Q&A: Seniors

Senior’s Q&A

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Additional Q&A for SeniorsHeirsAdvisors and Realtors.

Seniors

A reverse mortgage loan is a unique loan that allows homeowner(s) 62 years of age and older to draw on the equity in their home.  The unique aspect of this loan is that it does not require repayment until the borrower(s) sell or move out of their home, dies, fails to maintain the home, or does not comply with all other obligations of the loan. Created by The U.S. Department of Housing and Urban Development (HUD), this federally insured loan goes to help those in the senior population meet their financial needs and ease money worries for greater peace of mind.

Are there out-of-pocket expenses?

The typical out-of-pocket expenses are the cost of the HUD required counseling and the appraisal.

When is the loan due?

When none of the borrowers remain in the home, the loan becomes due. The loan may also come due should you stop paying your property taxes, property insurance or fail to maintain your property. However, you may choose to pay off the loan at any time. As with any other loan tied to the property, the family or heirs can sell or refinance the home and pay off the loan.

Can I take out a Reverse Mortgage Loan on a second home or investment property?

No. Reverse Mortgage Loans can only be taken out on a homeowner’s primary residence that is, the residence where the homeowner spends the majority of his or her time.

Does a Reverse Mortgage Loan require I make monthly payments?

No. Monthly mortgage payments are not required. Payment of property taxes, insurance and general upkeep of the home are the responsibilities of the homeowner.

Is it required that I receive counseling before getting a reverse mortgage loan?

Yes.  Counseling by HUD approved agencies is required to protect borrowers from receiving incorrect information about reverse mortgage loans and also consider alternative options to a reverse mortgage loan.

Should I use an estate planning service to find a reverse mortgage loan?

No. HUD advises against using an estate planning service or any other company especially when a lender referral fee is requested to procure a reverse mortgage loan.

Do I still pay property taxes and insurance?

Yes! You are responsible for all property taxes, insurance and general property maintenance.

Are there any income or credit requirements?

No.  A credit report will only be used to check for any Federal/State liens or other obligations which may affect qualifying and/or title.  Borrowers will be subject to a financial assessment.

What if my (children, advisor) have questions about a reverse mortgage loan?

We encourage all interested parties, especially children, to participate in the discussions regarding a reverse mortgage loan.  The more informed everyone is, the easier it is to see the many advantages and “safety nets” that are built into the HECM reverse mortgage loan.

If my home appreciates during the mortgage term, who will be entitled to that money?

You will.  Any money remaining after the mortgage is paid in full goes to you or, upon your death, to your heirs.

What if I decide to sell my home?

As with a traditional mortgage, if you choose to sell your home, the outstanding loan balance becomes due and payable. You or your estate will receive any proceeds exceeding the loan balance and closing costs.

What types of properties are eligible?

Eligible properties include: Single-Family homes, 2-4 unit properties, manufactured homes built after 1990, FHA Approved condominiums, Planned Unit Developments (PUDS) and newly constructed properties (Certificate of Occupancy must be issued prior to 1009 application date).

Can I qualify for FHA’s HECM reverse mortgage loan?

To be eligible for a FHA HECM, the youngest borrower must be 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.  You must live in the home as your primary residence and receive HECM counseling prior to obtaining the loan.

How much will I owe at the end of my loan?

All the money borrowed, including any money used to pay the loan’s closing costs, all accrued interest, financial and service fees and MIP required for HECM loans.

What happens to my spouse if I pass away first?

If your spouse is a co-borrower of the loan, he or she can continue to live in the home and continue to receive the existing payments as long as the home is maintained and property taxes and insurance are paid.

What happens to our home when we pass away?

Your home will transfer to your heirs per your will or estate plan, just like it would now. The outstanding Reverse Mortgage Loan balance must be repaid once your estate is settled. Your heirs may sell the home, pay off the outstanding loan balance and keep the remaining cash, or refinance the outstanding loan balance and keep the home. Your heirs are generally given up to a year (an initial 3 month period followed by three-three month extensions) to resolve the estate and repay the reverse mortgage loan. In any case, a reverse mortgage loan is a “Non-Recourse” loan which means that no matter how much you owe at the time you SELL* the home, you or your heirs can never owe more than the value of the home at that time. Of course, if there are proceeds left when the home is sold, that money goes to either you or your heirs.

*Should you refinance the property, the full amount of the Reverse Mortgage Loan is paid

What happens if we decide to move?

Your home needs to remain your principal place of residence when you have a reverse mortgage loan.  You may leave your home for any reason for up to 12 consecutive months (nursing home, etc.).  If you decide to sell your home, you simply repay the reverse mortgage loan loan balance from the sale proceeds exactly the same as you would with a conventional forward mortgage and keep the remaining cash.

Why don’t I just sell my home?

In some cases, that may be the best solution based on your personal circumstances. Just remember, selling your has substantial costs associated with selling your home.  Depending on your area and market conditions fees can run 6-8% of the sales price.  If you sell your home, where will you live?  Perhaps the answer is to sell your current property and purchase one that better meets your current needs using a Reverse Mortgage Loan.  I can help your advisors sift through your many options and can even recommend a real estate professional for further guidance if you request.

What can we use the money for?

Just about anything you want! Remember, the only requirement is that you pay off any liens against your home. After that, the funds from a reverse mortgage loan can be used for virtually any purpose. You can supplement your current income, pay off bills, make home improvements, travel, fund grandchildren’s educations, the list is virtually endless. Note: You cannot use the initial disbursement to pay an estate planning firm.

Who holds title to my (clients-parents) house when we obtain a reverse mortgage loan?

You do! If you hold title in a trust and wish to continue to do so, the lender will review your trust to determine if it’s eligible under current lending guidelines. Note, that the property is subject to a lien from the lender.

I (we) currently have a mortgage. Can I (we) still get a Reverse Mortgage Loan?

If you qualify, a reverse mortgage loan will pay off your existing mortgage and then give you the remaining proceeds. In fact, many of our borrowers use a reverse mortgage loan for that purpose – to eliminate monthly payments on their traditional mortgage.

How much money can I get?

The amount of money that a lender will loan depends upon how old you are at the time of closing, how much your house is worth, the total amount of liens, and interest rates. The type of reverse mortgage loan product and the payment options can also affect the amount of money you will receive.

What happens if my spouse (mom or dad, client) or I need to go to a nursing home?

As long as one borrower remains in the home, the reverse mortgage loan does not need to be paid off. If the last borrower needs to go to a nursing home but intends to return, the reverse mortgage loan doesn’t need to be repaid until that borrower has been gone for 12 consecutive months.

What if I owe more money than the home is worth?

HECM reverse mortgage loans are “non-recourse loans”. This means that the HECM borrower (or his or her estate) will never owe more than the loan balance or value of the property, whichever is less, and no assets other than the home will be used to repay the debt. This applies only when the borrower or estate chooses to sell the property to pay off the reverse mortgage loan loan. If the borrower or estate wishes to retain the property, the balance must be paid in full. If there is money left after the existing loan is paid, the borrower or their estate will receive the money.

Are reverse mortgage loans only for desperate seniors?

The reverse mortgage loan is a financial tool used by seniors from all walks of life to enhance their retirement years, not just by those facing difficult financial challenges.  Many seniors now realize that they can utilize a reverse mortgage loan to unlock the value of their home so they can enjoy a better quality of life during their retirement years.

Are Reverse Mortgage Loans safe?

The FHA HECM Reverse Mortgage Loan is regulated, insured and backed by HUD, an agency of the Federal Government.  Due to strict HUD enforcement of its regulations and safeguards, HECM reverse mortgage loans are recognized as a safe financial product.

How do I receive my money at closing?

There are several different options to choose from. You can take the money in a lump sum at closing, set up a line of credit, monthly payment, or a combination of all three.

How do I receive my payments after closing?

You can receive your payments via monthly check or by automatic deposit into the account you choose.

Is a reverse mortgage loan always the best option?

It depends on your circumstances.  We advise our cleints to consider all potential financial options before making a decision.  These include home equity loans, no-interest loans; or grants that may be offered by your county government, or a local non-profit, to help you pay for home repairs; or a tax- deferral product, if you are having problems paying your property taxes.

Why would I/we want a reverse mortgage loan?

The Home Equity Conversion Mortgage (HECM) is FHA’s reverse mortgage loan product, which enables eligible homeowners to withdraw some of the equity in their home.  The HECM is a product that can provide greater financial security. Many seniors use it to supplement Social Security, meet unexpected medical expenses, make home improvements, pay for long term care insurance, establish college funds for grandchildren or anything else you wish to do with your money.  You can even use a HECM to BUY a home!

How long does a HECM Refinance take?

Normally transactions take approximately 35- 45 days, however, depending on the circumstances, (financial advisors, etc.) additional time is required do the number of people who need/may be involved to make sure the borrower(s) are fully informed at each step of the process.

When is the loan due?

When none of the borrowers remain in the home, the loan becomes due. The loan may also come due should you stop paying your property taxes, property insurance or fail to maintain your property. However, you may choose to pay off the loan at any time. As with any other loan tied to the property, the family or heirs can sell or refinance the home and pay off the loan.