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“How’s” of Reverse Mortgages

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Today, we answer the HOW’s of reverse mortgages to let you know how it works, how do you qualify and much more. These are some of the Frequently Asked Questions that I get about reverse mortgages.

How do I know if I qualify for a Reverse Mortgage?

Below is a list of different criteria that will be calculated in the qualification process:

  • At least one of the borrowers must be at least 62 years old, but loan proceeds will be done based on the age of the younger homeowner.
  • Property must be primary residence of borrowers.
  • Property must meet HUD minimum property standards.
  • You must receive 3rd party counseling from a HUD approved Reverse Mortgage Counselor prior to having your application accepted. This counseling session is mandated by the FHA, to ensure protection for the lenders and borrowers.

This Reverse Mortgage Calculator can also help you determine if you are eligible to apply for a reverse mortgage.

How much can I borrow with a Reverse Mortgage?

The amount you can borrow varies and is based on three different criteria:

  • The age of the borrower(s).

  • The value of the home.

  • The interest rate on the loan.

Typically, if you are older and your home is of a higher value, you will be able to receive more money than if you are younger and have less value in your home.

How will I receive and use the funds from a Reverse Mortgage?

One of the many benefits to a reverse mortgage is that you can use the funds however you may need them. You can pay off medical bills, make home improvements, take off some of that financial burden from other bills – the possibilities are endless.

The reverse mortgage funds can be delivered to you in:

  • limited lump sum

  • monthly payments

  • have access to a line of credit

  • combination of the above three.

How much does a Reverse Mortgage cost?

The cost of a reverse mortgage varies from person to person. The fees may include the HECM origination fees, mortgage insurance premium and third party fees, including title insurance, appraisal fees, etc. It is possible for the variety of fees to be rolled into the loan if there is enough equity to cover the costs.

How will I know when it is time to repay the loan?

Payments for reverse mortgage loans are deferred until the last borrower moves out of the home of passes away. However, if any one of the following instances occur, your loan may go into repayment status:

  • You stopped paying property taxes.

  • You stopped paying homeowners insurance.

  • The property is no longer your primary residence. Also, if you are hospitalized and need extra attention, you are given a 12 month period before they declare that the home is no longer your primary residence.

  • The last borrower has passed away.

 How will my family manage the repayment of a reverse mortgage loan?

Good news! You do not need to worry about your heirs inheriting the loan, however, they do need to be aware of what happens after you and/or your spouse passes away, especially if they are living at home with you. Because this is a “non-recourse” loan, you, or your heirs do not need to pay more than the appraised value at loan maturity.

Here are some of the possible scenarios that your heirs may encounter:

  • If your heirs have no interest in the property, then the home becomes property of the bank and no balance is due.

  • If your heirs are interested in managing the property, then they will have to pay the loan balance in full, regardless of the home’s value. (i.e., the home is valued at $250,000 and the loan balance is $300,000).

  • If your heirs decide they want to keep the home, then they must pay back the remaining mortgage balance. They can do this with other assets, or they have the option to work with the bank to refinance the loan.

  • They might also want to sell the home,  this depends on the value of the home and the balance of the loan, and they would be allowed to keep any proceeds after the loan has been repaid.

  • If your children and/or heirs decide to do nothing with the property, the deed will be handed over to the lender, which will satisfy the loan.

 How do I know if a Reverse Mortgage is a good option?

Only you can decide if a reverse mortgage is a good option for you.You could also consult a financial advisor and/or tax professional for any related questions or concerns.

If you have questions about reverse mortgages, you can speak with an advisor at 1-888-808-8486.

Read Related Articles:

5 W’s of Reverse Mortgages

Top 5 Reverse Mortgage Questions

How Long Does the Reverse Mortgage Process Take? 

About the Author:

I have been working in the reverse mortgage industry for 20-plus years. My goal is to provide consumers the most up-to-date and relevant information about the reverse mortgage industry and how it can affect them.

Thanks for reading!

-Alan F.

Image courtesy of [Ambro] / FreeDigitalPhotos.net

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