Who are reverse mortgages designed for?
They are designed for seniors who want to maintain their financial independence, people who may be “house rich” but need or want money for any reason:
- Home maintenance or improvement
- Health care costs
- Nursing or companion care to help seniors remain in the home
- Consolidate bills
- Help family with education costs, to buy a home, treat family to a vacation
- Purchase investment property
- Buy insurance products such as long term care insurance
- Purchase a home
- Save home from foreclosure or other emergency needs
- Purchase a new car
- Take a dream vacation
- Have money available at any time without having to ask family for financial help.
What is a reverse mortgage?
A reverse mortgage is a special type of home loan which allows the homeowner to use the equity of his or her home and convert it into cash. No repayment is required until the borrower no longer lives in the home as their principal residence. The most popular reverse mortgage on the market today is the FHA HECM (Home Equity Conversion Mortgage) which is federally insured by the government.
What types of property are eligible?
Single family homes,condominiums, townhomes, PUDs and 1-4 unit owner occupied homes are eligible. Manufactured homes built after 1977 are eligible if they are on permanent foundations and are taxed as real estate.
Can I Qualify with an Existing Loan on My Home?
Yes, but there must be enough equity. The existing loan must get paid off – this is usually done with the loan proceeds from the reverse mortgage.
Are there any restrictions on how I can use the money?
No restrictions of any kind. It’s your money to use any way you want.
My property is in a Living Trust. Do I qualify?
Yes, subject to review and approval of the trust documents. The property remains in the trust.
For tax planning purposes, I have my children on title to the property. Can I still qualify?
Yes, your children can remain on the title if they are age 62 or older and live in the property. Otherwise, they will need to be taken off title prior to closing. You should speak with an attorney on how best to structure a will or trust to leave your assets to your heirs.
Is my credit score or income used to help qualify for the reverse mortgage?
Income and credit are not used to qualify. Only age and equity are considered
Does the IRS consider the monthly advance from the reverse mortgage income?
No. The cash you take is a loan distribution and is not considered taxable income. For your specific situation, we recommend that you consult your tax adviser
Does the money from a reverse mortgage affect Social Security, Medicare or pension benefits?
The proceeds from a reverse mortgage do not affect these benefits. We recommend that you consult your financial adviser for further information.
Can the interest charged on my loan principal be deducted for tax purposes?
The interest accumulates and is deductible when the loan balance and interest is repaid. This occurs when the borrower permanently leaves the property. We recommend that you consult a tax adviser for further information.
If there are no payments, what are my responsibilities as a borrower with a reverse mortgage?
You are required to pay your property taxes, keep your homeowners insurance in force and maintain the home in good repair.
Can I make payments if I want to?
Yes if you want, you may make payments on the reverse loans. The jumbo products may have exclusions depending on the product you choose.
My spouse in permanently in a nursing home. Can we still get a reverse mortgage?
Yes. The requirement is that only one owner occupies the property as a principal residence
Is there a prepayment penalty?
Full or partial repayment is allowed on the FHA reverse mortgage loans.
When does the loan become due and payable?
The loan becomes due and payable when the last remaining borrower sells the property, permanently leaves the home or passes away. Until one of these events take place, you live in the home and make no payments to the lender.
Will I ever owe more than my home is worth?
All reverse mortgages are”non-recourse” loans. This means that the borrower or heirs can never owe more than the value of the home regardless of the loan balance.
I always dreamed of leaving my home to my children. Does the lender take my home if I die?
Absolutely NOT. When the last surviving spouse/borrower passes away, the loan becomes due. Your heirs can either refinance or sell the house to pay off the existing mortgage (as you would do with any mortgage on the property). The heirs retain the difference between what is owed and what the property is worth.
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