What is a reverse mortgage?
A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you have built up over years with home mortgage payments can now be paid back to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer uses the home as their principal residence. A HECM reverse mortgage is a government insured and regulated loan program.
If I get a reverse mortgage, does that mean that the Bank owns my house?
No. Your name remains on the title and you have the same ownership rights that you have with any other type of mortgage.
How can I qualify for an FHA-backed reverse mortgage?
To be eligible for a reverse mortgage, the FHA requires that you be a homeowner 62 years of age or older, own your home, and you must live in the home as your “primary residence”. You are further required to receive consumer information counseling prior to obtaining the loan. Mortgage Linc can provide you with a list of HUD-approved counseling agencies convenient for you.
Can I apply if I didn’t buy my present house with FHA mortgage insurance?
Yes. It doesn’t matter if you had an FHA-insured mortgage before or not. It doesn’t matter what type of mortgage you have had in the past or if you currently have one or not. Your new reverse mortgage will be FHA-insured.
What types of homes are eligible?
To be eligible for a reverse mortgage, your home must be a single family home or a 1-4 unit home with one unit occupied by you. HUD-approved condominiums and manufactured homes that meet FHA requirements can also be eligible.
Can the lender take my home away if I outlive the loan?
No! You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. Also, you can never owe more than the value of the home at the time you or your heirs sell it.
Do I still own my home?
Yes. You will retain the title and ownership during the life of the HECM loan, and you can sell your home at any time. The loan will not become due as long as you continue to meet loan obligations such as living in the home as your primary residence, maintaining the home according to the FHA requirements, and paying property taxes and homeowners insurance.
Does my home need to be clear of any existing mortgages?
No. Actually, many borrowers use the HECM loan proceeds to pay off an existing mortgage and eliminate monthly mortgage payments.
Do I have to repay the loan?
Yes, eventually. However, repayment is not due during the life of the loan provided you meet the loan obligations such as living in the home as your primary residence, maintaining the home according to FHA requirements, and continuing to pay required property taxes and insurance. Repayment is limited to the lesser of the value of your home or the loan balance, provided the home is sold.
Do I have to make monthly mortgage payments?
No. Unlike a traditional home mortgage loan or equity loan, you do not make monthly mortgage payments, and any existing mortgage will be paid off using the loan proceeds.
What are the options for receiving my proceeds?
You can receive your money in a lump sum, a monthly check, a line of credit or a combination of these options.
Do I have to pay income taxes on the proceeds?
No. HECM loan proceeds are tax-free as it is not considered income. However, it is recommended that you consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.
Is the use of my loan proceeds restricted?
No. The net cash proceeds from the HECM loan can be used for any reason. Many borrowers use it to supplement their retirement income, pay off debt, pay for medical expenses or remodel their home.
How much do I have to pay out of pocket?
You do not have to pay anything up front for a HECM loan, except the cost of HUD required counseling, if applicable. All other costs such as origination fees, third-party closing costs, and FHA mortgage loan insurance premiums, can be financed as part of the loan.
Does the loan affect my eligibility for Social Security or Medicare benefits?
A HECM loan usually does not affect eligibility for entitlement programs, such as Medicare or Social Security benefits. Some needs based government benefits, such as Medicaid and Supplemental Security Income (SSI), may be affected by a HECM loan. You should consult a qualified professional to determine if there would be any impact to your government benefits.
What is the difference between a HECM and a HELOC loan?
With a traditional mortgage loan or Home Equity Line of Credit (HELOC), you must meet minimum income and credit requirements to qualify for the loan, and you have to make monthly loan payments. With a HECM loan, there are generally no credit score requirements, nor do you make monthly mortgage loan payments.
When will I be required to repay my HECM loan?
The HECM loan will come due when the home is no longer your primary residence. Below are additional examples of situations which would trigger HECM repayment:
- You sell your house or transfer the title to another person
- If you do not occupy your home for a majority of the calendar year
- You pass away and there is no other borrower on the title
- You do not maintain the home according to FHA requirements
- You do not pay required property taxes and/or homeowners insurance
“These materials are not from HUD or FHA and were not approved by HUD or a government agency.”