Reverse Mortgage FAQs
Q. How much money can I receive?
A. The amount depends on four factors (1) the age of the youngest owner, (2) appraised value of the home, (3) loan program chosen by the borrower, and (4) current interest rates.
Q. Do I still own my home?
A. Yes. A reverse mortgage is a loan secured by the property just like any other mortgage you may have had. The title ownership remains in your name and the eventual payoff to the lender will be the loan balance, or the home value, whichever is less.
Q. How long does the process take?
A. The time from application to closing depends on how long it takes to get the borrower documentation, outside reports, and the underwriting approval. The file needs to be 100% complete with all documentation needed and have any underwriting conditions cleared. Generally, this takes 30 – 60 days.
Q. Who is eligible for a reverse mortgage loan?
A. Any homeowner 62 years of age or older who has approximately 50% or more equity in their home.
Q. I am over 62 years of age, but my spouse is not. What are our options?
A. If your spouse is close to turning 62, then it might be best to wait until her 62nd birthday. If this is not an option, then your spouse would need to be removed from title.
Q. What are the upfront costs?
A. The costs for a reverse mortgage are the same as any other FHA loan. This includes an origination fee, mortgage insurance premium, and the actual costs necessary to close the loan (title costs, appraisal, etc.).
Q. Can a reverse mortgage be used if there is a current mortgage, home equity line of credit, or other lien on the property?
A. Yes. The proceeds of your reverse mortgage must be sufficient to pay off any current obligations secured by the property. The proceeds from the reverse mortgage may be used to pay these obligations. Using reverse mortgage proceeds to pay off the existing debt will reduce the net cash available, but any payments that may have been required by the existing debt will be eliminated.
Q. Are there any restrictions on how I can use the money?
A. No, there are no restrictions. The funds may be used any way the borrower(s) chooses.
Q. What are my obligations after the loan closes?
A. Unlike traditional mortgages no principal or interest payments need be made to the lender at any time. However, you are responsible for (1) keeping the homeowner’s insurance and property taxes current, (2) keeping the property properly maintained, and (3) notifying the lender if you will be away for an extended period of time.
Q. What happens if either my spouse, or I, should die or move to a long term care facility?
A. As long as the property continues to be the principal residence of one of the borrowers the loan cannot be called due.
Q. Does the lender take my house?
A. No. This is a common misconception. A reverse mortgage is a loan secured by the property just like any other mortgage you may have had. The title ownership remains in your name and the eventual payoff to the lender will be the loan balance, or the home value, whichever is less.
Q. What events would cause the loan to be called and repayment required?
A. Repayment of the loan can be required if: (1) the property ceases to be the principal residence of the borrower, or both borrowers if jointly owned, (2) the borrower fails to keep the property adequately insured or fails to keep the property taxes current, or (3) the borrower fails to keep the property properly maintained.
Q. Will I have any income tax liability for the proceeds I receive from a reverse mortgage?
A. No. Currently the IRS treats funds received from a reverse mortgage to be advances from a loan and therefore not taxable income. You should consult your tax advisor for you specific situation.
Q. Since the interest charged is for home interest, can it be deducted for tax purposes?
A. The interest charged will accrue and will be deductible when the loan balance and accrued interest are repaid. However, you should consult with your tax advisor on this and all other tax matters.
Q. Will a reverse mortgage affect my Medicaid, SSI, or other needs based program benefits?
A. No. The proceeds from a reverse mortgage do not affect these or most needs based programs as long as the monthly cash advances are properly spent down and not accumulated. The rules for these programs vary, so you should consult with you local Council on Aging or a professional advisor to be sure.
Q. What is due when the loan has to be repaid?
A. The loan balance includes the total of all cash advances made plus the accumulated interest charges.
Q. What happens if the loan balance becomes greater than the value of the property?
A. Reverse mortgages are non-recourse loans. This means the borrower repayment obligation is never more than the value of the home.
Q. What happens if the home sale proceeds exceed the balance owed if the home is sold?
A. Any surplus proceeds from the sale of the home that exceed the balance owed goes to the borrower. There is no shared appreciation provision that would entitle the lender to any amount greater than the actual loan balance due. Basically, if there is any money left over, it belongs to the borrower (or to the heirs), but if there is a deficit that is the responsibility of HUD.
Q. Will my estate or my heirs have to sell the property to repay the loan?
A. No. Your heirs can keep the property if they desire. The loan will have to be repaid, but this can be done with other funds they may have, or they can refinance the property with a conventional mortgage loan.
*These materials are not from HUD or FHA and were not approved by HUD or a government agency.