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Reverse Mortgages

Reverse mortgages allows qualified home owners over the age of 62 to borrow equity from their homes.  Instead of making payments to their lenders, lenders make payments to the home owners (borrowers).  Payments can be made as a lump sum, monthly, periodic advances via line of credit and any combination.

Do I qualify for a reverse mortgage?

You must be over the age of 62 with a home and there must be adequate equity in the home.  The existing mortgages must be paid off and differed maintenance and repair will be required, if necessary.  Your FICO score and credit history is not required.

What are the fees to do a reverse mortgage?

Just like any other loan there are fees.  The fees can be rolled into the loan and financed.  The fees will vary depending on your lender, your type of loan and third-party vendors.  Fees include:
  • Normal closing costs
  • Loan points or application fees
  • Monthly lender fees
  • Mortgage insurance premiums
How much can I borrow?

You loan amount will depend on the type of loan you select, your age and the amount of equity in your home after paying off existing mortgage.  Wells Fargo has an online reverse mortgage calculator you can use to determine how much money you can borrow. 

What are the advantages of a reverse mortgage?
  • Well the first advantage is that you receive money to live on especially if you are in a financial crunch.  
  • The money is tax free because you have to pay it back when you sell your home, you move out of the home or you die.
  • Depending on your lender, normally there are no financial restrictions.   
  • Your FICO score or credit history plays no role in a reverse mortgage.
What are the disadvantages of a reverse mortgage?
  • With reverse mortgages there can be substantial fees. There maybe upfront fees as high as $5,000 so it’s smart to shop around.  
  • Your payment amount may not be high enough to meet your financial needs.
  • Your ability to get government assistance such as Social Security Insurance and Medicaid maybe affected.
  • If you die and full repayment isn’t made, the lender will take your home.
What are the different types of reverse mortgages?

There are 3 basic types of mortgage which include:
  • Single Purpose Reverse Mortgage offered by state and local government agencies and some non-profit organizations.  These organizations normally don’t have high fees associated with reverse mortgages.  Availability of these loans are depended on where you reside and there are numerous regulations specified by the lenders regarding what you use the loan proceeds for.  Also, there are income restrictions.
  • Home Equity Conversion Mortgages also known as HECMs are federally insured reverse mortgage that generally have higher upfront fees than a Single Purpose Reverse Mortgage.  HECMs are widely available, do not have income requirements or purpose limitations.  HECMs are backed by HUD so you are required to meet with a counselor from a housing counseling agency to explain the details regarding the loan.  
  • Proprietary Reverse Mortgage are backed by private loan companies with options that will vary.  These type of loans normally have higher fees that a HECM or Single Purpose Reverse Mortgage.
Where can I find reverse mortgage lenders?

You can visit The National Reserve Mortgage Lenders Association who publishes a list, sorted by state, of approved lenders who originate reverse mortgages.

You can also visit the Department of Housing and Urban Development who publishes a list of approved HUD lenders. You will have to check the box that limits the search to lenders who have completed a HECM loan within the past 12 months.

 

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