Seniors – The youngest homeowner must be at least 62 years old.
Adult Children – Do they have the financial resources to help their parents with their medical and living expenses? Is there a concern from other siblings as to inheriting the home or the equity? What are my parents wishes as to staying home if medical care is needed for an extended time?
A reverse mortgage is a loan product that allows senior homeowners to convert home equity into cash. Most reverse mortgages are provided by the Federal Housing Administration (FHA), as part of its Home Equity Conversion Mortgage (HECM) program.
With a reverse mortgage, you receive money from your mortgage company as a loan secured against the equity in your home. The money is paid to you in a lump sum, through a line of credit, or as monthly payments. Fees and interest are charged on the loan amount (or “loan proceeds”); therefore, over time the loan balance increases and your home equity decreases.
A reverse mortgage lets you use the value of your home to provide a source of income while allowing you to stay in your home. It may be an effective way to benefit from the money you’ve invested in your home over the years.
Eligible property types include single-family homes, 2-4 unit properties, manufactured homes (built after June 1976), condominiums and townhouses.
Yes, you still hold title to your home. The reverse mortgage is simply a mortgage against the title of the property. On title, the reverse mortgage will be recorded as a lien.
You must own a home, be at least 62 and have enough equity in your home. There are no medical requirements for applicants.
You may qualify for a reverse mortgage even if you still owe money on an existing mortgage. However, the reverse mortgage must be in a first lien position, so any existing indebtedness must be paid off. You can pay off the existing mortgage with a reverse mortgage, money from your savings or assistance from a family member or friend.
For Example, let’s say you owe $200,000 on an existing mortgage. Based on your age, home value and interest rates, you qualify for $250,000 under the reverse mortgage program. Under this scenario, you will be able to pay off ALL the existing mortgage and still have $50,000 left over to do as you wish.
You can choose to receive the money from a reverse mortgage all at once as a lump sum, fixed monthly payments either for a set term or for as long as you live in the home, as a line of credit or a combination of these.
The amount of funds you are eligible to receive depends on your age (or the age of the youngest spouse when there is a couple), appraised home value, interest rates, and in the case of the government program the FHA spending limit, which is currently $636,150. If your home is worth more, then the amount of funds you may be eligible for will be based on the $636,150 loan limit. In general, the older you are and the more valuable your home (and the less you owe on your home), the more money you can get.
During the first 12 months after closing, a borrower cannot access more than 60 percent of the available loan proceeds. In month thirteen, a borrower can access as much or as little of the remaining funds as he or she wishes.
The proceeds from a reverse mortgage can be used for anything, whether it’s to supplement retirement income to cover daily living expenses, repair or modify your home (i.e., widening halls or installing a ramp), pay for health care, pay off existing debts, cover property taxes, or for a vacation or RV. It’s your money.
All reverse mortgages require you to periodically certify that you continue to reside in the mortgaged property as your primary residence.
A married couple wants to purchase a home valued at $350,000. The youngest spouse is 62.
Purchase Price $350,000
Reverse Mortgage Available $175,000
Minimum Down Payment $175,000
Monthly Payment -0-