In the early 1960s, when reverse mortgage loans were first introduced, they did not have any government programs backing it.
It is our job to give you the best education available with the most up-to-date facts so you can make an educated decision. Our Reverse Mortgage Planners are well trained and very experienced with a variety of senior, real estate, and retirement issues so you can feel much more secure about making a decision with one of your most valuable assets: your home. Some of the most common myths that we hear are below.
Most, but not all, reverse mortgages today are federally insured through the Federal Housing Administration’s Home Equity Conversion Mortgage (HECM) Program. This page talks about HECM loans only.
Top 10 Reverse Mortgage Loan Facts
As long as all loan terms are met, you cannot be forced to sell the home and move. Terms include living in the house as your primary residence, maintaining the home, and paying home expenses such as taxes and insurance. Some circumstances will cause the loan to mature and the balance to become due and payable. Credit is subject to age, property and some limited debt qualifications. Program rates, fees, terms, and conditions are not available in all states and subject to change.
When you permanently move out of the home, whether you sell it or pass away, neither you, your estate nor your heirs are responsible for paying the deficit if the balance owed on your reverse mortgage exceeds the home value. However, should your heirs want to keep your home, they may purchase it for 95% of the current appraised value.*
In the event of an extended nursing home stay or a lawsuit, all your home equity can be lost that you spent your whole life to create. A reverse mortgage loan can unlock that equity and allow you to manage it for the benefit of your family properly. Talk to your financial advisor about how a reverse mortgage can help you do this, including helping you pay for longer-term expenses such as medical and nursing home expenses.
Since this is a non-resource loan even if your home value decreases, you and your children can never be liable for any amount over the value of the home* because the loan is guaranteed by the Federal Housing Administration (FHA) Mortgage Insurance Fund (FHA/HUD).
A reverse mortgage is a non-recourse loan because of the guarantees authorized by the government. Mortgage Insurance Premiums (MIP) paid by the borrower’s fund this FHA program. The taxpayers do not support the program; it is made possible by the FHA, who monitors lenders ensuring that consumers are treated fairly and equitably.
Note: While Fairway as the lender does loan the money for the reverse mortgage loan, it is not affiliated in any way with government agencies. These materials are not from HUD or FHA and were not approved by HUD or a government agency.
Many folks think a reverse mortgage can only be used when all other accounts and options are exhausted. While it is a great loan to add cash flow for a borrower 62 and better that has fallen on hard times (including, potentially foreclosure situations*), it should also be used earlier in retirement to avoid future problems by keeping the home safe with the retiree “aging in place.”
Only one borrower(s) must be 62 or better except in Texas where both spouses need to be at least 62. The home must be a primary residence (live there 6+ months per year) and have significant equity or owned outright to qualify. The property must be a single family home, 2-to-4-unit dwelling or FHA-approved condo. Borrower(s) must receive a reverse mortgage counseling certification from a HUD-approved counseling agency.
If you don't qualify for traditional financing you will not be eligible for a reverse mortgage loan.
A reverse mortgage loan does not have any income qualifications such as needing a certain Debt To Income (DTI) ratio or credit score requirements. In 2015, FHA added financial assessment requirements to determine if a Life Expectancy Set Aside (LESA) will be necessary or not. The residual income requirement must be met with regular income or compensating factors to proceed with the loan. Just because a LESA may be required it will not prevent you from getting a reverse mortgage loan if you have enough equity or cash reserves to bring to closing.
While any debt on your home’s title must be paid off at closing and you must have adequate equity in the property, it is not required that you own your home “free and clear” before getting a reverse mortgage.
You can sell your home if you wish and – just like any other mortgage loan – you must pay off the reverse mortgage at closing. There are also no prepayment penalties if you choose to pay off your loan early or make loan payments.
Some Additional HECM Loan /
Reverse Mortgage Loan Facts
- Many retirees use a reverse mortgage.
- It’s a specialized loan. However, program rates, fees, terms, and conditions are not available in all states and are subject to change.
- Reverse mortgages that are FHA-insured (Home Equity Conversion Mortgages) are insured by the Federal Housing Administration providing protection for both borrowers, lenders and beneficiaries.
- A Reverse mortgage is a specialized loan for homeowners 62 and older.
- A reverse mortgage allows older homeowners to access a portion of the value of their home.
- The cash or proceeds you receive from a reverse mortgage typically are not subject to individual income taxation. However, we suggest you consult your tax advisor to provide guidance for your particular situation.
- Reverse mortgage proceeds could affect government needs-based programs such as Medicaid and Medi-Cal. Those receiving such benefits should consult a professional before obtaining a reverse mortgage.
- It is not a government grant, but a loan that is repaid in the future when the home is sold or the last borrower dies or permanently leaves their residence.
- A reverse mortgage is eligible only for the borrower’s primary or principal residence.
- HUD counseling (from an independent HUD-approved third-party counselor) is required prior to the borrower incurring any costs associated with the loan.
- A reverse mortgage loan is secured by a mortgage on the home and failure to comply with loan terms could result in foreclosure.
This material is not provided by, nor was it approved by the Department of Housing & Urban Development (HUD) or by the Federal Housing Administration (FHA). It is not intended to be a substitute for legal, tax or financial advice. Consult with a qualified attorney, accountant or financial advisor for additional legal or tax advice.
*There are some circumstances that will cause the loan to mature and the balance to become due and payable.* The borrower is still responsible for paying property taxes, homeowner’s insurance and maintaining the property to HUD standards. Failure to do so could make the loan due and payable. *Credit is subject to age, income standards, credit history, and property qualifications. *Program rates, fees, terms, and conditions are not available in all states and subject to change. *Borrowers should seek professional tax advice regarding reverse mortgage proceeds.