What Is a Reverse Mortgage?
Borrowers Ask Kate!
What is a reverse mortgage? Simply put, these specialty mortgages are equity loans created to produce income for senior homeowners, yet without a monthly payment. What this means is that homeowners over the age of 62 can create income by tapping into equity built up in their homes over the years.
If my description of a reverse mortgage sounds like you could start receiving stable income vs. making monthly house payments, you heard correctly!
Who is eligible? If you are over 62 years old, live in your home, have a decent amount of equity, and your existing mortgage is close to being paid off, you may qualify. Similar to a traditional 'forward' mortgage, credit history, income, assets, living expenses, and timely payment of property taxes and homeowner's insurance are also verified before issuing an approval.
Reverse Mortgage Benefits
Now that we've discussed who is eligible for a reverse mortgage, let's look at some parameters to this unique financing for seniors.
- Homeowner remains in title to the home.
- Provides stable income after peak earning years.
- Minimum age requirement reserves program for seniors.
- Preserves dignity by keeping seniors in their homes.
- No mortgage payment after retirement.
- FHA insured option offers stable loan program.
- Homeowners remain free to improve their homes.
- Homeowners pay their own property taxes.
- Homeowners pay their own homeowner's insurance.
- Postpones selling the house.
- Medicare is not affected by increase in income.
- No prepayment penalty upon refinancing, selling, or paying off house.
- Pre-counseling is available and strongly encouraged if not required.
Reverse Mortgage Repayment and Your Heirs
Do you know this answer? Since reverse mortgages require no repayment by the homeowner, how does the loan get repaid by heirs?
For the answer to this question, go next to Reverse Home Mortgage Information and Your Heirs.
Qualifying Age for Reverse Mortgage and Nonborrowing Spouses
By Jerry C. from Tulsa, OK
The homeowner is on the deed and his wife is not on the deed. The wife is under 62 years of age.
Can the homeowner qualify for a Reverse Mortgage? He is 80 years old.
Ask Kate answers: Qualifying Age for Reverse Mortgage and Nonborrowing Spouses
HUD states that homeowners need to be at least 62 years old to be eligible for the reverse mortgage program. Having a spouse under 62 will not prevent loan approval but the spouse would not be listed on the mortgage.
Although rules have changed protecting certain nonborrowing spouses (and are subject to more change in the future), you must read the fine print very carefully to determine if the wife will qualify to remain in the house should the loan be called due and payable, for example, due to the death of the husband.
See FHA Reverse Mortgage Rules: Nonborrowing Spouses for more information.
Ask Kate About Reverse Mortgage Plans
By Najla L. from Mableton, Georgia 30126
Kate, I plan to refinance my home in 2014. I also plan to do a reverse mortgage in 2017 when I turn 62.
My question is, does it matter if the refinance loan in 2014 is a 15 or 30 year loan or VA loan? Is there a length of time that I must have on the refinance loan before I can do a reverse mortgage?
Thanks for you help.
Ask Kate answers: Reverse Mortgage Plans
For a home that is currently financed to be eligible for FHA's HECM reverse mortgage...
- The type of mortgage to be paid off is not a consideration.
- There is no seasoning guideline on the age of current financing, although individual lenders could add their own requirement called an overlay. See Infuriating Lender Overlays for an explanation.
- The balance of the loan must be paid off in full at closing with the reverse mortgage proceeds, cash, or gifts from family members.
You Can Ask Kate Too
As you may suspect, the appraised value is pivotal to the reverse mortgage approval decision. In fact, this is usually considered the most important qualifying parameter.
One of my Readers recently asked me how to increase his appraised value. Go here for my 7 property appraisal tips.
And remember, you can also Ask Kate a question!
Important: Senior homeowners should consult a financial planner, tax accountant, and/or attorney as applicable to evaluate their circumstances before financing with a reverse mortgage. Even if not a loan requirement, reverse mortgage counseling is highly recommended.
Aug 06, 18 11:58 AM
If you lock mortgage rates over the phone, how do you protect against excessive points and hidden closing costs? Learn what to do when your lock is threatened.
Aug 06, 18 11:53 AM
Getting a low down payment mortgage: Learn the first two steps to financing niche properties in resort areas. Tip: It's not about timing the real estate market!
Aug 06, 18 11:45 AM
Ask Kate's secrets to low mortgage payments help homeowners understand industry lingo related to refinancing. Learn how to get your best mortgage rate!