1. Can I qualify for the FHA-insured HECM reverse mortgage loan??
To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, have the financial resources to pay ongoing property charges including taxes, insurance and mainenance, and you must live in the home.
2. Can I apply for a HECM even if I did not buy my present house with FHA mortgage insurance?
Yes. You may apply for a HECM regardless of whether or not you purchased your home with an FHA-insured mortgage.
3. If there is a spouse or partner living in the home, are they protected if they are not 62 or older when the reverse mortgage loan is signed for?
Answer: Yes. They will not be evicted from the home due to not being age 62 when the loan is signed for.
4. What types of homes are eligible for a reverse mortgage loan?
To be eligible for the FHA HECM, your home must be a single-family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.
5. Can the house be in a trust with a reverse mortgage loan?
Answer: Yes. It must be put in a trust at the closing and only at closing. Once the closing documents are signed for a reverse mortgage, you cannot alter the names or entity on the title work. Any change in ownership or names on title after the closing of the reverse mortgage triggers a due on sale clause. We strongly suggest that prior to a reverse mortgage loan being signed for, to have the trust paperwork in place for estate planning completed. If it is not in place, you must leave the individual names on title after a reverse mortgage is signed for.
6. Can I Purchase a house with a reverse mortgage loan?
Answer: Yes, you will be required to have a down payment.
7. What if I have bad credit or no credit, can I still get a reverse mortgage?
Answer: Mortgagees are required to perform a thorough financial assessment of prospective
borrowers, which includes, amongst others, a credit history analysis of foreclosures, defaults, late mortgage payments and late property charge payments
8. What if I recently had a Bankruptcy
Answer: For a Chapter 7 bankruptcy, as long as the bankruptcy has been discharged, there is not a waiting period for a reverse mortgage loan.
9. What Happens If I Have Filed for Bankruptcy in the past.
You can still get a reverse mortgage loan if you have filed Chapter 13 bankruptcy as long as there is adequate equity in your home, however, some of the proceeds of the Reverse Mortgage may have to be applied to some debts in the bankruptcy, depending upon the judges decision. In the case of a Chapter 7 bankruptcy, it must be dismissed or discharged before doing a reverse mortgage loan. In a Chapter 13, the judge will probably agree to the reverse mortgage, but any cash funds obtained might have to be applied to the discharge of certain debts in the bankruptcy. If you have a prior bankruptcy that has been dismissed or discharged there are no problems associated with doing a reverse Mortgage loan as long as there is nothing that would affect title to the property.
10. What happens if I file for Bankruptcy while I have a reverse mortgage loan?
A: If you should have to file bankruptcy after taking out a reverse mortgage loan, the funds from the reverse mortgage loan which have not been paid will not be available, such as a line of credit or future payments. In such instances, it would be advisable to check with your attorney and decide whether you should pull any remaining unpaid funds from the reverse mortgage loan before filing bankruptcy.
Filing for Bankruptcy is NOT a default in the terms of the Home Equity Conversion Mortgage (HECM) Program. Under the HECM program, you cannot access any additional reverse mortgage funds unless that request for funds is approved by the court or the trustee monitoring the bankruptcy proceedings. We strongly recommends that you notify your loan servicer once any Bankruptcy action is taken. If your reverse mortgage loan is not a HECM reverse mortgage loan, then you must check with your loan servicer to determine if Bankruptcy is a default under the terms of your loan agreement.
11. What if my current mortgage is behind, I’ve missed payments or if my house is currently in default and I am being foreclosed on, can I still get a reverse mortgage loan?
Answer: Yes. You can get a reverse mortgage if you are in trouble. We have done loans for individuals in this very situation. We have been able to help others that have had their house close to being sold through the foreclosure process.
12. What is the maximum loan amount for a reverse mortgage loan?
Answer: FHA has “Loan limits”.
13. How much equity is required for either a reverse mortgage refinance or a purchase mortgage purchase of a house?
Answer: The general rule of thumb is approximately 40%. This is not a set amount. It can be more and it can be less. The formulas used for the amount available is comprised upon different factors including: age and life expectancy tables, values of properties, loan limits per zip code and county. The older you are, the less equity is required on a reverse mortgage. The young you are, the more equity is required. A property located in a county with a higher loan amount will be eligible for a greater amount of a loan compared to a property located in a property located in a county with a smaller loan limit.
14. Can a reverse mortgage loan be used for a 2nd Home or an investment property?
Answer: No. A Reverse Mortgage Loan can only be used for a primary residence that is lived in for at least 6 months or more of the year.
15. Is it possible to be foreclosed on when I have a reverse mortgage loan?
Answer: Yes. Only by one of a few ways.
a) Some instances that may cause the home to be foreclosed on include: Failing to pay property taxes and/or home owners insurance or HOA (Home Owners Association) dues.
b) By not living in the property for at least 6 months or greater each year.
c) By having hazardous chemicals or materials on the property
16. Is a reverse mortgage loan a recourse or a non-recourse loan?
Answer: A reverse mortgage loan is a non-recourse loan.
This is an advantage to the family members of someone that signs for a reverse mortgage.
If the signatory of a reverse mortgage were to default by one of the above methods and be foreclosed on, or when the signatory passes away, the family is not responsible for the balance owed if they do not keep the property.
18. How much money can I get from my home?
The amount varies by borrower and depends on:
If there is more than one borrower, the age of the youngest borrower is used to determine the amount you can borrow.
19. How do I find a reverse mortgage loan counselor?
To locate a HECM counselor Search online or call (800) 569-4287 toll-free, for the name and location of a HUD-approved housing counseling agency near you
20. How do I receive my payments?
For adjustable interest rate mortgages, you can select one of the following payment plans:
21. What if I change my mind and no longer want the loan after I go to closing? How do I do this?
By law, you have three calendar days to change your mind and cancel the loan. This is called a three-day right of rescission. The process of canceling the loan should be explained at loan closing. Be sure to ask the lender for instructions on this process. Mortgage lenders differ in the process of canceling a loan. You should ask for the names of the appropriate people, phone numbers, fax numbers, addresses, or written instructions on whatever process the company has in place. In most cases, the right of rescission will not be applicable to HECM for purchase transactions.
22. Are monthly payments required to be made each month?
If there are two individuals on the loan, no payments are required as long as the home is occupied for at least 6 months of the year. If one of the two borrowers passes away, the other borrower can remain in the home without payments being made no matter the age.
23. Can I Make Payments On A Reverse Mortgage Loan?
Answer: A reverse mortgage loan, or HECM (Home Equity Conversion Mortgage) is a flexible mortgage loan. Borrowers can make monthly payments on a reverse mortgage if they like, or they can pay interest only, or not make payments at all. It is up to the homeowner to decide. The borrower must continue to pay for property taxes, homeowner’s insurance, and home maintenance. The mortgage company that is servicing the loan can give the borrower information about making payments and how they are applied to the loan to pay for property taxes, homeowner’s insurance, and home maintenance.
24. Since There Are No Payments, Is There Any Possibility Of Foreclosure While In The Home?
Answer. The only way that a home can be foreclosed on while the borrower is still alive and living in the home is through what is known as a technical default as one continues to own and live in the home as their primary residence
Grounds for a technical default exist if the homeowner fails to adequately maintain the property, failure to pay property taxes and assessments, failure to maintain home owners (hazard) insurance on the property, or if it is discovered that the borrower committed loan fraud in obtaining the loan. If the borrower were to allow a superior lien to be placed against the property, the loan can be in default as well. Such liens are usually liens for federal or ad velorem taxes, although they can be created by a Mechanic’s and Materialman’s lien (M & M Lien) following repairs or improvements to the home. While technically an M & M lien is not normally considered a first lien, in Texas it is a lien that must be cleared before a property can be sold with a clear title, and thus has the same effect as a first lien.
25. Are The Proceeds From A Reverse Mortgage Loan Taxable?
Answer None of the proceeds from a reverse mortgage loan is considered taxable income.
26. Will The Reverse Mortgage Loan Affect Social Security, Medicare, or Medicaid?
Answer Because the proceeds of a reverse mortgage loan are actually a loan. There may be an effect on Social Security or Medicare. If the proceeds from a reverse mortgage loan are taken in the form of cash and are placed in savings, they could also impact SSI and Medicaid, but not always.
27. How Can I Use The Proceeds From A Reverse Mortgage Loan?
Answer Reverse Mortgage loan proceeds can be used for almost anything, however, there are restrictions associated with the use of loan proceeds for the purchase of annuities and estate planning services. However, borrowers can structure their reverse mortgage payments similar to an annuity. This is known as a tenure plan.
28. How Long Does It Take To Do A Reverse Mortgage Loan?
Answer The amount of time needed to do a reverse mortgage loan is dependent upon several factors. A homeowner with a home that is free and clear, with no title issues, can expect to see the process go very quickly. If there are any title issues, or any existing liens or a survey is required, it could take longer, but usually from 3 to no more than 5 weeks, with most taking less than 4 weeks on average following independent counseling from a HUD approved agency and application. Currently, counseling can take 1 to 2 weeks to be scheduled and most of the process cannot be undertaken until counseling is complete. Title reports are taking about 10 business days and an appraisal can take a week or more after the appraisal is ordered.
29. Who owns The Home After Doing A Reverse Mortgage Loan?
Answer The home always remains the property of the homeowner so long as they continue to comply with the reverse mortgage loan terms.
30. What Happens To The Home When the Homeowner Dies Or Decides To Move?
Answer When the last remaining owner passes away, the home passes to the rightful heirs according to the homeowner’s will. The heirs will need to either sell the home or pay off the reverse mortgage loan within a reasonable time period. If the heirs sell the home, any equity remaining in the home after paying the reverse mortgage loan goes to the heirs. As an added protection to the homeowners and the heirs, a reverse Mortgage Loan is totally non-recourse. In other words, even if the home were to be worth less than the accrued balance on the reverse mortgage loan at the time of sale, the excess loan balance would be forgiven. If the owners must move for any reason, the reverse mortgage loan must be repaid either by refinancing or selling the home. The owners are given a reasonable time to do either.
31. What Happens if I Die And I Don’t Have A Will?
Every good Reverse Mortgage Loan Specialist should ask if you have a will as part of the application interview process, and if you don’t have a will they should recommend that you get one! If you die without a will, the disposition of your home and assets become the responsibility of a court-appointed trustee and your heirs end up with no say in the disposition of your property. Most probate trustees are interested in settling the estate the fastest way possible and as a result your property may be sold for far less than it is really worth and your heirs may end up with nothing, or may end up having to actually pay to settle other debts you may have left behind. A will is something that is just too inexpensive not to have.
32. Do I Have To Live In The Home I Do The Reverse Mortgage Loan On?
The home must be your primary residence, but you are not required to live there all the time. You must occupy the home from time to time and at least sometime in any given 12 month period. There are many seniors who actually use the proceeds from a Reverse Mortgage Loan to purchase or pay off a vacation home, and who actually may spend more time at the vacation home than their primary residence. A senior is not allowed to lease out their home for any reason during a part-time absence, except in the case of a multi-unit property, such as a duplex or four-plex.
33. Can I Use A Reverse Mortgage To Purchase A Home?
Answer A reverse mortgage may be utilized to provide purchase money for a home. As an example, if a senior recently sold a home that was larger than they needed for $250,000 and wanted to repurchase a smaller home for $130,000, they could use a reverse mortgage to purchase the new home. If the reverse mortgage loan resulted in $70,000 in available proceeds, when added to the Money left over from the first home sale, it would put a borrower in the new home and the mortgage payments are deferred until the borrower dies, sells the home, moves out of the house, or defaults on other obligations such as insurance payments or taxes.
34. How Much Money Will I get?
Answer The amount of money available on a Reverse Mortgage is based on the value of the home and the age of the youngest borrower or eligible non-borrowing spouse. The more valuable the home or the older the borrower, the more money that will be available. Additionally, current interest rates and property value or lending limit also factor into the calculation. Older borrowers are generally entitled to more money because they will occupy the home for a shorter period of time than younger borrowers. You can determine approximately how much you could get by simply using the Reverse Mortgage Loan Calculator.
35. What If I Already Have A Mortgage?
Answer As long as there is adequate equity in your home, the Reverse Mortgage loans can be used to pay off your existing mortgage, and any additional available funds can be made available to you in 5 different ways. By paying off an existing mortgage, the homeowners actually creates additional monthly cash flow since they no longer have their monthly mortgage payment. Any existing liens must be paid off at closing using the reverse loan proceeds or other assets.
36. What Types Of Properties Qualify For A Reverse Mortgage?
Answer 1 to 4 family homes, certain manufactured homes, condos, townhouses, and co-ops all qualify for reverse mortgage loans. Manufactured homes must have been built after 1976 and must be on an approved foundation and located in the original location as when they were first purchased from a dealer. Mobile Homes must also be taxed as real estate. Mobile Homes in a rental park do not qualify for a reverse mortgage loan. All eligible property types must meet all FHA property standards and flood requirements.
- Non-Borrowing Spouse
This rule makes it easier for the non-borrowing spouse to continue living in the home following the death of a borrower. The non-borrowing spouse will inherit the responsibility for the reverse mortgage loan as well as the home’s ownership. Borrowers should be aware, the age of the non-borrowing spouse may effect some loan terms such as the interest rate available which can result in a reduced funds available to the borrower.
- Financial Assessment
This rule mandates that lenders financially assess all reverse mortgage loan applicants. Borrowers are required to submit documentation regarding income, taxes, assets, payment history, and other debt to lenders. The purpose of this rule is to ensure that borrowers have the financial capability to fulfill reverse mortgage loan obligations, such as continuing to pay property taxes and home insurance.
Although the FHA’s rules and regulations for the reverse mortgage loan program may seem stringent to some, they are designed with the borrower’s best interests in mind and are truly beneficial to you as a borrower. Reverse mortgage loan regulations and rules are meant to encourage borrowers to use this great financial tool as part of an intelligent retirement planning strategy, which in turn solidifies the overall strength of the reverse mortgage loan product.
“Reverse Mortgage Issues/Obligations After Closing.” Hud.gov. n.p. n.d. Web. 17 Jul 2014. http://portal.hud.gov/hudportal/documents/huddoc?id=7610-0_5_secE.pdf
“Most Frequently Asked Questions.” ReverseMortgage.org. n.p. n.d. Web. 17 Jul 2014. http://www.reversemortgage.org/GetHelp/MostFrequentlyAskedQuestions.aspx#right
Alderman, Jason. “Rule Changes Tighten Reverse Mortgage Eligibility.” PracticalMoneySkills.com. n.p. n.d. Web. 17 Jul 2014. http://www.practicalmoneyskills.com/personalfinance/experts/practicalmoneymatters/columns_2014/0124_RuleChanges.php
“Reverse Mortgages: New Rules Ensue.” NetEquityMtg.gov. n.p. n.d. Web. 1 Apr 2015. http://www.netequitymtg.com/2015/01/22/reverse-mortgages-new-rules-ensue/
Reference: HUD FAQ’s