What is a Reverse Mortgage

By
Mortgage and Lending with Nexa Mortgage, NMLS #1660690 NMLS 217454

Reverse Mortgages

This article will provide information about reverse mortgages from a Certified Reverse Mortgage Specialist, Richard Woodward. It will include what you need to do to qualify, when you must repay the loan, and what could trigger a foreclosure.

What is a reverse loan?

Reverse mortgages allow older homeowners, 55 and older in some states and 62 and older in Texas, to borrow against their home’s equity.

These loans are special because of their unique nature.

Reverse mortgages offer equity loans that are unique because they pay the borrower either in a lump sum or in monthly payments when refinancing or they allow home buyers to make a large down payment to purchase a home and then no monthly mortgage payments going forward.

How is home equity calculated and what is it?

Home equity refers to the homeowner’s ownership interest in their home. The current market value of the property is used to calculate home equity. Any lien amounts that may be attached to the home is subtracted from the appraised value, and that becomes equity.

What is “HECM” and what are its requirements?

“Home equity conversion mortgage” is “HECM”. This is the most popular type of reverse mortgage and it is insured by HUD as an FHA mortgage.

These requirements are required for a home equity mortgage.

  • The applicant and spouse (the homeowner) must be at minimum 62 years of age in Texas.  Other states allow reverse mortgages beginning at the age of 55.
  • The homeowner must make the home his or her principal residence and live in it at least 181 days of the year.
  • The homeowner must either own the house in full or have a low balance on their current mortgage.  The homeowner should have roughly 50% equity to qualify.
  • With proceeds from the reverse mortgage loan, the balance of the current mortgage may be paid off at closing.
  • The borrowers must have at least $581 of residual income to qualify.  Pro Tip- assets and available line of credit can be used as income to help qualify.

These are some of the things you should remember before applying for a reverse loan.

When you are considering a reverse mortgage, keep these things in mind:

What are the terms of a reverse mortgage?

Reverse mortgages are subject to several conditions.

  • The homeowner must be able to live in the house for the majority of the year.
  • It may be considered permanent if the homeowner has lived in a nursing home for more than 12 months. The homeowner might be required to repay the loan.
  • Property taxes must be paid on time. This is true even if the homeowner has a deferral.  Tax deferrals are not allowed in combination with a reverse mortgage. Failure to pay property taxes on time or keep insurance current can lead to default and possible foreclosure.
  • Insurance must be maintained by the homeowner.
  • The homeowner is responsible for maintaining the property and paying HOA fees.

Reverse Mortgage Options and Education

 

 

 

 

 

What is the difference between a “nonborrower” or a “co-borrower?”

Non-borrower is someone who isn’t listed on loan documents but lives in the house.  This person will have to move once the loan becomes due.  It will only come due if the borrower(s) leave the home permanently or pass away.  Non-borrowing spouses are not allowed in Texas.

Co-borrower, usually a spouse, is someone whose name appears on loan documents together with the homeowner (applicant). The homeowner can pass away and the co-borrower, along with any children or other relatives, may continue to live in the house.

What is the payback terms of the home equity mortgage (HECM)?

The home equity conversion loan (HECM), must be paid in full by the last borrower or eligible spouse.

  • Dies,
  • The home is no longer their primary residence.
  • Paying taxes late
  • Failure to keep insurance or
  • Refuses to make the repairs that are needed.

What are the fees for a reverse mortgage?

Reverse mortgages can have upfront costs and ongoing costs. Lender fees, upfront mortgage insurance, closing costs, and other expenses must be paid by the homeowner. The Richard Woodward Mortgage Team will allow borrowers to select from several options including options with no origination fees.

How are mortgage insurance premiums calculated?

FHA mortgage insurance is collected at closing in the amount of 2% of the appraised value of the home.

The monthly loan amount is multiplied by mortgage insurance multiplier which currently stands at 0.50%, which results in the monthly premiums.

What are the main causes of foreclosure?

Failure to adhere to the terms of the reverse loan can lead to foreclosure, just like any traditional conventional, FHA, VA or USDA mortgage.

When the homeowner (applicant), is unable to pay his or her mortgage, foreclosures may occur in traditional mortgages but not in reverse mortgages.  However, in all cases, the following items must be paid to prevent foreclosure.

  • Not paying property taxes.
  • Failure to keep insurance.
  • If the homeowner is not able to live in the house for the required time which is 181 days of the year.
  • If the borrower(s) passes away.  The heirs have up to 12 months to refinance or sell the home so that they can keep the remaining equity.

Are there other kinds of loans I should look at?

There are many alternatives to a reverse mortgage, such as second mortgage loans, home equity loans, or just a plain conventional mortgage. The main difference is that you will have to qualify with more stringent standards for income and credit, and you will have to start paying these loans back right away.

If you would like a free consultation about your reverse mortgage options, you are welcome to call The Richard Woodward Mortgage Team at (214) 945-1066 or complete an online secure application now.

Comments (0)