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Top Ten Things to Know if You're Interested in a Reverse Mortgage
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Reverse Mortgages are becoming popular in America. The U.S. Department of Housing and
Urban Development (HUD) created one of the first. HUD's Reverse Mortgage is a federally-
insured private loan, and it's a safe plan that can give older Americans greater financial
security. Many seniors use it to supplement social security, meet unexpected medical
expenses, make home improvements, and more.
Since your home is probably your largest single investment, it's smart to know more about
reverse mortgages, and decide if one is right for you!
1. What is a reverse mortgage?
A reverse mortgage is a special type of home loan that lets a homeowner convert
a portion of the equity in his or her home into cash. The equity built up over
years of home mortgage payments can be paid to you. But unlike a traditional
home equity loan or second mortgage, no repayment is required until the
borrower(s) no longer use the home as their principal residence. HUD's reverse
mortgage provides these benefits, and it is federally-insured as well.
2. Can I qualify for a HUD reverse mortgage?
To be eligible for a HUD reverse mortgage, HUD's Federal Housing Administration
(FHA) requires that the borrower is a homeowner, 62 years of age or older; own
your home outright, or have a low mortgage balance that can be paid off at the
closing with proceeds from the reverse loan; and must live in the home. You are
further required to receive consumer information from HUD-approved counseling
sources prior to obtaining the loan.
3. I apply if I didn't buy my present house with FHA mortgage insurance?
Yes. It doesn't matter if you didn't buy it with an FHA-insured mortgage. Your
new HUD reverse mortgage will be a new FHA-insured mortgage loan.
4. What types of homes are eligible?
Your home must be a single family dwelling or a two-to-four unit property that
you own and occupy. Townhouses, detached homes, units in condominiums and
some manufactured homes are eligible. Condominiums must be FHA-approved. It
is possible for individual condominiums units to qualify under the Spot Loan
program.
5. What's the difference between a reverse mortgage and a bank home equity loan?
With a traditional second mortgage, or a home equity line of credit, you must
have sufficient income versus debt ratio to qualify for the loan, and you are
required to make monthly mortgage payments. The reverse mortgage is different
in that it pays you, and is available regardless of your current income. The
amount you can borrow depends on your age, the current interest rate, and the
appraised value of your home or FHA's mortgage limits for your area, whichever
is less. Generally, the more valuable your home is, the older you are, the lower
the interest, the more you can borrow. You don't make payments, because the
loan is not due as long as the house is your principal residence. Like all
homeowners, you still are required to pay your real estate taxes and other
conventional payments like utilities, but with an FHA-insured HUD Reverse
Mortgage, you cannot be foreclosed or forced to vacate your house because you
"missed your mortgage payment."
6. 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. You can
never owe more than your home's value.
7. Will I still have an estate that I can leave to my heirs?
When you sell your home or no longer use it for your primary residence, you or
your estate will repay the cash you received from the reverse mortgage, plus
interest and other fees, to the lender. The remaining equity in your home, if any,
belongs to you or to your heirs. None of your other assets will be affected by
HUD's reverse mortgage loan. This debt will never be passed along to the estate
or heirs.
8. How much money can I get from my home?
The amount you can borrow depends on your age, the current interest rate, and
the appraised value of your home or FHA's mortgage limits for your area,
whichever is less. Generally, the more valuable your home is, the older you are,
the lower the interest, the more you can borrow.
9. Should I use an estate planning service to find a reverse mortgage?
I've been contacted by a firm that will give me the name of a lender for a "small
percentage" of the loan? HUD does NOT recommend using an estate planning
service, or any service that charges a fee just for referring a borrower to a
lender!
10. How do I receive my payments?
You have five options:
• Tenure - equal monthly payments as long as at least one borrower lives and continues to
occupy the property as a principal residence.
• Term - equal monthly payments for a fixed period of months selected.
• Line of Credit - unscheduled payments or in installments, at times and in amounts
of borrower's choosing until the line of credit is exhausted.
• Modified Tenure - combination of line of credit with monthly payments for as long
as the borrower remains in the home.
• Modified Term - combination of line of credit with monthly payments for a fixed
period of months selected by the borrower.
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