Reverse Mortgage Loans
A Reverse Mortgage allows a current homeowner to modify a portion of their home’s accrued equity into cash. The current homeowner must minimally be 62 years old, and currently occupy the home in order to be considered. Reverse Mortgages are insured by the Federal housing Administration (FHA) and can be used to take out cash from the equity of a home.
Reverse Mortgage Eligibility Guidelines
The eligibility requirements for Reverse Mortgage Loans are specific for the reason that it is made especially for seniors who are in need of a supplemental for their current income.
The three major things to take into consideration are:
- The homeowner is 62 years of age or older.
- The listed property must be a qualifying home.
- Applicant is the permanent resident of the home they are looking to finance.
The HUD HECM Reverse Mortgage Loan protects the borrowers by confirming that the loan will continue as long as the resident remains in their home, maintains the property, and stays current on his or her taxes.
Occupancy Types
If a permanent resident falls ill, and is placed in full-time care such as a nursing home, the Reverse Mortgage Loan will cease to exist, and payments will no longer continue. It will then be the borrower’s responsibility to start paying back the loan itself.
Property Types
The below properties are approved for a Reverse Home Mortgage:
- Single-family home
- 2-4 unit property
- Condominium
- Townhome
- Manufactured homes
Manufactured homes are only eligible when built after June of 1976, and permanently affixed to an FHA approved lot of land. Condominiums and townhomes are eligible only if they are owned immediately by the borrower.
Vacation homes, rental homes, etc. are ineligible for a Reverse mortgage since they are not viewed as a form of permanent housing. The only time a rental home is eligible is when the home is a multi-unit home, and the owner resides within the same building.
Loan Limits
Reverse Mortgage Loans are available up to $625,000. Of course, this is subject to approval, as well as the value of the home. Numerous factors also weigh in when it comes to determining eligibility:
- Borrowers age (when there is more than one borrower, the youngest age will be used).
- Appraised value of the property.
- Current mortgage interest rate
In any given circumstance, the older the borrower, the more they are allowed to seek. For example, an 85 year old borrower would be allowed to borrow almost 80% of the home’s current appraised value. A 65 year old, however, would only be eligible for about 60% of the home’s current value.
Credit History
Although it is not extremely difficult to qualify for a Reverse Home Mortgage a borrower should meet the below requirements:
- Be current on their mortgage with zero late payments over the last 2 years.
- If a candidate has filed for bankruptcy, it may take up to 2 years for them to become eligible.
- In the event the borrower experienced foreclosure, they may have to wait up to 3 years to be approved for financing.
Since Reverse Mortgage Loans are flexible, it is important to speak with a mortgage professional to hear all options. Any of the above details do not automatically disqualify an individual.
Loan-To-Value (LTV)
Traditional loan-to-value ratios are not used in Reverse mortgages. Instead Reverse Mortgage Loans use Total Annual Loan Cost (TALC) to estimate the annual average cost of the loan. The TALC and the age of the borrower helps determine how much money will be loaned and paid out.
Important factors to remember:
- Older applicants will be considered for higher loans.
- Homes with higher appraisals will also be considered for more funding.
- Higher interest on a HUD HECM Reverse Mortgage means a lower cash payout.
Required Documents
The Reverse Mortgage process requires proper documentation before underwriting begins.
Required documents include:
- HECM Counseling Certificate
- Photo ID (State ID, Driver’s License or Passport)
- Social Security Card or Medicare Card
- Homeowner’s Insurance Policy
- Latest equity/ mortgage line loan statement
- Death Certificate (if deceased spouse is on the deed)
- Marriage Certificate/Birth Certificate (if several last names are listed)
- Property Tax Bill (select lenders)
- Power of Attorney (copy of trust agreement or guardianship)
Homes are an asset and Reverse Mortgages allow individuals to access the equity on their home. A Reverse mortgages does not need to be repaid until the last borrower leaves the residence (in the event of death or to leave for full-time care).
Counseling
Before underwriting can begin, all prospect borrowers must complete the mandatory HUD HECM Reverse Mortgage Counseling. The borrower must then present a certificate of completion at the time of loan signing.
Counseling needs to occur so the applicant is aware of Reverse Mortgage program details. For example, borrowers need to know that if they leave their home, their payments stop immediately, and then will be asked to start paying back all borrowed funds.
Reverse Mortgage Loans Frequently Asked Questions
When do I need to repay the loan?
Repayment of the loan will occur when the home is sold, the last borrower relocates, or passes away.
How do you repay your loan?
Repayment of the loan can be accomplished by selling the home, refinancing a separate mortgage, or heirs may choose pay it off with their own funds. The loan must be repaid once the home is no longer occupied by the primary resident.
What do I need for my counseling appointment?
The goal of the appointment will be to go over the borrowers’ financial standing. This will be a time to discuss how much an applicant has researched this loan type, and whether it is right for them. It is also advised that a borrower bring close family members along to aid in their financial decisions.
