What is a Reverse Mortgage Loan In Simple Terms?


The reverse mortgage loan is a special type of loan for seniors who have equity in their homes and are 62 years and older. It's a popular alternative for retirees who want to use some of the equity in their home to supplement their income. Some of the benefits of a reverse mortgage loan are:
 
  • The money received is tax-free.
  • You can get cash in your hands to use for any purpose.
  • It does not affect any government benefits the borrower may be receiving.

It's different from a traditional mortgage because instead of making a payment to the lender every month like you would on a regular mortgage, the lender pays the borrower each month. But, keep in mind that the borrower will still be responsible for paying for taxes, insurance, and any homeowner association dues.

 

How Much Money Can I Receive With a Reverse Mortgage Loan?

To find out how much money you may be able to receive we'll need your:

  • Name
  • Date of Birth
  • Property Address

Give us a call today. We're more than happy to go over your options.

Just as with any home loan, a reverse mortgage loan uses the property as collateral. There is no exact formula that you as a borrower can use to guess to see how much you might qualify for. But, some of the things that are considered are the youngest borrowers age, home value, lending limits, and current interest rates.

One thing to know is that a borrower can never borrow more than the house is worth, not even close in fact. Because of HECM requirements, for the first 12-months, you might be restricted on the amount of funds available to you. And just as in a new purchase loan, you may be required to set aside money for homeowners insurance and property taxes.


How Does A Reverse Mortgage Loan Work? 

This loan lets a homeowner turn their equity into cash without having to make a monthly payment. However, they must still pay homeowners insurance, property taxes, and any HOA dues along with maintaining the home per the guidelines of the FHA. In addition to that, the homeowner must live in this property as their primary residence.  
The FHA - Federal Housing Administration offers the only reverse mortgage loan insured by the US government. The Home Equity Conversion Mortgage Loan (or HECM for short) is only available through an FHA approved lender like Clearwater Mortgage (NMLS# 921372).  

All borrowers must participate in HUD-approved HECM and Reverse Mortgage Loan Counseling. These services are available in Clearwater, FL located in Pinellas County as well as other major Florida cities.


Reverse Mortgage Loan Property Requirements


A reverse mortgage loan is for owner-occupied properties only.

Eligible property types are: 
 
  • Single-family residences
  • 2 - 4 unit properties
  • Townhomes
  • FHA approved condominiums
                    townhomes are ineligible for reverse mortgages


Ineligible property types per the Hud.gov website are:
 
 rentals ineligible for reverse mortgage loans             

 

             

 

  • Rental Properties
  • Manufactured homes without a permanent foundation 
  • Manufactured homes without HUD certification labels
  • Non-FHA approved condominiums
  • Cooperative units sometimes referred to a co-ops 
  • Bed and breakfasts

 

How Can You Use Reverse Mortgage Loan Funds?

 
If you're wondering what you can use the loan proceeds for, there are no restrictions. Common uses are for: 

  • Home renovations
  • Medical expenses
  • Nursing care
  • Long-term care
  • In-home care
  • Ongoing living expenses
  • Pay off an existing mortgage 
 
       


If a homeowner doesn't own their home outright and they still have a mortgage, they can pay off the old mortgage and get rid of their mortgage payment (except for taxes, insurance, and any HOA dues).  



More Reverse Mortgage Loan Facts Explained

There are three main areas of qualification covering the borrowers and property as well as financial criteria.

1. BORROWER REQUIREMENTS

  • The youngest borrower on title needs to be at least 62 years old.
  • Borrowers must own their home outright or have considerable equity.
  • They must live in the house as their primary residence.
  • Borrowers are not delinquent on any Federal debts.

Besides the above, borrowers must show that they are and will continue to be financially able to make timely payments for:

  • Property taxes
  • Homeowners insurance
  • Any applicable HOA Dues
  • Needed upkeep and repairs

 

2. FINANCIAL REQUIREMENTS

Once borrowers get their reverse mortgage loan, as stated above they have to make sure they continue to pay taxes, insurance, and upkeep.

As long as borrowers continue to live in the home as their primary residence and meet all of the other obligations of the loan the loan typically does not become due.


3. CREDIT HISTORY

Whereas the requirements aren’t necessarily as stringent as compared to regular purchase or refinance loan the following will still be considered:

  • Assets
  • Income
  • Monthly overhead
  • Credit history

Along with that, the timely payment of the following will be verified:

  • On-time payments of homeowners insurance (flood and hazard)
  • On-time payments of real estate taxes

 

Adjustable Interest Loan and Repayment Options

  
For adjustable interest rate loans, borrowers have a choice of five ways to receive payments:
  • Tenure (occupancy) – as long as one borrower still lives in the home, equal monthly payments are distributed.
  • Term - monthly fixed payments are sent to the borrowers for a number of months.
  • A line of Credit - no specific schedule for payments, at the borrowers choosing until the money is gone.
  • Modified Tenure - this is a mix between the scheduled monthly payment and line of credit as long the borrower stays in the home.
  • Modified Term - this is a mix between the scheduled monthly payment and line of credit as long the borrower stays in the home.
In most cases, the mortgage doesn't have to be paid back until the last surviving homeowner either:  

  • Passes away
  • Or Moves 

Once that happens; usually, the home is sold by the estate and the loan is paid back. The heirs will receive any equity left. If the property is sold for less than what is owed, it's good to know that the estate isn't liable.

 

How Expensive is a Reverse Mortgage Loan?

At Clearwater Mortgage, there is no loan origination fee! Most lenders will charge a loan origination fee of up to 2% of the loan amount. Not here. Here are some of the costs you can expect: 



  • FHA mortgage insurance premium that can be financed into the loan.
  • There are standard title fees.
  • Florida has Doc stamps and intangible tax.
  • Recording fee to record the mortgage. 
   

 

Is a Reverse Mortgage Loan Right for You?

Although this is a question you will have to answer for yourself, the professionals at Clearwater Mortgage can help you weigh your options. Plus, since we are a loan broker along with Reverse Mortgage Loans, we also offer traditional home refinance loans which in some cases may be the better way to go.  


Give us a call today at 727-259-2900, and we will be happy to answer all of your questions.

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