A reverse mortgage is a home loan that provides cash payments to senior citizens based on home equity.
Homeowners typically defer payment of the loan until they die, sell, or move out of the home, but other payment options are available. Check the specific rules for reverse mortgage transactions, since laws can vary by jurisdiction.
Think about a reverse mortgage like you would any other home loan. You have to qualify and meet certain criteria, just like any mortgage. But with a reverse mortgage, you can take the cash value of your equity, and postpone payments of the mortgage until you leave the home, typically at the time of death.
For detailed information, see the HUD.gov website. Here are some of the bullet points from the HUD information:
Borrower Requirements for a Reverse Mortgage
You must:
- Be 62 years of age or older
- Own the property outright or paid-down a considerable amount
- Occupy the property as your principal residence
- Not be delinquent on any federal debt
- Have financial resources to continue to make timely payment of ongoing property charges such as property taxes, insurance and Homeowner Association fees, etc.
- Participate in a consumer information session given by a HUD-approved HECM counselor
Property Requirements for a Reverse Mortgage
The following eligible property types must meet all FHA property standards and flood requirements:
- Single family home or 2-4 unit home with one unit occupied by the borrower
- HUD-approved condominium project
- Manufactured home that meets FHA requirements
Financial Requirements for a Reverse Mortgage
- Income, assets, monthly living expenses, and credit history will be verified.
- Timely payment of real estate taxes, hazard and flood insurance premiums will be verified.
You may be eligible for one of the following payment plans:
- Tenure – equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
- Term – equal monthly payments for a fixed period of months selected.
- Line of Credit – unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.
- Modified Tenure – combination of line of credit and scheduled monthly payments for as long as you remain in the home.
- Modified Term – combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.
- Single Disbursement Lump Sum – a single payment at loan closing.
Mortgage Amount Based On
The amount you may borrower will depend on:
- Age of the youngest borrower
- Current interest rate
- Lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price; and
- Initial Mortgage Insurance Premium
HECM Costs
As with any mortgage, there are costs for a reverse mortgage. The costs can be financed from the proceeds of the loan, which will reduce the net loan amount available to you.
Fees and charges associated with a reverse mortgage include:
- mortgage insurance premiums (initial and annual)
- third party charges
- origination fee
- interest and servicing fees
You will be charged an initial mortgage insurance premium (MIP) at closing, which will be 0.5% percent or 2.5%, depending on your disbursements. Over the life of the loan, you will also be charged an annual MIP that equals 1.25% of the mortgage balance.
Apply for a Reverse Mortgage
At Marimark Mortgage, we make applying for a mortgage easy. Give us a call at 866-910-8020 to get started, or contact us online at your earliest convenience.
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