FREQUENTLY ASKED QUESTIONS
1. What is a reverse mortgage?
2. Who qualifies?
3. What about my credit?
4. What are the benefits?
5. Why get a reverse mortgage?
6. Are all reverse mortgages alike?
7. How safe is a reverse mortgage?
8. Will the mortgage company own my home?
9. What happens if one of the joint borrowers die?
10. How will this affect my heirs and their inheritance?
11. What happens if I want to sell my home or move?
12. How do the proceeds affect my taxes or public benefits?
13. What fees must I pay to get a reverse mortgage?
14. What is the process for getting a reverse mortgage?
1. What is a reverse mortgage?
A reverse mortgage is a mortgage/lien against your home that allows a homeowner of at least 62 years of age to access the equity in their home without having to make a mortgage payment.
2. Who qualifies for a reverse mortgage?
A homeowner that is at least 62 years old, and if:
- He/She/They own and occupy a single-family dwelling (including those in FHA and Fannie Mae approved condominiums and planned unit developments) as their principal residence. One to four multi-unit homes and modular/mobile homes (if they meet specific FHA standards) are also eligible if occupied by the homeowner(s). Cooperatives will soon be eligible. Second homes, vacation homes, multi-unit (over 4) homes are not eligible.
- He/She/They own the home with moderate mortgage debt or no debt. There is no maximum or minimum home value. However, a FHA-certified appraiser will determine the appraised value, and the amount of your reverse mortgage loan will be based on this value. Both FHA and Fannie Mae have "maximum claim amounts" that may vary from county-to-county. Your loan advisor will explain this term further. Suffice to say that the "maximum claim amount" may limit the amount of money that you can borrow if you live in a more expensive home.
- The borrowers are occupants and hold title in fee simple, or are to be the only beneficiaries of a living trust that holds title.
- The home is in generally good condition and meets HUD/FHA minimum property standards. However, the borrower may use a portion of the amount initially obtained at loan closing to make any needed improvements and repairs AFTER the closing is completed.
- The youngest applicant must be at least sixty-two (62) years of age.
3. What about my credit?
Credit and/or credit scores are not required to obtain a reverse mortgage. Credit is reviewed to look for any outstanding mortgages, lines of credit, federal debts, taxes in arrears, or court judgments that may be against the property or may be placed against the property. These liens must be paid off at settlement and can be paid using the proceeds of the reverse mortgage.
If a homeowner is current late on a mortgage lien, in forbearance, bankruptcy or approaching foreclosure the reverse mortgage may be used to satisfy these liens. Please call for further information. Don’t delay if you are in a position of losing your home.
4. What are the benefits?
Now you can have your cake and eat it too! Borrow the equity out of your home for as long as you live in your home. It doesn't get much better than that! Here are some possible reasons and benefits for taking advantage of the Reverse Mortgage Program:
- Maintain your independence by not relying on family or friends for your financial needs.
- Improve your standard of living by receiving extra monthly income.
- Pay off your existing mortgage/home equity loan and eliminate those monthly mortgage payments.
- Make needed repairs or improvements to your home.
- Pay for necessary home health care, medical treatment, prescription drugs or Long Term Care Insurance.
- Help your children with their financial needs.
- Pay off medical bills, utility bills, debts, and property taxes.
- Buy a car, take a vacation, or visit family or friends.
- Set up a line of credit now for future emergencies and unexpected expenses.
- Buy a second or vacation home.
- Make a wise investment.
There are no restrictions on how you spend the funds you receive from this loan and the money is tax-free.
5. Why get a reverse mortgage?
- EXTRA INCOME. Many seniors who retired 8 to 15 years ago with $1,000 to $1,500 per month income felt that they would be set for life with no worries for tomorrow. Not so today, with years of inflation, the high cost of medical care, and the never-ending expenses of drugs, food, and clothing. You must make every dollar count. With a reverse mortgage, you can design a cash stream for life by adding a several hundred dollars per month to your income. Or you can eliminate your current home equity loan or monthly mortgage payments. This is the difference between "just getting by" or living a fuller and more comfortable life. Best of all...no monthly mortgage payments.
- HOME REPAIRS. Many seniors have put off needed repairs on their home because it was more urgent to purchase groceries and medicine. With a reverse mortgage, you may be able to replace the roof, upgrade the air conditioning, install a lift on the stairs, repaint the house, install new carpet, or add a bathroom on the ground floor. Best of all...no monthly mortgage payments.
- PAYOFF EXISTING MORTGAGE BALANCES. Many people who refinanced or purchased a home in their 50's and 60's have now retired and are on a fixed income. They find it is a struggle to meet the monthly mortgage or home equity loan payments. With a reverse mortgage, you may be able to pay off the current mortgage and put your current mortgage payment back into your pocket. Best of all...no monthly mortgage payments.
- EVER-INCREASING PROPERTY TAXES. Many people are finding the burden of ever-increasing property taxes difficult to meet. Property values are increasing in most areas and the senior's income does not keep pace. You want to keep your home and you don't know where to turn. If you are "house-rich and cash-poor," a reverse mortgage with a line of credit may be your answer.
- IN-HOME CARE OR LONG TERM CARE (LTC). Part-time or full-time skilled care for you or your spouse may be needed in some situations. A reverse mortgage may get you the funds you need to cover that care as long as you live in your home. You may also use the reverse mortgage proceeds to pay for Long Term Care (LTC) Insurance or life insurance.
- HELPING FAMILY MEMBERS. Help a relative or a grandchild with medical payments, education, purchase of a home, or pay for a vacation for the whole family. Wouldn't it be great to help your children get through a rough financial time without draining your current monthly income?
- LUMP SUM PAYMENT. Use it for that special dream, a cruise, making areas in your home more accessible, remodeling your kitchen or bathroom, purchasing a motor home or boat, paying off credit cards or purchasing a new car or buying a second home. For example, we had an 83-year young client purchase a $30,000 motor home and spend the last few years "tooting" around the country with her handicapped grandchild!
- INVESTMENT OPPORTUNITIES. You can take a lump sum payment with your reverse mortgage and make investments that can further supplement your income. You can also purchase a lifetime fixed annuity from an insurance company that would continue even if you sold or moved out of your home. Note: this option is certainly NOT for very many!
- HOME ADDITIONS/MODIFICATIONS. Make an addition or modification to make your home more comfortable and meet you current and future anticipated needs (i.e. handicap accessibility).
- PURCHASE A NEW HOME. Yes, Purchase! If your home is now too large and the yard too big to maintain and the taxes are too high, then you may want to downsize to a modern, single-floor home or get a condominium. You can sell your existing home and purchase the major part of a new home with the profits from the sale of your existing home and the reverse mortgage. Best of all...No monthly mortgage payments!
6. Are all reverse mortgages alike?
The Home Equity Conversion Mortgage (HECM) is a federally federally insured reverse mortgage backed by HUD/FHA. It is usually the most flexible and least costly reverse mortgage for most seniors. Unfortunately, FHA has a "cap" on the "maximum claim amount" that varies from county-to-county throughout the United States. In some major metropolitan areas that cap is $362,790. However, in rural areas that cap is only $200,160.
A Home Keeper reverse mortgage is backed by the Federal National Mortgage Association (FNMA), commonly referred to as Fannie Mae. It has a nationwide "cap" of $417,000, and it carries a higher interest rate than the HECM. Homeowners usually get less money out of the Home Keeper than they can out of the HECM reverse mortgage.
The Cash Advantage is a privately backed reverse mortgage. Although the interest rate on this type of reverse mortgage is higher than either the HECM or the Home Keeper, there is no "cap" on the value of the home against which the maximum loan amount is calculated. The Cash Account may be of benefit for senior homeowners whose home is appraised at over $700,000.
7. How safe is a reverse mortgage?
FHA HECM and Fannie Mae Home Keeper reverse mortgages are very safe! HUD/FHA and Fannie Mae guarantee that the payments are made to you. They also guarantee you can stay in your home as long as you like and that you and your heirs will never owe more than your home's net worth.
If the Reverse Mortgage balance ever grows to exceed the value of the home when the last co-owner dies, sells, or moves; then the difference is paid to the mortgage company by HUD/FHA or by Fannie Mae. The amount owed by you or your heirs is limited to the net sale value of your home. Neither you nor your heirs have any personal liability beyond the net sale value.
8. Will the mortgage company own my home?
No! You retain ownership in your home. A lien is placed on your property and is recorded in the local county or city courthouse. This lien is the security for the Reverse Mortgage Loan, but you retain ownership of your home. Your heirs must refinance this loan or they must dispose of the property and repay this debt when you die, sell, or permanently move out of the property.
9. What happens if one of the joint borrowers die?
Nothing! All provisions of the Reverse Mortgage Loan remain in effect. The surviving borrower continues to receive the same monthly income or continues to control the remaining funds in the line of credit. He/she can continue to request and receive funds from the line of credit until those funds are exhausted.
10. How will this affect my heirs and their inheritance?
Depending on how long you participate in the Reverse Mortgage Program, the home equity is preserved for your heirs to inherit. When the loan balance (consisting of funds received, plus the interest and fees added over time) is repaid, the remaining equity stays with your estate. Your heirs may sell the home or your heirs may use other financial means for repayment (e.g. life insurance proceeds or refinancing) and keep the home in the family. That is their choice.
Your remaining assets are completely protected and cannot be touched--even if you have no equity remaining in the home when you die.
11. What happens if I want to sell my home or move?
If you sell your home or permanently move out, the loan balance needs to be repaid. The program does not restrict your decision to sell your home.
"Permanently move out" is defined very clearly in all of the reverse mortgage documents that you will sign at closing/settlement as "all borrowers are absent from the home for more than 12 consecutive months."
Therefore, when you do decide to sell or permanently move, you will be required to repay the reverse mortgage loan balance in full--or up to the net sale value of the home, if that is lower. If any equity remains in the home, then you will decide what you wish do with that equity.
You will never have to use other assets to repay your reverse mortgage loan. FHA will pay the mortgage company any deficit on your behalf.
12. How do the proceeds affect my taxes or public benefits?
Taxes. Reverse mortgage proceeds are proceeds of a loan and are therefore not taxed as income by any federal, state, or local government of which we are aware. Please consult your tax advisor.
The interest accruing on the Reverse Mortgage Loan cannot be deducted from your taxable income by IRS rules--because you are not actually paying that interest; it is only accruing in your account. Please consult your tax advisor.
Social Security and Medicare. A Reverse Mortgage Loan does not affect your rights or benefits under Social Security or Medicare.
Other Public Benefits. A Reverse Mortgage Loan may affect certain of your rights under Supplemental Security Income (SSI), Medicaid, Food Stamps, Fuel Assistance, and other income-eligible services. Most of these public benefits have a "gross monthly income test" or, more likely, a means test that limits your monthly bank statement ending balance to a certain dollar amount (Typically $2,500-$3,000). If that is the case, you would have to ensure that the check you receive from the reverse mortgage each month is spent below that monthly dollar limit before the end of the month. If you are currently receiving SSI, Medicaid, Food Stamps, Fuel Assistance or similar income-based benefits, you must contact your benefit advisor for advice before getting a Reverse Mortgage Loan.
13. What fees must I pay to get a reverse mortgage?
Virtually all fees connected with a reverse mortgage loan can be included in your loan balance--your out-of-pocket costs are normally zero.
A detailed Good Faith Estimate (GFE) of all closing fees should be provided to you when you initially request information about a reverse mortgage and also at the time of application. Closing fees normally include the lender origination fee, actual costs of appraisal report, credit report, termite report, title examination, title binder, title insurance, flood certification, city/county and state recordation taxes, court recording fees, and reverse mortgage legal document preparation fee, and a settlement fee to the closing agency or attorney. In addition, HUD/FHA charges a 2% mortgage insurance premium on the HECM loan.
While these fees can be significant and are partially based on the appraised value of your property, all of them can be included in the loan amount.
There are normally two fees that may be collected in cash from the you at the time of application: $350-$450 to pay an FHA-certified appraiser to prepare an appraisal report and $12-$15 to pay a credit reporting bureau to prepare a merged in-file credit report. These fees can be reimbursed to the borrower in cash out of the loan proceeds at settlement/closing. They cannot be reimbursed if you do not go to settlement/closing.
14. What is the process for getting a reverse mortgage?
- INFORMATION: Contact Tom Davis at 301-526-0699 or 1-888-866-3284 to request a free, no-obligation package of information on reverse mortgages. After reading the package request a free, no-obligation in-home presentation where you are encouraged to ask questions. We suggest that you invite friends, relatives, or anyone who will help you in making your decision.
- COUNSELING: Seniors are required to receive counseling from a HUD/FHA-certified Reverse Mortgage Counselor before getting a reverse mortgage. There is normally no cost for this service. The counselor will explain the different options available to you and make certain that you are eligible for a reverse mortgage. You will be issued a HECM Counseling Certificate that must be provided to our Loan Advisor. We will provide you with the names and addresses of the counselors nearest you when we send you the information packages. Be wary of any mortgage company that is "steering" you to one particular counselor. Counseling is also available by telephone from AARP trained counselors for those that do not, or cannot, drive to the counseling agency offices. In North Carolina you must have your counseling face-to-face and with the NC-approved list of counselors.
- APPLICATION/DISCLOSURE: We will fill out an application for a reverse mortgage and select the payment options you prefer: fixed monthly life income, 5-year term, 10-year term, cash lump sum, line of credit, or a combination of those choices. We will need certain documents at that time: the Counseling Certificate, proof of age, Social Security Number, legal description, and a few other items.
- PROCESSING: A processing specialist will be assigned to your application. The specialist will work in partnership with your loan officer from the initial application through closing. The specialist will process your loan, order the appraisal and credit reports, and request the title examination and lien payoff data. If the appraiser identifies structural problems that require repairs over $500, you will have to get a contractor's estimate of the cost of making those repairs. If that happens, your Loan Advisor will discuss with you how we set aside, or escrow, repair funds to correct these problems after the reverse mortgage settlement.
- UNDERWRITING: After receiving all pertinent information and data, your application package is then submitted for final underwriting approval.
- CLOSING: Following underwriting approval, your Loan Advisor or Loan Processor will schedule the closing date and time with you and the settlement company. The closing is usually conducted in the client's home; however, we can conduct the closing in one of our branch offices or at the title company's office, if you prefer. The final interest rate will only be known during the week of closing. Unlike other types of mortgage loans, the interest rates cannot be "locked in" prior to closing. The total time required to complete a reverse mortgage from date of application to the date of closing is usually about 40 days.
- AFTER CLOSING: You are given three (3) business days to review your documents. During the 3-day period you may change your mind and you may cancel the transaction. Upon expiration of this period the funds are disbursed and you will receive the benefits you selected (i.e. cash lump sum, monthly check, or line of credit).
- REPAYMENT: You are not required to make any monthly or other re-payments as long as you or the co-borrower live in the home. The unpaid balance of the reverse mortgage becomes due and payable in its entirety only upon one of the following events occurring:
- The death of the last borrower;
- Sale of the home by the borrower(s) or transfer of ownership;
- A permanent move from the home by all of the borrowers (i.e. all borrowers are absent for a continuous period exceeding 12 consecutive months);
- The borrower(s) refuse or are unable to maintain the home in good condition;
- Borrower fails, and refuses, to pay the required local real estate taxes or homeowners insurance premiums, also known as hazard insurance;
- One of the borrowers declares bankruptcy or the property is condemned by the local government.
The loan may be repaid by the borrower(s) or the borrower's estate, with or without the sale of the home. The repayment obligation can never exceed the home's net sale value.
This is a broad overview of the process. Vanguard Mortgage's professional staff will assist and work with you every step of the way. For more information specific to your needs, please contact Tom Davis at 301-526-0699 or 1-888-866-3284.
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