What Is a Reverse Mortgage?
A Reverse Mortgage is a financial tool, plain and simple. This tool, combined with your other financial strategies, can allow you to retire when you didn’t think you could, or help you have the security of making your finances last throughout your retirement. With an estimated 10,000 people turning 62 years old EACH DAY in the United States, there has never been a greater need for an additional financial tool to facilitate a stress-free retirement.
Jumbo Reverse Mortgages:
Jumbo Reverse Mortgages, sometimes known as Proprietary Reverse Mortgages — are developed, and follow the guidelines created by private companies. Guarantee Mortgage offers a Jumbo Reverse Mortgage up to $2.25M (certain restrictions apply).
Some important things to know:
- This specific loan allows a homeowner 62 years or older to access the equity in their principal residence without taking on monthly mortgage payments.*
- This type of loan, referred to as Home Equity Conversion Mortgage (HECM) is insured by the Federal Housing Administration (FHA) within the U.S. Department of Housing and Urban Development (HUD).
- The homeowner can access the equity from a reverse mortgage by receiving a monthly income, establishing a line of credit, receiving a lump sum or any combination of the three!
- You can also use a reverse mortgage to PURCHASE your primary residence!
- Qualified borrowers may be able to purchase a home without taking on monthly payments. *
- This type of HECM loan allows a buyer to bring just enough of a down payment that creates enough equity in the home so that there are no monthly payments. *
- There is NO Required monthly payment on the HECM loan! In fact, in most cases you can ELIMINATE YOUR MONTHLY MORTGAGE PAYMENT!**
* No Principle and Interest (P&I) payments required but must pay property taxes and required homeowner’s insurance, maintain proper upkeep of the home and occupy the home as the primary residence
** Repayment of the loan is deferred until the home is sold or the last borrower moves out permanently.
FREQUENTLY ASKED QUESTIONS:
What are the minimum requirements to be considered for a Reverse Mortgage?
- All borrowers must be 62 years or older
- Home must be owner occupied as the primary residence
- Must be able to pay taxes, required homeowners insurance, and maintain the property
How are homeowners using the Reverse Mortgage?
- HECM for Purchase:
- Downsizing and eliminating a monthly mortgage payment*
- Upsizing to buy the “dream home” and not have a monthly payment*
- Relocating closer to family or moving for medical or weather related issues*
- Borrowers may meet HECM requirements* even if they do not qualify for traditional financing
- Eliminating a monthly payment
- Additional income
- Getting a line of credit as a “safety net” to draw on when needed
- Repositioning finances to have more reserves
*No P&I payments; borrowers are required to pay property taxes, insurance, and maintain the home
How does a Reverse Mortgage for Purchase work?
- The reverse mortgage loan amount for a purchase is based on age, the lower amount of the sales price or appraised value, current FHA lending limits and current interest rates.
- The down payment for a Reverse for Purchase is calculated by using the sales price minus the reverse loan amount.
- The down payment must be documented and in the account for three months. Seller concessions are not permitted within this program.
- Repayment of a loan for a Reverse for Purchase is deferred until the home is sold or the last borrower no longer occupies the residence as their primary home.
What property types are eligible for a Reverse Mortgage?
- Single Family Residence
- Condominiums (must meet FHA guidelines prior to obtain the Reverse Mortgage)
- PUD – Planned Urban Development
- Manufactured homes (must meet FHA and Lender guidelines)
- 1-4 unit properties
How much money can I get?
There are five primary factors that go into the calculation of a Reverse Mortgage Loan:
- The appraised value of the property (subject to the FHA limit for home value)
- Repairs needed to the home due to FHA guidelines for health and safety standards
- Payoff if there are any existing liens on the home
- Current applicable interest rate
- The age of the youngest borrower (with a minimum of 62 years old)
Is there a cap on the home value on this type of loan?
Yes, the maximum lending limit (value of the home) varies depending on the appraised value of the home but may not exceed $625,500 in value. If the value exceeds $625,500 then the loan amount will be a percentage of $625,500 based on the other preceding factors.
When is the loan balance due?
The mortgage balance must be repaid when the last borrower no longer lives in the home.
What if my home value drops?
The program is designed so that the borrower or their heirs will never owe more than the value of the property at the time of the sale of the property.
What are the possible “downsides” to the Reverse Mortgage?
There are two major things to keep in mind:
#1 – There are closing costs on the loan and therefore it was designed to be used for the long haul. So the question to answer is “Is this home the home you envision living in as long as you can foresee into the future?” If yes, then this may be a good solution.
#2 – Depending on how much of the available funds you use, what the Real Estate values do over time, and how long you use the loan (live in the home), you could consume the equity in the home. If the loan allows you to be financially independent and you are aware that this does not create a debt that passes to your heirs to pay (because of the FHA insurance), then this might be a suitable option for you.