Reverse Mortgage Loans
A reverse mortgage is a real estate loan made to a homeowner who is age 62 or more and who has substantial equity in their home. Unlike other home loans, the borrower is not required to make monthly payments on a reverse mortgage loan. Instead, the entire loan balance, up to a limit, must be repaid when the borrower sells the home or dies.
Borrowers may obtain a lump-sum payment, monthly payments, or a line of credit that can be drawn upon at the discretion of the homeowner. Another option is to take a combination of payments. The loan proceeds are not taxable because they are not income.
Borrowers are not required to qualify for a reverse mortgage loan except for having sufficient equity in their home and being age 62 or greater. There are no credit score requirements.
The proceeds of a reverse mortgage loan can be used for any purpose including the purchase of real estate, an existing business, or a franchise.
Frequently Asked Questions (FAQ) - Reverse Mortgages
Since monthly payments are not required on a reverse mortgage, how are they repaid?
The owner of the property can refinance it and pay off the reverse mortgage or sell the property.
How does someone qualify for a reverse mortgage?
You must be age 62 or older, have title to the property, and have sufficient equity in the property to justify the loan given your age. The older the borrower, the less equity is required.
What types of homes are eligible for reverse mortgages?
The home must be a single - family residence (SFR), a 2 to 4 unit residential property, an FHA approved condominium or a manufactured home that meets all FHA requirements.
How much money can I borrow utilizing a reverse mortgage?
It depends upon the amount of equity in the house, the prevailing interest rate, and the age of the youngest borrower. A reverse mortgage loan broker can estimate the amount at no cost to the prospective borrower.
What will I have to pay monthly if I obtain a reverse mortgage loan?
You will be required to pay your real property taxes, property insurance, and normal maintenance.
What costs are involved with obtaining a reverse mortgage?
As with all real estate loans, you will pay customary closing costs and any prorations. You will also be required to pay a HUD counseling fee.
What is HUD counseling?
HUD counseling is required before a person borrows money utilizing a reverse mortgage loan. It is designed to protect applicants by educating them about all aspects of reverse mortgages and any alternative mortgage products. The counseling is provided by an independent counselor who is not affiliated with the mortgage broker or lender.
Can I payoff the loan early without any penalties?
Can I still leave the home to my children?
Absolutely. They can refinance the loan and retain the home or sell the home if they prefer.
How can I use the proceeds of a reverse mortgage?
You can use the funds any way you please including the purchase of real estate, an existing business, or a franchise. If you have an existing real estate loan, the proceeds will be used to pay off that loan.