What is a reverse mortgage?

A reverse mortgage is a unique type of loan that allows homeowners to use the equity in their home to eliminate monthly mortgage payments. Homeowners must continue paying property taxes and insurance.

Are there fees to apply?

No; you should never pay a fee to apply for a reverse mortgage, either up front or at closing.

What is equity?

Equity is the amount of monetary ownership a homeowner has in their property and is determined by subtracting the balance of any liens against the property from the home's market value.

A reverse mortgage is a unique type of loan that allows homeowners to use the equity in their home to eliminate monthly mortgage payments and/or supplement their income without having to sell their home or give up title. Unlike traditional mortgages, a reverse mortgage does not require a monthly mortgage payment. In fact, in circumstances where a sufficient amount of equity exists, the lien holder will actually disburse payments to homeowner. As long as the borrowers continue living in the home as their primary residence and remain current on all loan obligations (including paying the taxes and insurance and keeping up home maintenance), the loan balance will not become due and payable.
Equity is the amount of monetary ownership a homeowner has in their property and is determined by subtracting the balance of any liens against the property from the home's market value. Note: A homeowner's rights as owner are not dependent on the amount of equity they have in their home.
There are absolutely no restrictions on how reverse mortgage proceeds can be used. Some of the most common uses for reverse mortgage proceeds are to cover every day expenses, home improvement, health care, major purchases and travel.
When pursuing a reverse mortgage, any existing mortgages will need to be satisfied so that the new mortgage is the only lien attached to the property. If there is not enough equity in the home to pay off the existing mortgage, you will be required to use your personal liquid assets to satisfy the difference.
Homeowners seek reverse mortgages for a variety of reasons. The funds from a reverse mortgage can be used to supplement a fixed income, to receive money to cover expenses, or in any way you wish. There are no restrictions on how you can use the funds from your reverse mortgage.
A unique feature of the reverse mortgage approval process is the counseling in which the homeowner is required to participate in order to ensure that they are able to make a well-informed decision. Lenders are required to assist potential applicants with this step by providing a list of ten counseling centers, five of which must be within driving distance. While this may seem burdensome to some, pre-loan counseling serves a very important purpose. Counselors are obligated by law to discuss the implications of this type of financing, as well as any other options that may be available.
A reverse mortgage does not affect Social Security or Medicare benefits. If you receive any other state or federal benefits or assistance, contact your caseworker to find out whether they might be affected by a reverse mortgage.

There are several significant differences between a reverse mortgage and a traditional mortgage. First, a traditional mortgage helps a borrower purchase or refinance a home by making regular loan payments. This differs from a reverse mortgage, which does not require loan payments.* Second, a reverse mortgage is used to access the equity in a home. Rather than a loan to buy a home, you are borrowing against what you’ve paid into the home you already own. Third, a reverse mortgage is considered the “reverse” of a traditional mortgage because the loan balance will grow each month due to accruing interest and fees rather than decreasing over time as it would with a traditional mortgage. Last, there is a special type of reverse mortgage that can be used for buying a home: the HECM for purchase. The HECM for purchase requires a larger down payment than a traditional mortgage, but monthly mortgage payments won’t be required.*

* Homeowners must continue paying property taxes and insurance.

The process typically requires 30 to 45 days from the date of application to the date of closing. The time frame may vary based on the length of time needed to approve the loan application and complete other parts of the process, such as the home appraisal and title.
Yes. An FHA-insured reverse mortgage is a non-recourse loan and is federally insured. When the loan becomes due and payable, you won’t owe more than 95 percent of the fair market value of the home as determined by a licensed, FHA-certified appraiser. If the loan balance is more than the value of the home, FHA insurance covers the remainder.
The length of time you maintain your reverse mortgage can play a large role in determining the value of its benefit to you. If you intend to sell or otherwise vacate your home within the next two to three years, there may be better options to consider. Such options may include traditional home equity loans, government or non-profit assistance programs and tax deferral programs.
If you or your heirs choose to sell the home, the reverse mortgage loan balance will be repaid to the lender. The repayment amount will include the amount originally disbursed to you in the loan as well as interest on the loan. Any surplus after the loan balance is repaid would be disbursed to you or to your heirs. If you or your heirs choose to keep the home, the loan will have to be repaid at 95 percent of the home’s current appraised value. Repayment can be made from personal funds, a new traditional mortgage or a refinanced reverse mortgage if the new borrowers qualify.
The reverse mortgage process includes six steps:
1. A free consultation with a reverse mortgage specialist: The specialist will explain your options, answer your questions and provide you with any additional resources or information you need to determine whether you want to pursue a reverse mortgage.
2. A counseling session with a HUD-approved counselor: We will provide a list of counselors who can help you either over the phone or face-to-face at a time that is convenient for you.
3. Application and home appraisal: After counseling, we will provide you with a loan application and disclosures to review. After these documents are signed and returned, we will have a licensed, FHA-certified appraiser contact you to schedule a home appraisal.
4. Document review: An underwriter will review your application, the appraisal and other documents, such as proof of insurance.
5. Final approval and loan closing: The underwriter will issue a final approval, and a notary will meet with you to witness your signing of the closing documents.
6. Disbursement: In most instances, proceeds will become available after closing when the loan funds. In some instances, the borrower may have to wait to access the loan proceeds, but generally, proceeds are disbursed when the loan funds.
To be eligible for a reverse mortgage, you must own your home, and all owners listed on the home’s title must be at least 62 years of age. The home must be your primary residence, meaning that you must live there more than six months in each calendar year.
Homeowners are ultimately responsible for keeping taxes, insurance, and repairs up to date for the duration of their reverse mortgage. If you are currently delinquent on either taxes or insurance, you will need to become current either prior to or at your reverse mortgage closing.
Yes; as long as the applicant meets all age and occupancy requirements, relation has no bearing on their ability to be on the title or the note.
Yes. Your reverse mortgage will be insured by the Federal Housing Administration (FHA) regardless of the conditions on your previous mortgage.
No; only a primary residence is eligible for a reverse mortgage.
No; the reverse mortgage is only available for use on residential property.
The federally insured reverse mortgage allows up to three homeowners to be on the note. All homeowners on the note must be at least 62 years of age and occupy the home as their primary residence.
Most homes placed in a living trust can still be financed with a reverse mortgage. Consult with your trust account manager to ensure that your contract does not prevent this type of financing prior to beginning your application.
To be eligible for an FHA-insured reverse mortgage, the subject property must be a 1- 4 unit home, a manufactured home constructed after 1976, or a condominium. Condominiums must be approved by the Department of Housing and Urban Development (HUD) and all eligible property types must meet FHA requirements. Typically, properties located in cooperative developments are ineligible for this type of financing. If you have specific questions regarding your property and its eligibility, discuss these concerns with your HUD-approved counselor before paying for an appraisal.
Yes. As of April 2015, FHA began requiring reverse mortgage lenders to consider credit and income history in determining borrowers’ eligibility. This helps to reduce the risk of loan defaults due to borrowers’ inability to maintain homeowners’ insurance and real estate taxes. Your lender will conduct a financial assessment to ensure you can afford to maintain your obligations to pay homeowner’s insurance and taxes. In some instances, your lender may establish a set-aside, which reserves a portion of the reverse mortgage proceeds to pay for the insurance and taxes.
The FHA-insured reverse mortgage purchase product allows eligible individuals to buy a new home using the proceeds of a reverse mortgage. A down payment is necessary to provide some equity in the home and qualify for the reverse mortgage. Borrowers must occupy the new home as a primary residence within 60 days of closing.
The FHA-insured reverse mortgage purchase program was developed to enable eligible homeowners to purchase a home that better suits their needs without having to take on new monthly mortgage payments.
No; seller contributions are not allowed on FHA-insured reverse mortgage for purchase transactions.
No; when you sign the initial application, you are indicating that the information it contains is accurate to the best of your knowledge. Your signature on the initial disclosures represents that you have been provided with a copy of the disclosure and given sufficient time to review it.
Your privacy is of utmost importance to all of us. The information we obtain from you is kept strictly confidential and is used only as necessary to secure your reverse mortgage. Your information is stored and transmitted in accordance with all applicable state and federal regulations. Please review our Privacy Policy.
If repairs are needed due to health, safety or structural integrity, they must be completed before the loan is funded. These repairs may include major issues such as lack of running water, leaking roof, absence of a heating source, inadequate electrical systems and inoperable doors or windows. Some repairs may be completed after closing. In this case, your lender may set aside some of the loan proceeds until the repairs are completed.
No; when you sign the initial application, you are indicating that the information it contains is accurate to the best of your knowledge. Your signature on the initial disclosures represents that you have been provided with a copy of the disclosure and given sufficient time to review it.
Your privacy is of utmost importance to all of us. The information we obtain from you is kept strictly confidential and is used only as necessary to secure your reverse mortgage. Your information is stored and transmitted in accordance with all applicable state and federal regulations. Please review our Privacy Policy.
If there are any repairs necessary for reasons of health, safety, or structural integrity, they must be completed prior to funding. These repairs include major issues such as: lack of running water, leaking roof, absence of a heat source, inadequate electrical systems and inoperable doors or windows. Some minor repairs may be completed post-closing. In this case, some of the proceeds of the loan may be set aside until the repairs are completed.
One of the most appealing benefits of a reverse mortgage is that monthly mortgage payments are not required. As long as you live in the home as your primary residence and are up to date on your loan obligations (property taxes, homeowner’s insurance and home repairs), the reverse mortgage will not be due and payable, and you won’t be required to repay it.
The sources of funds that are due at closing must be verified. They must either be cash on hand or proceeds from the sale of a home. Gift funds are only allowed if they are not provided by someone with a financial interest in the purchase transaction. With the exception of sale proceeds, all funds must be seasoned (in your bank account) for 60 days before closing on the loan.
No; you should never pay a fee to apply for a reverse mortgage, either up front or at closing.
Interest accrues on the portion of the reverse mortgage you have used and is added to the total loan balance.
FHA strictly regulates the fees your lender or broker can charge for an FHA-insured reverse mortgage. Typical closing costs include fees paid to third parties for providing services to process your loan (title insurance, a credit report, etc.) and an up-front mortgage premium equal to either 0.5 percent or 2.5 percent of the lesser of the property value or $636,150 depending on the percentage of funds you borrow in the first year of the reverse mortgage. Your lender or broker also will charge a loan origination fee ranging between $2,500 and $6,000 depending on the home’s property value. The loan origination fee should be the only fee that is paid directly to your lender or broker.
The only expense that must be covered out of pocket is that of the appraisal, which typically ranges from $350-$450. The counseling fee can either be financed into the loan or be paid up front. Some counselors offer a discount for paying up front, but the choice is yours. All other costs are paid from the loan proceeds at the time of closing.
This means that the fee is related to the processing of your loan, but has been or will be paid outside of the closing transaction. Most commonly, these are the appraisal fee and the counseling fee.
TALC is an acronym for "Total Annual Loan Cost". It is a summary of all the costs associated with a reverse mortgage expressed as an annual rate. The TALC is a useful tool when comparing one reverse mortgage quote to another because these types of loans can vary in terms of features, benefits, and cost. If you are considering a reverse mortgage, ask your lender or counselor to explain what the TALC rates are for the various product options.
The loan becomes due and payable as soon as one of the following maturity events occurs:
  • All borrowers no longer reside in the home as their primary residence.
  • The borrowers fail to abide by all loan terms, including remaining current on all property obligations such as paying real estate taxes and insurance and keeping up with home repairs.
A person holding power of attorney can be the main contact for this process; however, the person listed on the title of the home must be the one to attend counseling, as well as to sign all application and closing documents. The U.S. Department of Housing and Urban Development (HUD) requires the homeowners to act on their own behalf unless a doctor's note is supplied citing a specific condition which deems the homeowners unable to make their own decisions during this process.
Yes; there may be a time when your financial needs change in such a way that you decide to make changes to your home financing. A reverse mortgage can be refinanced into a new reverse mortgage or into a traditional mortgage, provided you qualify for the new mortgage.
No; the growth feature means that your credit limit increases at a pre-determined rate to compensate for increases in your home's value over time.
Refinancing an FHA-insured reverse mortgage with another FHA-insured reverse mortgage is much like refinancing a traditional loan with an FHA-insured reverse mortgage. The main differences are that you will have a much lower up front mortgage insurance charge than on the original FHA-insured reverse mortgage and, depending on how much you are benefiting from the refinance, you may be able to have the pre-loan counseling requirement waived. When you call, you will need to know the original claim amount, the current principal limit, and the current balance due. The current market value and birthdates of all homeowners will also be helpful. Using this information, we can help you to determine whether this type of refinance would benefit you.
The federal insurance on a FHA-insured reverse mortgage provides protection for both the borrower and the lender. In a case where a borrower is receiving monthly installments or has a line of credit, the insurance guarantees availability of funds. In a case where the reverse mortgage balance exceeds the value of the home, the insurance compensates the lender for the difference between what they are allowed to collect from the homeowner and the actual balance of the loan.
Currently, the adjustable interest rate is controlled by the LIBOR (London Interbank Offered Rate) Index. The fixed rate is determined by the lender and usually based upon the activity in the secondary market.
There are a variety of reasons that a person may attempt to dissuade you from obtaining a reverse mortgage. Some lenders are unfamiliar with or unable to originate reverse mortgages. One of the most common reasons, however, is simply a lack of understanding regarding the terms of the product. Much of the negativity associated with reverse mortgages is a result of practices from the 1980s, before the program was federally regulated and insured. In contrast, today's FHA-insured reverse mortgage is heavily regulated and is arguably the safest mortgage product available to consumers.
Pre-loan counseling is required in order to protect consumers by ensuring that they have access to and contact with an independent advisor before making a decision to pursue a reverse mortgage. You may receive counseling from a HUD-approved counseling agency of your choice and the session may be completed either face-to-face or over the telephone. During the session, you will discuss the costs of a reverse mortgage, possible tax implications, and the impact that the program may have on your heirs.

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