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Mortgages Main

Reverse Mortgages

A reverse mortgage is a loan that allows homeowners age 62 and older to access a portion of their home equity and convert it into tax-free funds.1

 
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More Information about Reverse Mortgages

Basic Eligibility

We make applying for a reverse mortgage loan simple. To be eligible for a reverse mortgage loan, some key requirements are:

  • Homeowner(s) must be at least 62 years of age or older
  • Homeowner must live in the home as his/her primary residence and have sufficient equity
  • Ability to pay off existing mortgage through the reverse mortgage loan
  • Live in a single family home, two to four unit owner-occupied home, and townhouse or approved condominium.

How a Reverse Mortgage Loan Can Help

A reverse mortgage loan gives you the ability to enhance your financial security and the ability to remain in your home during your retirement years.

  • Eliminate your existing mortgage payments2
  • Consolidate debt
  • Supplement your retirement income
  • Pay for medical care, prescription drugs and in-home care
  • Cover large or unexpected expenses
  • Make home improvements
  • Contribute to your grandchildren’s college education
  • Live a more comfortable lifestyle

Safeguards

The Federal Housing Administration (FHA) has put in place several safeguards for the Home Equity Conversion Mortgages (HECM), also known as the reverse mortgage loan program, to protect and shield homeowners from predatory lending practices. Among the safeguards is the mandate that a third-party counseling session must occur with an independent HUD-approved counselor before an application can be processed.

Common Misconceptions

The following are false statements about the reverse mortgage loan and the facts to help you better understand the product:

  • When you obtain a reverse mortgage loan; the bank owns your home.

    Fact #1: You will maintain the title as long as you live in your home, keep it maintained according to FHA requirements, and pay your property taxes and homeowners insurance.

  • Reverse mortgage loans are very risky.

    Fact #2: Reverse mortgage loans are widely regarded as a safe financial product. The federal government has placed strict regulations and safeguards on reverse mortgage loans to protect seniors. Additionally, the National Reverse Mortgage Lenders Association (NRMLA) was created to develop and promote best practices in the Reverse Mortgage industry.

  • Your home must be paid off to qualify for a reverse mortgage loan.

    Fact #3: As long as there is sufficient equity in your home, you may be eligible for a reverse mortgage loan, even if you still owe money on your existing mortgage. However, the existing mortgage balance must be paid off at closing. You may be able to use the funds from your reverse mortgage loan, or another source to pay off that balance.

  • You could end up owing more than your home is worth when it is sold.

    Fact #4: You or your heirs will not be required to repay more than the appraised value of the home when the loan becomes due, even if the loan balance exceeds the appraised value or sale price of the home.

  • Reverse mortgage loan proceeds are taxable and will affect your Social Security and Medicare.

    Fact #5: Reverse mortgage loan proceeds are not taxable because the IRS does not consider them as income. In addition, a reverse mortgage loan will generally not affect regular Social Security payments or Medicare benefits. However, certain need-based government aid programs, such as Supplemental Security Income (SSI) and Medicaid, may be affected. We recommend you consult with a qualified professional to determine the specific rules.

  • The bank takes your home upon your death leaving nothing for your heirs.

    Fact #6: A reverse mortgage loan functions like any other mortgage with a lien placed on the property. When the loan becomes due it must be paid. Generally, you can pay off the loan balance two ways: You or your heirs can sell the home and use the proceeds or use other sources to repay the loan.

  • There are restrictions on how you can use the money.

    Fact #7: You can use the net proceeds from your reverse mortgage loan however you see fit. However, if your home is in need of FHA-required repairs or you have an existing lien, judgment, or taxes that are due, those must be satisfied, either through the reverse mortgage loan proceeds or prior to obtaining a reverse mortgage loan. Whatever your circumstance, we recommend that you speak to a financial adviser.

Using a Reverse Mortgage Loan to Purchase a Home

Reverse mortgage loans are one way to turn the equity in your home into cash – without having to make monthly mortgage loan payments.2 Changes by Congress to the FHA-insured reverse mortgage loan program now allow homeowners to buy a home with a reverse mortgage loan.

Although this sounds too good to be true, Americans 62 years and older can use the equity from the sale of their previous home, or other cash or savings, to move into a different home – with a single down payment. With a reverse mortgage loan you don’t make loan payments, because the loan is not due as long as you live in your home as your principal residence and you maintain it according to FHA requirements. As with all mortgage loans, you are required to pay your property taxes and homeowners insurance.

Purchasing a home with a reverse mortgage loan is similar to purchasing a home with a conventional mortgage, with two minor exceptions. Rather than determining a down payment based solely on the purchase price, the minimum down payment will be based on a factor of your age, interest rates, and the lesser of the home’s appraised value, purchase price, or FHA national lending limit. Once an offer is accepted, your Reverse Mortgage Advisor will work with the seller or seller’s agent to open escrow with a title or escrow agency familiar with reverse mortgage loans. In some instances, a conventional title company will be able to conduct reverse mortgage loan transactions – your Reverse Mortgage Advisor will be able to determine which title companies can do this for you. Reverse Mortgage appraisals, inspections, contingencies, documents, and closings are virtually the same as those with a conventional mortgage. Due to the required HUD-approved independent counseling session, some reverse mortgage loan escrow periods may be slightly longer than that of a conventional mortgage.

Basic HECM 4 Purchase Eligibility

The basic eligibility requirements to purchase a home with a reverse mortgage loan are:

  • All titleholders must be aged 62 years or over
  • The purchased home must be your principal residence
  • The purchased home must meet HUD’s minimum property standards and be either a single-family residence, a residence in a 2- to 4-unit dwelling.
  • The down payment must be from qualifying sources
  • You must complete a HUD-approved counseling session

 

Need more information? Or would you like to apply for a reverse mortgage? Please fill out the form at the top of this page or contact the Credit Union at mortgage@ithinkfi.org or 800.873.5100, ext. 7722.


 

Generally, money received is not considered income and should be tax free, though you must continue to pay required property taxes. Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.

2 You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.

The information provided in this communication is for real estate professionals only. This information is not intended for distribution to consumers, as defined by §226.2 of Regulation Z, which implements the Truth-In-Lending Act. Information is subject to change without notice. It is your responsibility to ensure your clients and or applicants understand the loan programs offered and consult appropriate government agencies for legal and compliance guidance. Affiliate partners and broker correspondents are independent entities and do not form legal partnership or agency relationships with Liberty Reverse Mortgage.

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