive a monthly cash advance for either a set period of time or for as long as you live in the home. 4. You may combine one or more of these options in order to create a personalized plan.
Why do I need to receive counseling?
- Pre-loan counseling is required in order to protect consumers by ensuring that they have access to and contact with an independent advisor before making a decision to pursue a reverse mortgage. You may receive counseling from a HUD-approved counseling agency of your choice and the session may be completed either face-to-face or over the telephone. During the session, you will discuss the costs of a reverse mortgage, possible tax implications, and the impact that the program may have on your heirs.
How much can I receive?
- The amount you receive from your reverse mortgage depends on your age, the amount of equity you have in your home, and the interest rates on the program you select. To find out exactly what amounts you are eligible to receive, please visit our calculator or call our reverse mortgage specialists at (877)790-0019.
Why am I being discouraged from obtaining a reverse mortgage?
- There are a variety of reasons that a person may attempt to dissuade you from obtaining a reverse mortgage. Some lenders are unfamiliar with or unable to originate reverse mortgages. One of the most common reasons, however, is simply a lack of understanding regarding the terms of the product. Much of the negativity associated with reverse mortgages is a result of practices from the 1980s, before the program was federally regulated and insured. In contrast, today's FHA reverse mortgage is heavily regulated and is arguably the safest mortgage product available to consumers.
Does signing the disclosures I receive obligate me to do anything?
- No; when you sign the initial application, you are indicating that the information it contains is accurate to the best of your knowledge. Your signature on the initial disclosures represents that you have been provided with a copy of the disclosure and given sufficient time to review it.
Can I apply for a reverse mortgage if I did not buy my home with FHA mortgage insurance?
- Yes; regardless of the conditions on the previous mortgage, the new FHA reverse mortgage will be insured by the Federal Housing Administration (FHA).
Will my income or credit history affect my ability to obtain a reverse mortgage?
- No; because there are no monthly payments required on this type of financing, neither your current income nor your credit history will have an impact on your ability to secure a reverse mortgage.
My home is in a living trust; do I qualify for a Reverse Mortgage?
- Most homes placed in a living trust can still be financed with a reverse mortgage. Consult with your trust account manager to ensure that your contract does not prevent this type of financing prior to beginning your application.
What is TALC and why should I know about it?
- TALC is an acronym for "Total Annual Loan Cost". It is a summary of all the costs associated with a reverse mortgage expressed as an annual rate. The TALC is a useful tool when comparing one reverse mortgage quote to another because these types of loans can vary in terms of features, benefits, and cost. If you are considering a reverse mortgage, ask your lender or counselor to explain what the TALC rates are for the various product options.
How long will it take to close the Reverse Mortgage?
- The time required to approve your application depends upon the time required for processing and third party contributions (appraisal, title, etc.); however, the process typically spans 30 to 45 days from the date of application to the date of closing.
HECM Closing Cost & Rate FAQs
What are the out of pocket costs?
- The only expense that must be covered out of pocket is that of the appraisal, which typically ranges from $350-$450. The counseling fee can either be financed into the loan or be paid up front. Some counselors offer a discount for paying up front, but the choice is yours. All other costs are paid from the loan proceeds at the time of closing.
Are there fees to apply for a reverse mortgage?
- No; you should never pay a fee to apply for a reverse mortgage, either up front or at closing.
What does it mean when items on the Good Faith Estimate (GFE) are marked ¨POC¨?
- This means that the fee is related to the processing of your loan, but has been or will be paid outside of the closing transaction. Most commonly, these are the appraisal fee and the counseling fee.
Who controls interest rates on reverse mortgages?
- Currently, the adjustable interest rate is controlled by the LIBOR (London Interbank Offered Rate) Index. The fixed rate is determined by the lender and usually based upon the activity in the secondary market.
After Obtaining Your HECM FAQs
Am I required to pay anything on my reverse mortgage?
- You are not required to make any monthly payments on a reverse mortgage for as long you remain living in the home and stay current on your homeowner's insurance, property taxes, and home repairs. This is one of the most appealing benefits of a reverse mortgage.
Does the growth feature on the credit line mean that I am earning interest?
- No; the growth feature means that your credit limit increases at a pre-determined rate to compensate for increases in your home's value over time.
How does interest work on a reverse mortgage?
- Interest accrues on the portion of the reverse mortgage that has been used by you and is simply added to the total balance of the loan.
What do I owe on the home at the end of the mortgage?
- The amount that you owe on the home at the end of the mortgage is either the total of all fees, interest and disbursements made or the current market value of the home, whichever is less.
When does the reverse mortgage become due and payable?
- The loan becomes due when you no longer live in the home or if you fail to remain current on your real estate taxes, insurance and repairs.
Submit A Question
Not finding the reverse mortgage information that you need? Call a reverse mortgage specialist at (877) 221-0493 or submit your question below.
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