Monday, August 20, 2018

Reverse Mortgages: What You Should Know

  • How do I qualify for a reverse mortgage?
    To become eligible for a reverse mortgage, you must be at least 62 years old and own your home. You must have equity in the house to pay off any outstanding balances, and your home must be occupied as your principal residence.
  • How much money can I get?
    The amount of money that a lender will loan depends upon how old you are at the time of closing, how much your house is worth, the total amount of liens, and interest rates. The payoff of your existing mortgage and mandatory obligations along with the payment option chosen will affect the amount of money you will receive. HUD limits borrowers to using 60% of the available money (after closing costs & fees) in the first year. The remaining funds are accessible beginning year two.
    This maximum disbursement limit set by HUD allows for the GREATER of:
    1. 60% of the Principal Limit (amount of money available to borrower in all years of the loan) in the first twelve months of the loan from your closing date OR...
    2. The sum of Mandatory Obligations* (existing mortgage payoff, tax liens, closing costs, mortgage insurance premium) plus 10% of the Principal Limit. This total cannot exceed the total the Principal Limit at the time of loan closing.
  • How do I receive my money?
    There are several different options to choose from. You can take the money in a lump sum (up to HUD's first year maximum withdrawal), set up a line of credit, monthly payment, or a combination of all three. In the first year the Line of Credit or monthly Tenure Payments or monthly payments cannot exceed 60% of the Principal Limit. After the first year the available Line of Credit or Tenure/Monthly payments will be increased when applicable.
  • What costs are associated with a reverse mortgage? The costs of a "forward" loan are very similar to a reverse loan. For example, an origination fee is paid to the broker/lender, a MIP (mortgage insurance premium) is paid to HUD on the Home Equity Conversion Mortgage (HECM), an appraisal fee, a flood certification fee, a doc prep fee, title and settlement fees, and other standard closing costs. Monthly servicing fees could apply.
  • What are the FHA Mortgage Insurance Premium Charges?
    The upfront Mortgage Insurance Premiums (MIP) are either 2.5% or .5% depending on how much of the Principal Limit (amount you can borrow) you use in the first year. If your total mandatory obligation payoffs (existing mortgage payoff, tax liens, closing costs, upfront mortgage insurance premium) exceed 60% of the Principal Limit your upfront MIP is calculated at 2.5% of your homes appraised value up to the national lending limit of $625,500. If your total mandatory obligations and cash taken in the first year are 60% or less of the Principal Limit your upfront MIP charge is .5% of the homes appraised value or national lending limit (whichever is less).
  • Is it required that I receive counseling before getting a reverse mortgage?
    Yes. Counseling is required with an independent third party HUD-approved counselor to protect borrowers from receiving incorrect information about reverse mortgages. The lender must be in receipt of the counseling certificate before they can close the loan. To locate a reverse mortgage counselor near you, contact your loan officer or your local HUD office.
  • Do I get taxed on the money I receive from my reverse mortgage? The equity in your home is typically considered as loan proceeds and not additional income. Typically the funds from a reverse mortgage are considered tax free. (Borrowers should seek professional tax advice regarding reverse mortgage proceeds.)
  • Do I have to pay any fees to the reverse mortgage lender during the course of my loan?
    A reverse mortgage was created so borrowers don't have to pay most fees during the course of the loan. Typical upfront costs are for the appraisal and HUD-approved reverse mortgage counseling (some agencies waive counseling fees at their discretion). However, there may be a monthly servicing fee associated with reverse mortgages. For more information on the service set-aside, please talk to your loan officer.
  • *Any and all information on this website even if taken directly from HUD or FHA was not approved by the Department or Government Agency.

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