Reverse Mortgage Questions and Answers
Following are answers to the most common questions asked by consumers about reverse mortgages - with the answers. The questions are divided into three categories: questions to ask before getting a reverse mortgage; questions applicable after getting a reverse mortgage; and questions about repaying a reverse mortgage.
If you have other questions and you cannot find the answer here, our reverse mortgage specialists are here to help. Call us toll free at 1-866-704-2826.
What are the eligibility requirements for a Reverse Mortgage?
Unlike a traditional mortgage with many credit and income requirements, to qualify for a reverse mortgage, you must simply:
If one spouse or co-owner is under 62, that person's name must be removed from the title so that the other person can qualify for the reverse mortgage.
- Be at least 62 years old.
- Be a homeowner and have some equity in your home. You may still qualify even if there is a balance on your first mortgage. Eligible properties are single-family homes, qualified condominiums, townhouses, manufactured homes, and 1-to-4 family owner-occupied residences.
If one spouse or co-owner is under 62, that person's name must be removed from the title so that the other person can qualify for the reverse mortgage.
How much money can I get with a Reverse Mortgage?
This will depend on several factors such as your age, the market value of your home, the amount of equity that you have in your home and the interest rates when you took out the reverse mortgage. Some other factors would be the type of reverse mortgage product chosen and also the payment option you select.
What payment options are available with a Reverse Mortgage?
You get to decide how you want to receive the money from a reverse mortgage. Your payment options are:
- A lump sum payment made upfront
- A line of credit
- Monthly payments that are fixed for as long as you remain in your home (or a predetermined, shorter period); or, if you choose,
- A combination of fixed monthly income and line of credit.
How much does a Reverse Mortgage cost and what are the closing fees?
The costs incured with a reverse mortgage are very similar to a regular mortgage. You will be charged an origination fee, an appraisal fee, and other standard closing costs. In addition, for FHA Home Equity Conversion Mortgages, you will be charged a mortgage insurance premium. However, in most cases, these fees can be financed into the reverse mortgage, leaving you with little out-of-pocket expense.
Will I need an appraisal for a Reverse Mortgage?
Yes. How much money you get from a reverse mortgage is determined by the value of your home. Therefore, an appraisal is required. The lender normally orders the appraisal, which is paid for by the homeowner at the time of application.
Do I need a lawyer to apply for a Reverse Mortgage?
Although legal counsel is not required, you are encouraged to seek the advice of a legal, tax, or financial advisor before getting a reverse mortgage.
Am I required to obtain counseling before I get a Reverse Mortgage?
Yes. Counseling is required for all types of reverse mortgage products. The purpose of counseling is to insure that you are informed about reverse mortgages and your options. Your reverse mortgage lender can give you the name of a local counseling agency or a qualified telephone counselor.
Is the money from a Reverse Mortgage taxable income?
Funds from a reverse mortgage are tax-free. It's your money, paid back to you from the equity in your home, not additional income.
Will a Reverse Mortgage affect my Social Security benefits?
A reverse mortgage will not affect regular Social Security or Medicare benefits. However, if you choose to receive a lump sum payment from a reverse mortgage, any amount retained the month after you get it would count as a resource and could affect Medicaid eligibility. You are encouraged to consult a reverse mortgage lender or a Medicaid expert.
Who owns title to my home while I have a Reverse Mortgage?
You retain title to your home while your reverse mortgage is outstanding, not the bank, just the same as a regular purchase mortgage.
Do I have to pay anything while I have a Reverse Mortgage?
No. The lender pays you. However, you must keep up the payments on your homeowner's insurance and property taxes, as well as maintaining the condition of your home.
Are there restrictions on how I can use the money?
No. Borrowers are free to use the funds from a reverse mortgage for any purpose they choose. Some options are:
- pay for health care expenses
- supplement retirement income
- finance home improvements
- pay for a grandchilds's college tuition
- purchase a recreational vehicle
- start a small business
- pay off mortgage and credit card debt
- travel
How much will I owe when the Reverse Mortgage comes due?
The amount owed to the lender typically includes the amount borrowed to date, the amount of accrued interest, accrued mortgage insurance premiums (for the HECM), servicing fees, and any other costs and fees financed as part of the loan amount.
What if I move out of my house after I get a Reverse Mortgage?
If the borrower permanently moves out of the home the reverse mortgage comes due and must be repaid. Also, if you sell your house the reverse mortgage must be repaid.
What happens when my house gets passed to my heirs?
If the home is passed to your heirs, the reverse mortgage comes due. Your heirs can pay the balance due and keep the home, or sell the home and pay off the reverse mortgage. Any excess sales proceeds above and beyond that owed on the reverse mortgage can be kept.
