What is a Reverse Mortgage?

A Reverse Mortgage is a loan for senior homeowners against the equity of a home that provides cash advances to a borrower requiring no repayment until a future time. Normally this does not happen until the last surviving homeowner permanently moves out of the property or passes away. At that time, the estate has approximately 6 months to repay the balance of the reverse mortgage loan or sell the home to pay off the balance. All remaining equity is inherited by the estate. The estate is not personally liable if the home sells for less than the balance of the reverse mortgage loan.

Qualifying for a HECM Loan

  • All homeowners are at least age 62.
  • Existing debt on the home will need to be paid-off before or through the proceeds of a Reverse Mortgage
  • The borrower must live in the home as their primary residence
  • The borrower must not be delinquent on any federal debt; this will have to be paid off with the HECM loan proceeds at closing 

Eligible home types

  • Most single-family residence, a residence in a 2-4 units dwelling
  • Condominiums must be FHA-approved
  • Manufactured housing units must be double wide and meet FHA requirements
  • The home must meet all FHA minimum property standards. Health and Safety issues cleared
  • The borrower must receive HECM counseling from a HUD approved counseling agency

Difference between a Reverse Mortgage and a Traditional Mortgage
With traditional loans the homeowner must still make monthly payments to repay the loans. However with a reverse mortgage loan there are NO “out of pocket” monthly payments to be made and the homeowner may receive payouts from the reverse mortgage loan from the lender.

There is NO income to qualify at! There are NO credit score requirements to meet! There are NO housing or Debt ratio’s to qualify at!

With a reverse mortgage loan the amount that may be borrowed is determined by an FHA formula that considers age, the current interest rate, and the appraised value of the home. Generally the higher the value of the home the higher the loan amount will be, up to the FHA’s maximum lending limits. The loan is typically not due as long as the homeowner lives in the home; however, the homeowner is still responsible for real estate taxes, insurance, and maintenance.

Outliving the reverse mortgage loan
A reverse mortgage loan cannot be outlived. As long as one of the homeowners lives in the home as their primary residence and maintains the home in accordance with FHA requirements (keeping taxes and insurance current), the loan does not become due.

Estate Inheritance
In the event of death or in the event that the home ceases to be the primary residence for more than 12 months, the homeowner’s estate can choose to repay the reverse mortgage loan, refinance the home or put the home up for sale.

If the loan balance owed is less than the home value, then the heirs get the rest.

If the sale of the home is not enough to pay off the reverse mortgage, the lender must take a loss and request reimbursement from the FHA. No other assets owned by the estate will be affected by a reverse mortgage short fall.

Loan limit
With a reverse mortgage loan the amount that may be borrowed is determined by an FHA formula that considers age, the current interest rate, and the appraised value of the home. Generally the higher the value of the home the higher the loan amount will be, up to the FHA’s maximum lending

Distribution of money from a reverse mortgage loan

There are several ways to receive the proceeds from a reverse mortgage loan:

  • Lump sum – all cash out at closing
  • Tenure – Payments made to the borrower from the Lender until the borrower no longer occupies the property.
  • Term – Payments made to the borrower from the Lender, only for a fixed period of time.
  • Line of Credit – draw any amount at any time until the line of credit is exhausted

Any combination of those listed above.



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