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Introduction to reverse mortgages

Introduction to reverse mortgagesReverse mortgages are government insured loans designed to allow senior homeowners to convert their home’s equity into tax-free income, without having to sell or move. The Department of Housing and Urban Development (HUD) allows homeowners who are 62 or older to borrow against the equity in their homes using this product, and while it can be complicated to understand, it can also be a useful financial tool for some seniors.

Here’s how a reverse mortgage works

  • Qualifying homeowners can choose to receive tax-free payments from reverse mortgage lenders either on a monthly basis, in a lump sum, or as a line of credit.
  • No income or credit checks are required.
  • No repayments are required while a borrower lives in the home.
  • Social Security and Medicare benefits are not affected.
  • Reverse mortgage lenders recover the loan amount, plus interest when the home is sold (because owners choose to move, or pass away)
  • When the loan is paid in full, all equity associated with the property will be distributed to your heirs.

Reverse mortgage borrowers continue to own their homes. Because there are no monthly loan payments due, the amount owed grows over time. That means that the amount and the remaining equity in the home decreases.

Borrowers must continue to pay homeowner’s insurance and property taxes during the loan period. It is also the borrower’s responsibility to keep up with repairs. In fact, if a borrower fails to adhere to any of these obligations, it may become immediate cause for the loan to become due. In this case, it would be payable in full.

Do I qualify for a reverse mortgage?

Federal requirements state that you must be age 62 or older. You must also occupy your home as your primary residence for the majority of the year, and must own the home outright or have a low enough balance on the existing mortgage that it can be paid off from the proceeds of the reverse mortgage. If you have questions about these calculations, as a CPA, that’s what DS Consulting specializes in.

Each borrower listed on the title must apply for the reverse mortgage loan, attend a free HUD counseling session and sign the loan papers. The HUD counseling is either handled in person, or over the phone.

Does my home qualify for a reverse mortgage?

First of all, your residence must meet HUD standards. The reverse mortgage must also be the only mortgage held against the residence. That means that if there is a current mortgage on the property, it may be able to be paid off with the proceeds of the reverse mortgage.

Examples of qualifying homes:

  • Single Family Homes
  • 2-4 Unit Owner-Occupied Homes

Ask your lender if these residences qualify:

  • Manufactured Homes
  • Condominiums and
  • Planned Unit
  • Developments

How is the loan amount determined?

The amount of the loan is based on:

  • The age of the youngest borrower
  • The appraised amount of the property

What are my reverse mortgage options?

HECM — The Home Equity Conversion Mortgage (HECM) is the only reverse mortgage that is insured by the Federal Housing Administration (FHA). The FHA guarantees that HECM lenders meet their obligations, and governs how much HECM lenders may loan to qualified borrowers, limiting loan costs. Because this is a government insured program, loan counseling is required through an approved HUD counselor.

HECM offers four options:

  1. Monthly income for a fixed term, or life
  2. Line of credit
  3. Lump sum
  4. Any combination of the above three

Interested in learning more? Please request a free consultation and we’ll help you determine if a reverse mortgage is right for you.

Contact Us

DS Consulting
15281 Weeks Dr.
La Mirada, CA 90638
Phone: 562-902-2677

Licensing

Dennis Sanchez
NMLS #281480
BRE #01179128
California CPA #34077 (inactive)
DS Consulting
NMLS #793097
Equal Housing Opportunity

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