In this article, we’ll go through 10 key points so that you're armed with all of the knowledge necessary when considering whether a reverse mortgage is right for your situation!
There Are Different Types of Reverse Mortgages
Learning about the various types of financial solutions should be a priority when uncovering reverse mortgage facts. Here are the primary types:
Single-Purpose Reverse Mortgage - Typically offered by local, state, and non-profit agencies, this type of reverse mortgage requires the proceeds to be used for a state-specific purpose.
Home Equity Conversion Mortgage (HECM) - This federally insured option requires a pre-approval counseling session and is the most common type of reverse mortgage. This is the most popular and widely useful type of reverse mortgage!
- Proprietary Reverse Mortgage - This type of reverse mortgage is available to homeowners with high-value homes and is not insured by the government. It is offered by private lenders.
Key points to note about the different types of reverse mortgages:
Single-Purpose Reverse Mortgage is offered by local, state, and non-profit agencies and has a specific usage requirement.
HECM is a federally insured option that mandates pre-approval counseling.
- Proprietary Reverse Mortgage is available for homeowners with high-value homes but lacks government insurance.
There are Different Ways to Receive Your Proceeds
The various ways in which you can receive the payout from a reverse mortgage loan are important facts to consider. Here are the different options explained in detail:
Lump-Sum Plan - This plan allows you to receive a one-time payment of up to 60% of the principal limit during the first year of the loan. This payment can be in the form of a fixed-rate loan or an adjustable-rate loan. Additionally, if your maximum obligations exceed the 60% limit, an additional 10% of the limit may be made available to you.
Partial Lump Sum - With this plan, you can choose to take a lump sum payment at closing, which is the amount available to you based on your principal limit. The remaining balance can then be accessed through another payment plan, such as monthly payments or a line of credit.
Term - This plan allows you to receive equal monthly payments over a fixed period of time that you choose. This provides a predictable source of income for a set number of months.
Tenure - In this plan, you receive equal monthly payments for the rest of your life, regardless of how long you live or how much you owe on the reverse mortgage loan. This provides a steady stream of income for as long as you live.
- Line of Credit - This plan is a popular option as it allows you to have a credit line that you can draw upon as needed, up to your principal limit. There are no requirements for a minimum or maximum withdrawal amount, giving you flexibility in managing your finances.
The Eligibility Criteria
To be eligible for a reverse mortgage, the primary homeowner must be 62 years of age or older. However, even if a spouse is under 62, you may still qualify if you meet other eligibility criteria.
Here are the requirements for obtaining a reverse mortgage:
Use the property as your primary residence - To be eligible for a reverse mortgage, you must live in the home that you are seeking to mortgage as your primary residence. This means that the home must be your main place of residence and not a vacation home or investment property.
Pay off existing mortgage - If you have an existing mortgage on your home, you are required to pay it off using the proceeds from your reverse mortgage. This ensures that the reverse mortgage becomes the primary lien on the property.
Maintain property condition - You are responsible for maintaining your property in good condition. This includes keeping the property in a habitable condition, making necessary repairs, and keeping up with regular maintenance.
Consumer information session - Before obtaining a reverse mortgage, you are required to participate in a consumer information session led by a HUD-approved counselor. This session provides important information about reverse mortgages, including their benefits and risks, to help you make an informed decision.
- Stay current on obligations - You must remain current on property taxes, insurance premiums, and other mandatory legal obligations related to the property. Falling behind on these obligations can result in defaulting on the reverse mortgage.
There are Expenses You will have to Continue Paying
When considering a reverse mortgage, it's important to keep in mind that there are ongoing expenses that you will be responsible for.
Unlike regular mortgages, where insurance and taxes are typically paid out of an escrow account, with a reverse mortgage, you will need to directly pay these expenses.
Here are some key points to understand:
Insurance and Taxes - As a homeowner with a reverse mortgage, you are required to continue paying for homeowner's insurance and property taxes on your property. This means that you will need to budget for these expenses and ensure that you have the means to pay them in a timely manner. Failure to pay these obligations can result in defaulting on your reverse mortgage, which can have serious consequences.
Homeowner's Association (HOA) Fees - If your property is part of a homeowner's association, you will also need to continue paying any HOA fees that are applicable. These fees are typically used to cover the cost of maintaining common areas, amenities, and other shared expenses. It's important to be aware of the HOA fees and include them in your budget to ensure that you can stay current on these obligations.
- Other Home-related Expenses - In addition to insurance, taxes, and HOA fees, you may also have other home-related expenses to consider, such as regular maintenance and repairs. Keeping your property in good condition is important to maintain its value and comply with the terms of your reverse mortgage.
It is not Solely Based on Credit Score or Income
One of the significant advantages of reverse mortgage loans is that they are not solely based on credit score or income, which sets them apart from traditional mortgage loans.
Unlike regular mortgages that have strict income requirements and credit score mandates, reverse mortgages offer more flexibility in these areas.
While there are still some requirements, such as demonstrating the ability to continue paying taxes and insurance on the home, the income and credit score criteria for reverse mortgages are more lenient.
This can be especially beneficial for seniors who may have lower incomes or credit scores due to retirement or other reasons. Reverse mortgages primarily focus on the equity you have in your home rather than your income or credit score, making them accessible to a wider range of borrowers.
However, it's important to note that while reverse mortgages offer more flexibility, it's still essential to understand the specific requirements and work with a reverse mortgage counselor or financial advisor to determine if a reverse mortgage is a suitable option for your financial situation.
You Must Meet With an FHA-Approved Counselor
One important requirement for obtaining a reverse mortgage is that every potential borrower must meet with an independent, FHA-approved counselor as part of the loan process.
This is a crucial step to ensure that borrowers fully understand all the facts, processes, and terms associated with a reverse mortgage.
The FHA-approved counselor serves as a knowledgeable and objective resource who can provide valuable guidance and information about the loan.
During the counseling session, the counselor will explain the details of the reverse mortgage, including how it works, the costs involved, and the potential risks and benefits.
They will also review the borrower's financial situation, including their income, expenses, and obligations, to help the borrower understand the potential impact of a reverse mortgage on their overall financial picture.
The counselor will answer any questions the borrower may have and provide personalized advice based on the borrower's specific circumstances.
Reverse Mortgages Right of Recession
The right of rescission is an important aspect to be aware of when considering a reverse mortgage. This right gives borrowers the ability to change their mind and cancel the loan within a specific time frame after it has been executed.
In general, borrowers have three calendar days from the date of loan execution to exercise their right of rescission and cancel the reverse mortgage.
It's important to note, however, that the right of rescission may not be applicable to all types of reverse mortgages, particularly HECM for purchase transactions.
HECM for purchase is a specific type of reverse mortgage that allows seniors to purchase a new home using a reverse mortgage loan.
In many cases, the right of rescission may not apply to HECM for purchase transactions, meaning that borrowers may not have the option to cancel the loan once it has been executed.
It's crucial to thoroughly understand the terms and conditions of the right of rescission, including the specific timeframe and any exceptions that may apply to the type of reverse mortgage being considered.
All HECM Lenders Must follow HUD Rules
When considering a reverse mortgage, it's important to choose a lender who follows the rules and regulations set forth by the U.S. Department of Housing and Urban Development (HUD).
MakeFloridaYourHome is a reputable lender that prides itself on adhering to HUD rules and providing expert guidance throughout the reverse mortgage process.
HUD has established strict guidelines for reverse mortgages to protect borrowers and ensure that they fully understand the terms and conditions of the loan.
These rules cover various aspects of reverse mortgages, including eligibility requirements, loan terms, and borrower protections.
Lenders who are approved by HUD, such as MakeFloridaYourHome, must follow these rules to ensure compliance and provide the best possible service to borrowers.
By choosing a lender that follows HUD rules, such as MakeFloridaYourHome, borrowers can have peace of mind knowing that they are working with a reputable and reliable lender.
There can be Additional Charges that Vary
It's important to be aware that in addition to the mortgage insurance premium, there may be other charges associated with reverse mortgages that can vary among lenders. These costs can include loan costs, origination fees, servicing fees, interest rates, and closing costs.
Loan costs refer to any fees or charges associated with obtaining the reverse mortgage, and these can vary depending on the lender.
Origination fees are fees charged by the lender for processing and originating the reverse mortgage, and while they are currently regulated by law for HECM reverse mortgages, the specific amount may vary among lenders.
Servicing fees are charges for the ongoing management and administration of the reverse mortgage, such as sending monthly statements or managing the disbursement of funds.
Interest rates can also vary among lenders, and it's important to understand how the interest rate will impact the overall cost of the reverse mortgage.
Closing costs are expenses incurred during the closing of the reverse mortgage, such as appraisal fees, title search fees, and attorney fees. These costs can also vary depending on the lender and other factors.
It's crucial to carefully review and compare the fees and costs associated with reverse mortgages when considering different lenders. Make sure to ask questions and clarify any discrepancies to fully understand the financial implications of the reverse mortgage.
Working with a reputable lender, such as MakeFloridaYourHome, can help ensure transparency and provide clear explanations of all costs and charges associated with the reverse mortgage process.
The Amount you Can Borrow Varies
The amount you can receive from a reverse mortgage depends on various factors that include the current market value of your home, the type of reverse mortgage you choose, your age, the current interest rates, associated costs, and your financial assessment.
These factors collectively determine the specific amount you may be eligible to receive through a reverse mortgage.
It's important to note that with a Home Equity Conversion Mortgage (HECM), you will never owe more than the home is worth when the loan is repaid.
There are also limitations on the amount of available funds a borrower can take at closing, which is designed to help preserve your home equity over time.
While a reverse mortgage can be a suitable option for some individuals, it may not be ideal for everyone. It's essential to consider these reverse mortgage facts to gain a better understanding of this financial solution.
However, it's always wise to seek expert advice and consult with a qualified professional before committing to any reverse mortgage program.
MakeFloridaYourHome, as a reputable reverse mortgage lender, can provide expert guidance and assist you in understanding the intricacies of reverse mortgages.
Our team of experienced professionals can help you navigate the process and ensure that you are making informed decisions based on your specific financial situation and needs.