Home and Garden: Debunking Reverse Mortgage myths — Get the facts

Submitted by The Clayton Reverse Mortgage Team at Fairway Independent Mortgage Corp

When reverse mortgage loans were first introduced in the early 1960s, there were no government programs backing them. Today, most reverse mortgages are insured through the Federal Housing Administration (FHA)'s Home Equity Conversion Mortgage (HECM) Program.

In recent years, the FHA and U.S. Department of Housing and Urban Development (HUD) have made many amendments to the HECM program to improve consumer protections. If you ask people what they think about reverse mortgages, you’re likely to get some strong opinions. Unfortunately, those opinions are often based on misconceptions.

Here are some of the most common myths around reverse mortgages:

Myth: I could lose my house and be forced to move.

Fact: As long as all loan terms are met, you cannot be forced to sell the home. Terms include living in the house as your primary residence, maintaining the home and paying home expenses like taxes and insurance. Some circumstances will cause the loan to mature and the balance to become due and payable. Credit is subject to age, property and some limited debt qualifications. Program rates, fees, terms and conditions are not available in all states and subject to change.

Myth: Your home will be taken away when you pass away, and the family loses the right to the property.

Fact: When you permanently move out of the home, whether you sell it or pass away, neither you, your estate nor your heirs are responsible for paying the deficit if the balance owed on your reverse mortgage exceeds the home value. However, should your heirs want to keep your home, they may purchase it for 95 percent of the current appraised value.

Myth: I will be giving up the deed to my own home, and I will not own it anymore.

Fact: The deed is still in your name so you can move whenever you want. Most reverse mortgages are federally insured through the FHA. As long as you pay your property taxes, homeowner's insurance and maintain your home, it cannot be foreclosed on. However, you are allowed to change your mind and sell the house whenever you want. Only you will make the decision, not the lender or the government.

Myth: My children could get stuck with a big mortgage if I live too long.

Fact: Since this is a non-recourse loan, even if your home value decreases, you and your children can never be liable for any amount over the value of the home because the loan is guaranteed by the Federal Housing Administration (FHA) Mortgage Insurance Fund (FHA/HUD).

Myth: A reverse mortgage loan should only be considered as a loan of last resort.

Fact: Many folks think a reverse mortgage can only be used when all other accounts and options are exhausted. While it can be a great way to add cash flow for a borrower 62 and better that has fallen on hard times, a reverse mortgage is also an appealing option when used earlier in retirement to help avoid future problems by keeping the home safe with the retiree "aging in place."

Myth: To qualify for a reverse mortgage, both spouses need to be older than 62.

Fact: Only one borrower must be 62 or older — except in Texas, where both spouses need to be at least 62. The home must be a primary residence (live there more than six months per year) and either have significant equity or be owned outright to qualify. The property must be a single-family home, two-to four- unit dwelling or FHA-approved condo. Borrower(s) must receive a reverse mortgage counseling certification from a

HUD-approved counseling agency.

Myth: If you don't qualify for traditional financing, you will not be eligible for a reverse mortgage loan.

Fact: A reverse mortgage loan does not have any income qualifications such as needing a certain Debt To Income (DTI) ratio or credit score requirements. In 2015, FHA added financial assessment requirements to determine if a Life Expectancy Set Aside (LESA) will be necessary or not. The residual income requirement must be met with regular income or compensating factors to proceed with the loan. Just because a LESA may be required, it will not prevent you from getting a reverse mortgage loan if you have enough equity or cash reserves to bring to closing.

Want to learn more about reverse mortgages? Visit fairwayofthetriangle.org/reverse-mortgage or call The Clayton Reverse Mortgage Team at 919-879-3040.