Is a Reverse Mortgage Right for You?
Jeff Flanery, Reverse Sales Manager with Cambria Mortgage, has been helping people transition to reverse mortgages for nearly 14 years. “I work exclusively with reverse mortgages, which is extremely gratifying, as I love helping people extend their nest egg and live better in retirement,” Flanery says. Here, he offers a brief overview of reverse mortgages and their benefits:
Understanding Reverse Mortgages
“Reverse mortgages are FHA-insured loans that allow homeowners age 62 and older to convert part of the equity in their homes to cash while retaining title to or ownership of the homes,” says Flanery. “They’re called reverse mortgages because unlike traditional mortgages where the homeowner makes monthly payments to a lender, the lender makes payments to the homeowner, either as a lump sum, fixed monthly payments, a line of credit, or a combination.” The amount of money that homeowners are eligible to receive depends on age, appraised home value, interest rates, and FHA lending limits. “In general, the older the homeowner, the less he or she owes on the home. The more valuable the home, the more money the homeowner can get,” says Flanery. While reverse mortgages were originally conceived to help retirees pay off their original mortgages, eliminate debt, and cover living expenses, health care, and other costs, there are no restrictions on how the monies can be used. And the income does not affect regular Social Security or Medicare benefits. However, if the homeowner is on Medicaid or Supplemental Social Security (SSI), any reverse proceeds must be used in the month they’re received. Funds that are retained count as an asset and could impact the homeowner’s eligibility.
Downsizing with a Reverse Mortgage
“For seniors who are finding their existing homes too costly or wishing to move closer to family, a reverse mortgage may be a great way to downsize to smaller homes,” says Flanery. “An HECM for Purchase Loan is a type of reverse mortgage that allows seniors to sell their homes and buy houses, condos, or townhomes that will better meet their needs as they age.” The property must be a primary residence, as vacation homes and investment income properties don’t qualify. With an HECM for Purchase Loan, the new home is purchased outright with funds from the sale of the old home, the reverse mortgage proceeds, and other income, leaving the homeowner with no monthly mortgage payments.
Qualifying for a Reverse Mortgage
“To be eligible for a reverse mortgage, individuals must be at least 62 years old and own a home with equity,” says Flanery. “A homeowner who owes money on an existing mortgage may still qualify for a reverse mortgage, as long as the existing mortgage can be paid off with the reverse mortgage, savings, or a loan from a family member or friend.” Borrowers must talk with a HUD-approved reverse mortgage counselor who will evaluate the pros and cons of a reverse mortgage for the borrower’s situation. The counselor can also screen for public and private benefits to help pay for home energy, meals, and medications, and identify community services to help the borrower stay in his or her home longer. Borrowers must also undergo a financial assessment to ensure that they can continue paying property taxes and homeowner’s insurance. If the lender finds that the borrower doesn’t have the financial capacity to fulfill these obligations, the lender will set aside a portion of the funds from the reverse mortgage to cover these costs.
Paying Back a Reverse Mortgage
“The homeowner must remain current on property taxes, homeowner’s insurance, and any applicable homeowner’s association dues, but is not required to make any monthly loan payments as long as he or she lives in the home,” says Flanery. The loan balance grows as the borrower continues to live in the home, and when the loan is eventually paid off, the balance is the sum total of the amount borrowed plus interest and mortgage insurance. “However, regardless of the loan balance, the homeowner or his or her heirs will never have to pay more than the appraised value of the home or the sale price,” he says. “If the loan balance exceeds the appraised value of the home, the federal government absorbs the loss, creating peace of mind for the homeowner or heirs.”
Interested in a reverse mortgage? Contact us today to learn how the loans work, help you determine whether you or your parents are qualified, and assist you in getting started.