What Is An Reverse Mortgage?
Reverse mortgages are increasing in popularity with seniors who have equity in their homes. The only reverse mortgage insured by the U.S. Federal Government is called a Home Equity Conversion Mortgage (HECM), and is only available through a Federal Housing Administration (FHA)-approved lender. The HECM is the FHA’s reverse mortgage program that enables you to withdraw a portion of your home’s equity to use for home maintenance, repairs, or general living expenses.
Top four reasons to get an Reverse Mortgage
FHA loans are perfect for a borrower who doesn't perfectly fit into the conventional loan criteria. Here are the top four reasons why:
Remain in Your Home After you Retire
Instead of leaving your home, a reverse mortgage allows you to age in place. HECM borrowers may reside in their homes indefinitely as long as property taxes and homeowner's insurance are kept current.
Supplement Your Income
Use the equity in your home to cover general living expenses
Ability to Withdraw Funds to Maintain your Home
FHA's Reverse Mortgage program enables you to withdraw a portion of your home’s equity to use for home maintenance and repairs.
You don’t have to pay taxes on the income
The money you get from a reverse mortgage isn’t taxable because the IRS considers it “loan proceeds,” not income. (However, it could be considered income by other agencies.)
Reverse Mortgage Qualification Requirements
Age Requirements
Reverse mortgages are meant to help seniors in or nearing retirement. Because of this, the reverse mortgage age requirement is 62 or older. You must be at least 62 years old to get a reverse mortgage.
If you’re 62 but your spouse is under the required reverse mortgage age, you can still get a HECM, but your spouse will be considered a non-borrowing spouse and will not have access to your loan proceeds. By designating them as a non-borrowing spouse, they’ll be able to stay in the home should you, the borrower, pass away.
Homeownership Eligibility
There are certain reverse mortgage requirements for the property, too. To get a HECM on your home:
You must own the home and it must be your primary residence.
You must have enough equity in the home – at least 50%, usually.
You can own the home free and clear or have an existing mortgage.
Single-family homes or up to four-unit properties are eligible if the homeowner occupies at least one of the units.
You may be able to get a HECM for some condominiums and manufactured homes, but they must be HUD-approved properties and meet FHA requirements.
Financial Requirements
All HECM borrowers must attend a required counseling session with a third-party, HUD-approved counselor. This ensures borrowers understand reverse mortgage requirements, how the loan works and any alternative options they may have.
One of the most important reverse mortgage rules is that borrowers must continue to pay their property taxes and homeowners insurance and maintain the property. If they don’t, the loan could come due and they could lose their home.
To ensure borrowers are able to afford these financial obligations, HUD also requires they undergo a financial assessment. Depending on the results of the financial assessment, some borrowers may be required to set aside a portion of their proceeds to pay for the financial responsibilities of the loan. This amount of money is put into a Life Expectancy Set-Aside (LESA), which acts as a sort of escrow account to hold the funds
At Delta Lending Group, we believe in personalized banking. We use state of the art technology to make sure that you are advised, included, and supported through every step of the loan process. Most importantly, we take the time to know you and craft products that are tailored to you and your individual life path. Watch the video below to learn more about our unique approach to the loan process.
