Things to Know About Reverse Mortgages


TOP TEN

1 | What are they? Reverse mortgages let homeowners convert a portion of the equity in their home into cash. No repayment is required as long as the borrower(s) use the home as their principal residence.

2 | Who’s eligible? HUD’s Federal Housing Administration (FHA) requires that a borrower be a homeowner, 62 years of age or older; own the home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and live in the home. CPAs can refer clients to the Housing Counseling Clearinghouse (1-800-569-4287) for the name and phone number of HUD-approved counseling agencies and FHA-approved lenders.

3 | Must the house have FHA mortgage insurance? No, but it must meet HUD minimum property standards.

4 | What types of homes are eligible? Homes must be single-family dwellings or two-to-four-unit property that the borrower owns and occupies. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved. It is possible for condominiums to qualify under the Spot Loan program. Homes must be in reasonable condition.

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, homeowners must have sufficient income-vs.-debt ratio to qualify and they must make monthly payments. A reverse mortgage is different in that it pays the homeowner, and it’s available regardless of current income. There are no monthly payments because the loan is not due as long as the house is the principal residence.

6 | Can the lender take the house if the borrower outlives the loan? No. Borrowers do not repay the loan as long as they continue to live in the house and keep the taxes and insurance current. They never owe more than the value of the home.

7 | Is there no estate to leave to heirs? When borrowers sell their homes or no longer use them as a primary residence, they repay the cash received from the reverse mortgage, plus interest and other fees. Any remaining equity belongs to them or their heirs.

8 | How much money can a borrower get? The amount depends on the age, the current interest rate, other loan fees, the appraised value of the house and FHA’s mortgage limits for each geographical area. Generally, the more valuable the home and the older the borrower, the bigger the mortgage they can get.

9 | Should a client use an estate-planning service to find a reverse mortgage? HUD-approved housing counseling agencies are available at no or at minimal cost, to provide information, counseling and free referral to a HUD-approved lender. Call 1-800-569-4287.

10 | How does a client receive payments? There are five options:

Tenure. Equal monthly payments as long as at least one borrower occupies the property as a principal residence.

Term. Equal monthly payments for a fixed period of months.

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.

Source: HUD, www.hud.gov .

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