Reverse Mortgages Frequently Asked Questions
- 1. What is a Reverse Mortgage?
- 2. Do I Qualify If I Still Owe Money on My Home?
- 3. Who Owns My Home If I Get a Reverse Mortgage?
- 4. Will I Lose My Social Security or Medicare Benefits if I Get a Reverse Mortgage?
- 5. What if I Have Bad Credit?
- 6. Will My Family Have to Pay the Lender if The Reverse Mortgage Loan Balance is More Than My Home is Worth When I Pass Away?
- 7. Is The Interest on a Reverse Mortgage Tax Deductible?
- 8. What Happens if My Spouse Passes Away? Will I Be Kicked Out of My Home?
- 9. Can I Still Leave My House To My Heirs?
- 10. If My Home Is In a Trust Can I Still Get a Reverse Mortgage?
- 11. Why Do I Have to Get Reverse Mortgage Counseling Before I Can Apply for This Type of Loan?
- 12. What if My Home is a Condominium?
- 13. Can I Buy a House With a Reverse Mortgage?
What is a Reverse Mortgage?
A reverse mortgage is a unique type of home loan that allows homeowners that are age 62 or older to tap into their home equity without the obligation of monthly mortgage payments.
A reverse mortgage, unlike a home equity loan or a traditional mortgage, does not require any income or credit qualifications, and does not require any repayment of the loan until the last borrower passes away or leaves the home for 12 consecutive months.
Do I Qualify if I Still Owe Money on My Home?
If you have enough equity in your home to pay off your current mortgage balance with the money you get from a reverse mortgage, then you qualify.
Your reverse mortgage loan proceeds will be used to pay off your current
mortgage. If you do not qualify for a high enough loan amount on a reverse mortgage to pay off your entire loan balance then you will be responsible to contribute the shortfall amount from your own assets.
If you are eligible for a higher loan amount than is needed to pay off your current mortgage, then the balance of the money from your reverse mortgage can be distributed to you in a lump sum, a line of credit, monthly supplemental income, or a combination of these options.
Who Owns My Home If I Get a Reverse Mortgage?
You Do. You retain title to your home. The bank does NOT own your home if you take out a reverse mortgage. The lender has a mortgage lien on your home the same way that the lender did when you first bought your home using a traditional “forward” mortgage loan.
Will I Lose My Social Security or Medicare Benefits if I Get a Reverse Mortgage?
No. Your Social Security and Medicare Benefits are not affected if you get a reverse mortgage. However, if you receive needs based benefits or other federal or state assisted programs that are based on income levels or other
specified qualifications, you should check with your benefit coordinator or case worker to find out if receiving proceeds from a reverse mortgage could impact your continued qualification for those other programs.
What if I Have Bad Credit?
Having bad credit or a low credit score does not disqualify you from getting a reverse mortgage. Reverse mortgage qualification is based on the amount of home equity you have, the age of the youngest borrower on the title to your home, and the current interest rates at the time you close your loan.
Will My Family Have to Pay the Lender if The Reverse Mortgage Loan Balance is More Than My Home is Worth When I Pass Away?
A reverse mortgage is a non-recourse loan. This means that your home, stands ALONE for the debt. If your house cannot be sold for the amount that is owed on the reverse mortgage, then the FHA mortgage insurance fund pays the lender the shortfall amount.
Your family is not obligated to pay the difference, unless they want to keep the home. In that case, they will have to refinance the home with a new “forward” or traditional mortgage in order to pay off the reverse mortgage. If they cannot get a new mortgage for the full amount, they will have to contribute the difference. This would be similar to them making a down payment to purchase a home.
Is The Interest on a Reverse Mortgage Tax Deductible?
Concerning tax questions, it is always wise to seek the advice of a licensed tax professional, since tax laws are constantly changing. However, it is widely accepted that reverse mortgage interest is deductible at the time the loan
is paid off.
Since you are not making payments on a reverse mortgage and you are not reducing the principal balance on the loan, you are not actually paying interest while the loan is outstanding. Instead, you are deferring the interest
until you pass away or permanently leave your home, at which time the reverse mortgage is paid off.
What Happens if My Spouse Passes Away? Will I Be Kicked Out of My Home?
If both of you were on title and took out the reverse mortgage together, you can remain in your home and continue to receive the benefits from your reverse mortgage as long as you live in your home as your primary residence. If you leave your home for 12 consecutive months or if you pass away, your reverse mortgage must be paid off.
Can I Still Leave My House To My Heirs?
Yes, you can still leave your home to your heirs the same way you could if you still had a regular “forward” mortgage on your home. Your heirs will simply have to either refinance your home to pay off the reverse mortgage, or they can sell your home to pay off the reverse mortgage. The excess equity or proceeds from the sale of your home is their inheritance.
If My Home Is In a Trust Can I Still Get a Reverse Mortgage?
In most cases the answer is yes, as long as the trust is revocable. However, to be sure, your lender will examine your trust documents to be sure that it will allow for the recording of a reverse mortgage loan.
You should also check with the attorney that created your trust for a legal opinion.
Why Do I Have to Get Reverse Mortgage Counseling Before I Can Apply for This Type of Loan?
HUD approved reverse mortgage counseling is mandatory and is an important consumer protection feature for this kind of loan. HUD and AARP have worked together over many years to ensure that senior citizens are not pushed into a reverse mortgage without fully understanding the pros and cons as well as the costs.
HUD approved counselors have been trained to explore with you, all the alternative options that might be available to you and to answer your questions in an unbiased fashion. The counselors have nothing to gain whether you get a reverse mortgage or not. Whereas, a loan agent or a reverse mortgage lender is monetarily compensated if they provide a reverse mortgage loan for you.
What if My Home is a Condominium?
If your home is a condominium, it must be a HUD/FHA approved condominium project. If it is not, you may want to go to your condominium board meeting and discuss the idea of applying for FHA project approval. This not only helps you to get a reverse mortgage, but it helps current owners interested in selling their condo now or in the future.
As we all know, the most popular mortgage financing program available since the financial meltdown, is FHA. FHA allows for the smallest down payment of any mortgage loans being offered today (other than VA, if you are a military Veteran.) If your condo association has not applied for FHA approval status, they are limiting their pool of perspective qualified buyers for the units for sale within your complex.
Can I Buy a House With a Reverse Mortgage?
Yes, you can purchase a home using a reverse mortgage as long as you have a substantial down payment to contribute to the purchase price. A combination of your own down payment money and the proceeds from a reverse mortgage will make up the total purchase price for the new home.
You will never have to make a mortgage payment on the new home as long as you use the home as your primary residence. More details regarding how to buy a house with a reverse mortgage can be found here, or you can call our office at 888-269-1098 for more information.