Reverse Mortgage

Written by Martha C. Gomez, Senior Loan Officer

A reverse mortgage is a type of home loan that allows homeowners to convert a portion of their home equity into cash without having to sell their home. It’s a loan that is secured by the value of your home. Unlike a traditional mortgage where you make monthly payments to the lender, with a reverse mortgage, the lender makes payments to you. This can be useful for retired individuals or older homeowners who want to supplement their income or have a source of funds for various expenses. It’s important to note that the loan needs to be repaid when the homeowner sells the home, moves out, or passes away.

What are the requirements?

• The home must be Owner occupied.

• At least 1 spouse must be 62years+

• The loan can fund directly into a Trust (if any)

• Homeowners Insurance and Property Taxes must be paid outside of escrow (by borrower directly)

Property Types:

• Condominiums are OK if FHA approved.

• MF Homes are OK if the Park is FHA approved.

Income:

• Most borrowers’ quality on Social Security Income only.

• No DTI requirements.

• Fico Scores are not determining factors.

• We can use Residual Income to qualify if regular income is Short. (R.I. are assets in a bank, but do not have to be spent down.)

Payment Options:

• Line of Credit

• Fixed Rate (has the lowest LTV)

• Monthly payments

Expenses:

Out-of-pocket fees are Appraisal, and Reverse Mortgage Counseling Session.

When is the loan repaid or due?

• Not due or payable until the last surviving spouse has passed away.

• When/if borrower decides to move out of the house.

HECM Refinance

• It is possible anytime there is a benefit to the borrower to do so.

Pre-payment Penalties

• None. Ever.

Some potential drawbacks or risks associated with taking out a reverse mortgage include:

1. Accrued interest: With a reverse mortgage, the interest on the loan accumulates over time. This means that the amount owed can significantly increase over the years, potentially reducing the equity in your home.

2. Reduced inheritance: Since a reverse mortgage needs to be repaid when the homeowner sells the home or passes away, it can potentially reduce the amount of inheritance you can leave for your heirs.

3. Borrowing limits: The amount of money you can borrow through a reverse mortgage is often limited based on the value of your home, your age, and other factors. This can restrict your access to funds if you have high expenses or need a large amount of money.

4. Home ownership requirements: With a reverse mortgage, you are still responsible for property taxes, insurance, and maintenance on your home. Failing to meet these obligations can lead to foreclosure.

5. Potential impact on government benefits: The proceeds from a reverse mortgage can affect your eligibility for certain government benefits, such as Medicaid or Supplemental Security Income (SSI). It’s important to understand how a reverse mortgage may impact your specific situation.

6. Long-term commitment: If you decide to move out of your home permanently or sell it, you will need to repay the reverse mortgage loan. This can be a constraint if you plan to downsize or relocate in the future.

It’s crucial to carefully consider these potential risks and drawbacks before deciding to take out a reverse mortgage. Consulting with financial advisors or professionals specializing in reverse mortgages can provide further guidance based on your individual circumstances.