How do I qualify for a Reverse Mortgage?
You must be at least 62 years of age, own your own home and use it as your primary residence, and not be delinquent on any federal debt.
How much money can I borrow? That depends on a few factors: age of the youngest borrower, the appraised value of your home, current interest rates, and balances on current liens. With the FHA Reverse Mortgage there is a maximum lending limit of $625,500. The older you are, the more money you receive. So if your home is worth $625,500 and you are in your nineties, you would receive more proceeds than if you were only in your sixties with a lower appraised value. An age calculation is applied to the Reverse Mortgage. You do not receive the entire $625,500 or the vlaue, but an amount based on age, appraised value, interest rate.
How is my money disbursed to me?
You may choose a lump sum, fixed monthly payments, a line of credit, or a combination of all three. You can also choose a specified term. For example, ten, fifteen, twenty year terms or any term may be chosen. A shorter term increases your monthly proceeds. Athough with term loans the monthly payments cease when the term expires, you can still remain in your home.
How will the proceeds from a Reverse Mortgage affect my taxes, social security, or other benefits?
Proceeds from a Reverse Mortgage are not considered taxable income. Your Social Security and Medicare benefits are not affected. The impact on other federal, state, or local assistance programs such as Medicaid should be discussed with a financial advisor. Your Medicaid benefits may be affected if your Reverse Mortgage proceeds are not spent down in the month they are received. (Check with your tax advisor.)
Who Pays My Real Estate Taxes If I Have a Reverse Mortgage?
You continue to pay your real estate taxes along with your homeowner's insurance and maintain your property.
Your home must be debt free to qualify.
FALSE. If you have an outstanding mortgage or equity loan balance (and where there is enough equity), you may still qualify for a Reverse Mortgage. All current mortgages must be paid from the Reverse Mortgage proceeds and are then added to your Reverse Mortgage balance. A Reverse Mortgage specialist will advise you of the amount you qualify to receive and if your current mortgage balances cause a shortfall.
Only senior citizens low on cash can benefit from a Reverse Mortgage.
FALSE. Seniors from all walks of life are taking advantage of Reverse Mortgages. Even though some borrowers may have greater needs than others, a Reverse Mortgage can be an excellent financial or estate planning tool for anyone. Homeowners with high value homes are using Reverse Mortgages in a variety of ways. Protecting their estate from some of the estate tax after their passing can be accomplished with a Reverse Mortgage since a Reverse Mortgage places a lien on the property and that lien is not subject to estate tax. (Consult your tax advisor.)
Only those who have excellent credit, sufficient income, and good health can qualify for a Reverse Mortgage.
FALSE. Although there will be a Financial Assessment, you can still obtain a Reverse Mortgage.
Bankruptcy, foreclosure, and judgments prevent you from obtaining a Reverse Mortgage.
FALSE. Borrowers who are currently in bankruptcy or foreclosure may be able to secure a Reverse Mortgage. Your bankruptcy trustee may give permission for the Reverse Mortgage to go forward. Consult with your attorney and your Reverse Mortgage specialist for details. Although FHA requires federal debts be paid upon closing (proceeds can be used), you can secure a Reverse Mortgage with outstanding judgments. However, lenders typically require this.
I will have to make monthly payments if I have a Reverse Mortgage.
FALSE. With a Reverse Mortgage you never make any mortgage payments.
The lender will own my home if I take out a Reverse Mortgage.
INCORRECT. You retain title and ownership of your home throughout the life of the Reverse Mortgage.
Can I deduct Reverse Mortgage interest from my income taxes? Will my heirs have to pay tax on the proceeds I received from my Reverse Mortgage?
Because you are not currently paying interest on your Reverse Mortgage, you will be unable to deduct the interest from your income taxes. Your heirs may be able to deduct all the interest that has accrued, however, they will need to consult a tax advisor. Reverse Mortgage proceeds are tax free; there is no tax on the proceeds.
WHAT DO I OWE AT THE END?
What monies are owed the lender at the end of the Reverse Mortgage? Principal, interest, mortgage insurance, and monthly services fees that have accrued over the life of the loan must be repaid. If you opted for a line of credit you only repay the portion of credit which was used. Repayment happens when you move, refinance, or pass away.
My heirs will be personally responsible for repayment of the Reverse Mortgage.
FALSE. Since the Reverse Mortgage is a non-recourse loan (a loan secured by collateral, usually real property), your heirs are not personally responsible for the loan. The lender can only look to the sale of the property for repayment of the debt. Your heirs, however, may wish to keep the remaining equity by selling the home or they might decide to keep the home by obtaining their own mortgage. (In the case of keeping the home, the full balance of the Reverse Mortgage will be due.)