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Reverse Mortgage Frequently Asked Questions
Reverse Mortgages are becoming popular in America. The U.S. Department of Housing and Urban Development (HUD) created one of the first. HUD's Reverse Mortgage is a federally-insured private loan. The HECM is a safe and secure way to give older Americans greater financial security. Many seniors use it to supplement social security, meet unexpected medical expenses, make home improvements, and more. You can receive free information about reverse mortgages by calling Harry Gordon at: (800) 486-8786 extension 709. Since your home is probably your largest single investment, it's smart to know more about reverse mortgages, and decide if one is right for you!
- What is a reverse mortgage?
- Can I qualify for a HUD reverse mortgage?
- Can I apply if I didn't buy my present house with FHA mortgage insurance?
- What types of homes are eligible?
- What's the difference between a reverse mortgage and a bank home equity loan?
- Can the lender take my home away if I outlive the loan?
- Will I still have an estate that I can leave to my heirs?
- How much money can I get from my home?
- Should I use an estate planning service to find a reverse mortgage?
- How do I receive my payments?
1. What is a reverse mortgage?
A reverse mortgage is a special type of home loan that lets a homeowner convert a portion of the equity in his or her home into cash. The equity built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence.* HUD's reverse mortgage provides these benefits, and it is federally-insured as well.
*Note: There are some circumstances that will cause the loan to mature and the balance to become due and payable. The borrower is still responsible for paying property taxes and insurance. Credit is subject to age and property qualifications. Program rates, fees, terms and conditions are not available in all states and subject to change.
2. Can I qualify for a HUD reverse mortgage?
To be eligible for a HUD reverse mortgage, HUD's Federal Housing Administration (FHA) requires that the borrower is a homeowner, 62 years of age or older; own your home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and must live in the home. You are further required to receive consumer information from HUD-approved counseling sources prior to obtaining the loan. You can contact the Housing Counseling Clearinghouse on 1-800-569-4287 to obtain the name and telephone number of a HUD-approved counseling agency and a list of FHA approved lenders within your area. Better yet, call Harry Gordon (800) 486-8786 extension 709.
3. Can I apply if I didn't buy my present house with FHA mortgage insurance?Yes. While your property must meet HUD minimum property standards, it doesn't matter if you didn't buy it with an FHA-insured mortgage. Your new HUD reverse mortgage will be a new FHA-insured mortgage loan.
4. What types of homes are eligible?Your home must be a single family dwelling or a two-to-four unit property that you own and occupy. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved.The home must be in reasonable condition, and must meet HUD minimum property standards. In some cases, home repairs can be made after the closing of a reverse mortgage.
5. What's the difference between a reverse mortgage and a bank home equity loan?With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits, whichever is less. Generally, the more valuable your home, the older you are, the lower the interest, the more you can borrow. You don't make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes, insurance, and other recurring bills like utilities, but with an FHA-insured HUD Reverse Mortgage, you cannot be foreclosed on or forced to vacate your house because you "missed your mortgage payment."
6. Can the lender take my home away if I outlive the loan?No! Nor is the loan due. You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home's value.
7. Will I still have an estate that I can leave to my heirs?When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home belongs to you or to your heirs. None of your other assets will be affected by HUD's reverse mortgage loan. This debt will never be passed along to the estate or heirs.
8. How much money can I get from my home?The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home, the older you are, the lower the interest rate, the more you can borrow.
9. Should I use an estate planning service to find a reverse mortgage?HUD does NOT recommend using an estate planning service, or any service that charges a fee just for referring a borrower to a lender! HUD provides this information without cost, and HUD-approved housing counseling agencies are available. Before you agree to pay a fee for a simple referral, call 1-800-569-4287, toll-free, for the name and location of a HUD-approved housing counseling agency near you. When in doubt, call Harry Gordon on (800) 486-8786 extension 709 toll-free!
10. How do I receive my payments?You have five options:
- Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
- Term - equal monthly payments for a fixed period of months selected.
- Line of Credit - unscheduled payments or in installments, at times and in amounts of borrower's choosing until the line of credit is exhausted.
- Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the home.
- Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.
This page is adapted from the U.S. Department of Housing and Urban Development's Homes and Communities Web site.
