Programs started by the federal government to help seniors, 1933 Social Security, 1965 Medicare, 1987 Legislation was passed by Congress creating the Home Equity Conversion Mortgage a.k.a the ‘Reverse Mortgage’. So, what is a reverse mortgage? It is a "Non-Recourse" loan which uses your home as collateral and does not have to be paid back as long as you live in your home and meet certain conditions. YOU MAINTAIN 100% OWNERSHIP of your home with the freedom to sell your home if you want.
How Reverse Mortgages Work
Reverse mortgage loans work by using the equity in your home and converting a portion of it into cash for you to use as you wish. A traditional loan would require payments to be made as soon as the funds are made available. What makes the reverse mortgage unique, rather than making a payment to your lender each month, the lender pays you. FHA insured reverse mortgages do not require any repayment of principal, interest charges, or service fees for as long as you live in your home. Borrowers are responsible for paying property taxes, homeowner’s insurance, HOA fees, and for home maintenance.
What is a reverse mortgage...a tool to get access to money tied up in your home
All funds received from the Reverse Mortgage do not affect your Social Security Benefits or any pensions that you may be receiving.
Reverse Mortgage funds are tax free.
Four different distribution’s for you to select from:
If I don't have to make payments, how does the lender get paid?
The loan becomes due and payable when a maturity event occurs. These events happen if the last remaining borrower:
-Sells or transfers the home.
-Does not maintain the home with basic repairs.
-Fails to pay taxes, insurance, and other home obligations.
-Stops occupying the home as their primary residence or leaves the home for more than 12 consecutive months.
-Defaults under loan terms.
If any of these events happen, it is the borrower's or the estate’s decision on how to satisfy the loan.
To do this, the home is usually sold and proceeds from the sale repay the loan. Any leftover funds go directly to the borrower or their heirs. In the event that you or your heirs want to keep the home after a maturity event, you may repay the loan by using other funds or by refinancing it into a traditional mortgage.
What's In It For The Lender
The loan accrues interest
-Interest rate is based on an index that your MLO will explain and share with you
-No risk to the lender because FHA insures the loan
-Loan is paid back if and when you die, sell the house or permanently move away
Who Get's My House?
-Your heirs will have 6 months (which can be extended) to decide how they want to satisfy the loan (the loan can never exceed the value of the home)
-Pay it off
-Refinance the loan
-Sell the house
As such, you are required to stay current with your property taxes, home owners insurance, HOA fees, and maintain the home in good condition. The Servicing Company will contact you periodically to confirm you still maintain the property as your primary residence.
How Do I Qualify?
Now that you can answer, what is a reverse mortgage, the next question is how to qualify?
HOW TO QUALIFY
You must own or have considerable equity in your home.
Live in your home as your primary residence.
Bee at least 62 years old (including the youngest spouse).
There are a few other requirements, but those can be discusses later to your specific situation