What is a reverse mortgage?
A reverse mortgage is a special type of home loan that enables homeowners ages 62 and over to access their home's equity, receiving either a monthly income, lump sum of cash or a line of credit. There are no income or credit qualifications and there is no repayment until the homeowner permanently leaves the home. The borrower retains full ownership of the property.
What are some of the key features of a reverse mortgage?
||There are no credit or income requirements |
||The loan is due for repayment when you permanently move out or sell the property or upon the death of the borrowers. |
||Loan proceeds are not taxable and do not effect Medicare or Social Security |
||The cost of loan is dependent on how long you reside in the property. |
||Equity release amounts are based on age and home value and can range from 25 % to 75 % of the existing home equity. |
What are the qualifications?
Applicant(s) must be at least 62 years of age and must own their home free and clear or nearly free and clear. In many cases borrowers use the reverse mortgage to pay off existing liens or mortgages, which eliminates their monthly loan payments. Reverse mortgages can be done on single-family homes, condos, planned unit developments, and owner-occupied 2-, 3-, and 4-flats. Borrowers must also live in their home as their primary residence. Mobile homes have specific requirements that must be met in order to be eligible for reverse mortgages. Please contact us for a list of these requirements. Commercial properties are currently ineligible for reverse mortgages.
How is the loan value determined?
The loan amount is based on the home value, the number and age of the homeowner(s), the current interest rate and the maximum allowable home value. The maximum allowable home value varies depending on the reverse mortgage program selected. The FHA-Insured reverse mortgage Program has limits, called Maximum Claim Amounts, ranging from $132,000 to $280,749. This amount varies by county. The Fannie Mae Home Keeper program has a nationwide limit of $333,700. The limits in Chicago for the FHA are $237,500, and for Fannie Mae, $333,700.
How is the amount of benefit calculated?
The amount of benefit that you will qualify for, will depend on your age at the time you apply for the loan, the type of reverse mortgage you choose, the value of your home, current interest rates, and for some products, where you live. As a general rule, the older you are and the greater your equity, the larger the reverse mortgage benefit will be.
Does the lender take my home when I die?
Absolutely NOT! When the last surviving spouse passes away, the loan becomes due. The heirs or estate can then sell the house, pay off the reverse mortgage balance (just as you would with a conventional loan on the property), and keep the remaining equity. If the loan balance exceeds the value of the property, your estate can deed the property back to the FHA and walk away with no further obligation.
What is the Appraisers Role in the process? An appraiser is responsible for assigning a current market value to each home that's used as collateral for a reverse mortgage. In addition to placing a value on the home, an appraiser must also make sure there are no major structural defects, such as a bad foundation, leaky roof, or termite damage. Federal regulations mandate that a senior's home be structurally sound, and comply with all home safety codes, in order for the reverse mortgage to be made. If the appraiser uncovers property defects that require repair, the borrower must hire a contractor to complete the repairs. Once the repairs are done, the appraiser will revisit the property to make sure the repairs have been completed. The cost of the repairs may be financed in the loan and completed after the reverse mortgage is made.