What is a Reverse Mortgage for Seniors?
A reverse mortgage is a loan that allows you to access a portion of your home equity without having to make monthly mortgage payments. With this type of loan, you maintain the title to your home. With a reverse mortgage loan, borrowers do NOT make monthly principal and interest payments on the loan. Instead, the loan balance is typically repaid when the last borrower or spouse passes away.
Home Equity Conversion Mortgages (HECM’s), also known as reverse mortgages, were created over 25 years ago to help Americans age 62 and older convert a portion of their home equity into tax-free money to improve their lifestyle in whatever way they choose. While loan proceeds are not taxable income, property taxes must be paid. Please consult your tax advisor. HECM Reverse Mortgages are insured by the Federal Housing Administration (FHA) and allow seniors to age in place and achieve retirement security.
Can You Get a Reverse Mortgage at Age 55?
To qualify for a reverse mortgage, you must be age 62 or older and be the titleholder to your home, however, your spouse does NOT have to be 62 and can be a non-borrower who remains on the title to the home. In addition, you must have sufficient equity in your home and you must meet financial eligibility criteria as established by HUD.
Can You Get a Reverse Mortgage on a Home that is Paid For?
Yes, getting a reverse mortgage on a home that is paid off and debt free will make your ability to successfully obtain a reverse mortgage that much easier. Equity in your home is equally, if not more, important than your credit profile.
How Long Do You Have to Own Your Home Before You Can Get a Reverse Mortgage?
There is no length of time you must have owned your home before you can take out a reverse mortgage however you must have equity in the home so unless you put down a large down payment, it is unlikely that you have enough equity in the property after the first few years of owning your home.
What are the 3 Types of Reverse Mortgages?
There are three kinds of reverse mortgages: single purpose reverse mortgages – offered by some state and local government agencies, as well as non-profits; proprietary reverse mortgages – private loans; and federally-insured reverse mortgages, also known as Home Equity Conversion Mortgages (HECMs). The most popular reverse mortgage, and most widely obtained by consumers, is the HECM.
“With a FHA-insured reverse mortgage loan you’ll never
repay more than the appraised value of your home when the
loan comes due, so long as the home is sold to repay the
Does AARP Offer Reverse Mortgages?
AARP does NOT offer reverse mortgages as an organization, however, they do offer some incredible resources to help educate their subscribers on the pros and cons of a reverse mortgage. Only depository banks and non-depository mortgage banks that are approved to offer FHA loans are able to offer reverse mortgages
Why Reverse Mortgages are a Bad Idea?
Reverse mortgages should never be considered a “bad idea” because if they are utilized properly, they can provide incredible benefits to all the parties involved which includes the family members of those taking out the reverse mortgage. There are times that a reverse mortgage can be negative, for example, if the borrowers are wanting to preserve as much equity in their home as possible so that it can be shared amongst their family upon their passing, then a reverse mortgage will decrease the available equity over time.
Another example of when a reverse mortgage can be negative is if the borrowers in the home are under so much financial strain that even with no mortgage payments they are unable to pay their property taxes and homeowners insurance, which they are still responsible for, and taking out a reverse mortgage ends up being the wrong decision.
Is there a Maximum Amount For a Reverse Mortgage?
Reverse mortgage loan amounts follow the loan limits set forth by FHA and HUD. Click on this link to find out what the single family and 2-4 unit loan limits are for your county: https://entp.hud.gov/idapp/html/hicostlook.cfm
Do You Have to Own Your Home to Get a Reverse Mortgage?
Yes, you must be the titleholder to your home in order to be able to take out a reverse mortgage, let alone any type of mortgage on the property.
Reverse Mortgage in Maryland
In the state of Maryland, homeowner housing counseling is required by law, before you can take out a reverse mortgage. After the housing counseling sessions are completed, you will receive a certificate to give to your lender if your counselor believes you understand the terms of the reverse mortgage. You can call HUD at 1-800-569-4287 to locate a HECM-certified counselor near you.
How Does a HECM Loan Work
The HECM (Home Equity Conversion Mortgage) is a federally-insured mortgage program that enables seniors 62 or older to convert a portion of their home’s value into cash. As long as at least one borrower (or non-borrowing spouse) is living in the home and paying the required property charges (i.e.: property taxes, homeowners insurance, homeowners association dues, condo fees, etc…), no mortgage payments are required.
The HECM enables you to withdraw some of the equity in your home. You choose how you want to withdraw your funds, whether in a fixed monthly amount or a line of credit or a combination of both. You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.