Reverse Mortgage Loan Blog

Q: What is a reverse mortgage?

A:A reverse mortgage is a special type of home loan that lets a homeowner use a portion of the equity in his or her home and convert it to cash. Unlike a traditional mortgage and home-equity loan, there is no repayment required until the borrowers no longer use the home as their principal residence. This program is federally insured and is a program sponsored by the Department of Housing and Urban Development.

Q: How do I qualify for a reverse mortgage?

A:To be eligible for a HUD reverse mortgage, the Federal Housing Administration requires borrowers to be 62 or older, own their home outright or have a low mortgage balance that can be paid off at the closing with the proceeds from the reverse loan, and that they live in the home. The homeowner also must receive consumer information from the HUD-approved counseling sources prior to closing the loan.

Q: What types of homes are eligible?

A:You must have a single-family dwelling or a two-to four-unit property that you own and occupy. Townhouses, detached homes and condominium units are eligible, but condominiums must be FHA approved.

Q: What is the difference between a reverse mortgage and a bank home-equity loan?

A:With a traditional second mortgage or home-equity line of credit you must have a sufficient income vs. debt ratio to qualify for the loan and you must make monthly mortgage payments. The reverse mortgage pays you and is available regardless of your 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. The FHA loan limit for a single- family home in Centre County is currently $280,000.

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 is the house is your principal residence. You must still pay your real estate taxes and other conventional payments, such as 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.

Q: How will this affect my estate?

A: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 any interest and other fees. The remaining equity of your home, if any, belongs to you or your heirs. None of your other assets will be affected by HUD’s reverse mortgage loan.

Q: Can a lender take my home away if I outlive the loan?

A:No. You do not need to repay the loan as long as you live in the house and keep the taxes and insurance current. You can never owe more than the home’s value; all reverse mortgages have a “nonrecourse” feature, which means that the total amount owed can never exceed your home’s appraised value. If it does, the lender or the federal government will absorb the loss.

Q: How do I receive the proceeds?

A:You have five options to receive the funds.

•Equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.

•Equal monthly payments for a fixed period of months selected.

•You can have a line of credit and take the money as necessary until the line of credit is exhausted.

•You can do a combination of a line of credit with monthly payments to you for as long as the borrower remains in the home.

•You can do a combination of a line of credit with monthly payments for a fixed period of months selected by the borrower.

Q: Are there fees involved? A:Yes, there are fees involved and they can be financed into the loan; they will be considered part of the loan proceeds. The only out-of-pocket expense you should incur would be for an appraisal, which is usually about $325 depending on your market.

Q: Do I need to get counseling?

A:Yes, it is a requirement of the loan that an independent third party make sure you understand the program and review the alternative options before you apply for a reverse mortgage.

Q: Are there circumstances when I should not consider a reverse mortgage?

A:Because of the upfront costs, if you intend to leave your home in two to three years, there may be less expensive options, such as home-equity loans, grants that may be offered by your county government or a local nonprofit to repair your home, or a tax-deferral program, if you’re having problems paying your taxes.

Q: How can I get more information about reverse mortgages?

A:Free information is available by calling AARP at 800-209-8085.

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