A reverse mortgage is a type of loan, which allows older homeowners to borrow against the equity (equity) of their homes. It is called a “reverse” mortgage because instead of making payments to the lender, you receive money from the lender. The money you receive and the interest on the “reverse” loan increase your loan balance each month. Over time, the loan amount grows. Since equity is the equity in your home minus any loans, you are left with less and less equity in your home as your loan balance increases, which could become a problem if you ever want to move. Most reverse mortgages are known as Home Equity Conversion Mortgages (HECMs). The Federal Housing Administration (FHA), part of the Department of Housing and Urban Development (HUD), insures the HECMs.
How To Qualify for a HECM
- You must be at least 62 years old.
- Your home must be your primary residence.
- You must be the entire homeowner, or the mortgage may have a low balance that could be paid at closing with the money that would come in from the reverse mortgage. There are limits on how much money you can borrow. Therefore, if you still owe a lot of money on your traditional mortgage, you may not be eligible for a reverse mortgage.
- You should have the money to pay for the property’s expenses, which include taxes and insurance, as well as repair and maintenance costs.
- You should also meet with a HUD-approved counselor to discuss your eligibility, the financial consequences of the loan, and other loan alternatives.
If you or your parents are considering a reverse mortgage, first make sure you have all the information. We have several resources for you to learn about reverse mortgages on our website here at Senior Resource Hub and they can be found under this post a “Related Articles”.
Answers to Common Questions About Reverse Mortgages
Get Help: Talk to a HUD-approved Reverse Mortgage (HECM) counselor. Visit the HUD Counselor Search page or call (800) 569-4287 for a referral to a HUD Housing Counselor.
Q: I saw an advertisement for an unpaid reverse mortgage from the Department of Veterans Affairs (VA). Is it really what it advertises?
A: Mortgage lenders mislead veterans by promising special deals, hinting that they are VA approved, or offering “no-payment” reverse mortgages to lure seniors desperate to stay in their homes.
Be very careful and avoid loan advertisements that:
- Have official-looking logos that imply that the loan is from a government agency such as the VA or the Department of Housing and Urban Development (HUD). Government agencies guarantee some loans, but they do not lend directly.
- Promise incredibly low rates. If there are rate offers as low as 1.9 percent “refinance with the VA” they may only be valid for a short period of time.
- Promise that a reverse mortgage will allow veterans to stay in their homes without having to pay anything. Typically, borrowers with these mortgages must continue to pay their taxes and insurance, and if they do not pay, they can lose their homes.
- “Pre-approval” notices that say large amounts of cash or credit are available to you. For a loan to be approved, you usually have to meet a series of requirements, it is not realistic to think that it can be approved up front.
If you have a problem with a reverse mortgage:
- Contact a HUD-approved housing counselor.
- File a complaint with the CFPB online or by calling 1-855-411-CFPB (2372).
- Consult with an attorney. If you need help finding one, look at the list of legal aid services in your state or visit the local or state website of the American Bar Association (known as a bar).
Q: What should I do if I have a reverse mortgage and have received a notice that I am “in arrears” or “in default”, or I am behind in paying my real estate taxes and insurance?
A: You must act quickly. If the notice is delayed or ignored, you could eventually be forced out of your home. A reverse mortgage has the condition that you keep up with your property taxes and home insurance. If you fall behind, you are considered to have defaulted on the terms of the reverse mortgage. Default means that you are not meeting the requirements that were agreed upon when the loan was made. Unless you take steps to “cure” or correct your default, your loan could be foreclosed and you could be evicted. If you can pay your taxes or insurance, do so immediately. Find out where to send your payment. You may need to send your payment to the mortgage company that handles the reverse mortgage or directly to the tax authority or insurance company.
Q: What should I do if I have a reverse mortgage and cannot pay my real estate taxes or insurance?
A: If you stop paying taxes and insurance, your mortgage lender could go into foreclosure to take away your home. It is very important to keep up with these payments if you are able to do so. Find out what to do if you are already behind on your tax or insurance payments. If you are having trouble paying your taxes and insurance, there may be local programs or other options to help you keep your home. A reverse mortgage foreclosure prevention counselor can help you choose the best option for your situation. This special kind of advice should be free of charge.
Q: Should I use a reverse mortgage to consolidate my debts?
A: It depends. Speak with a licensed reverse mortgage counselor from the US Department of Housing and Urban Development (HUD) before consolidating your debt with a reverse mortgage. A HUD Authorized Reverse Mortgage Counselor can:
- Advise you on managing your debts and money.
- Help you prepare a budget.
- Provide you with free educational materials or workshops.
- Discuss with you the risks of consolidating unsecured debt (credit cards, etc.) into a loan backed by your home.
Avoid people and businesses who claim to help you reduce your debt, but who ask for high upfront fees or make unrealistic promises – like rebuilding your credit or paying off your debt with a few pennies on the dollar. Contact a HUD approved housing counselor by visiting their search page or by calling (800) 569-4287 where they can refer you to a counselor.
Q: What happens if my reverse mortgage loan balance rises and exceeds the value of my home?
A: It depends on the type of reverse mortgage you have. Today, most reverse mortgages are insured by the Federal Housing Administration (FHA), as part of their Home Equity Mortgage Conversion (HECM) program. ). An FHA-insured HECM loan is a “non-recourse loan.” This means that when your home is sold to pay off the loan, neither you nor your family will have to pay more than the sale price of the home. Insurance will pay for any shortfall, as long as your home sells for at least 95 percent of the current appraised value. If your heirs want to keep the home when you die (or if you move permanently) instead of selling it, they will have to pay off the loan in full. However, they will not have to pay more than the house is worth. If your loan balance is more than your home is worth, you will only have to pay 95 percent of your home’s appraisal. FHA insurance will cover the rest. (If the loan balance is less than the value of your home, they will only have to pay the loan balance.)
Tip: Your heirs may be able to pay the required 95 percent through a regular home loan. However, they would have to meet the usual requirements to get a new mortgage. This involves making a down payment, having a steady income, and going through a credit check. Since taking out a new home loan to keep your home requires planning, it’s a good idea to discuss this with your family. Reverse mortgage loans obtained through a private company (not insured by the FHA) are a separate story. These can have very different credit conditions. Therefore, if you have, or are considering this type of loan, make sure that you understand the terms of it very carefully.
Q: Are there any limitations to the initial fees a bank can charge for a reverse mortgage?
A: Today, most reverse mortgages are insured by the Federal Housing Administration (FHA), as part of their Home Equity Mortgage Conversion (HECM) program. ). The specific costs listed here are for HECM loans. In addition to HECM reverse mortgages, some lenders may offer what are called private or non-FHA-insured reverse mortgages, which in turn may have different costs.
Here is a list of typical fees that lenders charge at the beginning of a loan.
- The Initial Mortgage Insurance Premium (MIP) is a one-time, non-refundable fee.
- Origination service charges. An origination fee is what the lender or mortgage broker charges the borrower for making the HECM reverse mortgage loan. Lenders can charge an origination fee of up to $ 6,000 for these loans. For homes worth less than $ 400,000, the maximum origination service fee for these loans is calculated on a sliding scale between $ 2,500 and $ 6,000, depending on the value of the home. For homes worth more than $ 400,000, the maximum origination service fee for these loans is $ 6,000. Here’s more information.
- Real estate settlement (or closing) costs. These are the same costs you would pay to take out a traditional mortgage. They include charges for home appraisal, title insurance, and inspections.
Tip: There are no specific limits on these costs, so take the time to get multiple appraisals and compare the fees.
Reverse mortgage counseling costs are charged by the counseling agency, not the lender. Counseling generally costs about $125, and consumers are responsible for paying this cost directly to the counseling agency. Low-income people often don’t have to pay this fee, so be sure to ask your counselor if you qualify.
Q: Can my partner, family, or dependents live in my home if I have a reverse mortgage?
A: As long as you continue to live in the home, a reverse mortgage does not change who can live with you. Today, most reverse mortgages are Home Equity Conversion Mortgages (HECMs). The Federal Housing Administration (FHA), part of the Department of Housing and Urban Development (HUD), insures HECMs. As long as you continue to live in the home, an HECM does not change who can live with you. However, if you die or move out of the home, the people who live with you may not be able to continue living in the home without you.