Michael G. Branson Edited by 
Cliff Auerswald 75 commentsBy Michael G. Branson Edited by Cliff Auerswald 75 comments
A reverse mortgage is a loan. It is not a government grant. You are not selling your home to the bank and are still on title to the property. Just like any other loan, you are still responsible for the payment of your taxes and insurance , but unlike other loans, with a reverse mortgage, borrowers are not required to make regular payments of principal and interest or interest only for as long as you live in the home as your primary residence.
It is called a “reverse mortgage” because it operates in reverse of a traditional or forward loan. Rather than making monthly payments and the balance going down each month with each payment, borrowers are not required to make any monthly mortgage payments. The balance rises as the interest accrues and is added to the outstanding loan balance. While no payments are ever required on the loan, borrowers may make a payment at any time in any amount if they so desire.
Reverse mortgages are available to borrowers age 62 and over for the government-insured Home Equity Conversion Mortgage ( HECM ), and some proprietary or private programs will accept borrowers down to age 60. While the loan terms can cover eligible spouses under 62, they are not borrowers on the HECM reverse mortgage.
Eligible non-borrowing spouses who were deemed as such at the time the loan was closed are allowed to remain in the home under the terms of the original mortgage for life, even if the borrowing spouse passes, but since they are not a borrower on the loan, cannot access any money still in the line of credit so all non-borrowing couples should review their circumstances to see if it makes sense for them to refinance the loan in the name of both spouses as soon as each reaches the minimum age for the loan eligibility.
The reverse mortgage has greater flexibility than other loans, such as equity loans or HELOCs. It also requires that borrowers pay FHA (HUD) mortgage insurance on the HECM program. A HELOC or Home Equity Line of Credit is a bank product that is relatively inexpensive and quick to obtain. However, like most loans, there is a stricter standard to qualify for the loan, and it is not as friendly for seniors on a fixed budget.
Borrowers must qualify for a HELOC with traditional income and debt ratios that often require them to make monthly payments of at least interest-only early in the term of the loan and then may increase up to three times the amount of the early payment to include principal payments as well later in the loan during the repayment period.
At this time, the lender may no longer allow borrowers to take additional draws from the line of credit. As with senior borrowers, their income may have decreased from when they originally obtained the loan, making it even harder to repay in the remaining term. The lender can also freeze, lower the amount available, or close the HELOC at any time, according to their discretion.
The reverse mortgage is also available as a line of credit , but HUD guarantees the line. The lender cannot lower or close it at will. The line of credit grows on the unused portion monthly, and borrowers can receive more funds available later when needed rather than less at the lender’s discretion.
Since the loan is insured, if anything were ever to happen to the lender, the loan would be assigned to a new lender or HUD, and the loan would remain in effect as written.
On a forward mortgage, you apply for a loan amount, and the lender may approve that amount or a lower amount depending on your circumstances (income, assets, credit scores, etc.). With a reverse mortgage, HUD uses a calculation to determine the borrowers’ benefit or loan amount based on several criteria, which include the borrowers’ age(s), the interest rate as expressed by an “expected rate” (more about that later), and the property value or the HUD maximum lending limit, whichever is less.
Because the borrower is never required to make a mortgage payment while living in the home, the older the borrower is, the more money the calculation will allow as a percentage of the home’s value. After all, since the loan allows the borrower to make no periodic payments and the interest is accruing, it stands to reason a 62-year-old borrower can accrue more interest in a lifetime than an 87-year-old borrower.
HUD’s calculations take this into account using actuarial tables for life expectancies. It would also be true that a loan at 4% can accrue more interest than a loan at 3%, so the calculator would also consider these differences. ( You can download a copy of these tables here. ) Finally, HUD has a maximum lending limit they use to limit their risk, which is currently $1,149,825 .
This does not mean you cannot get a reverse mortgage on a home valued over $1,149,825, but you stop receiving additional benefits at this limit. The same-age borrower with a home worth $1,149,825 would receive the same benefit or loan as a borrower with a home valued at $1,500,000. Suppose the home is worth considerably more than HUD’s maximum. In that case, the proprietary programs (often called Jumbo Reverse Mortgages ) are sometimes a better fit for those borrowers.
So, since this appears to be a “moving target” with interest rates, ages, and HUD changing guidelines involved, what is the best way to determine your eligible amount of available funds?
Try our free reverse mortgage calculator , which requires very little information and is not obligated to see how much you could expect to receive from the loan for your circumstances.
Two parties are involved in every mortgage transaction – a lender and a borrower. That is also true with a reverse mortgage. But in addition to a reverse mortgage lender, the government is involved in every transaction because HUD will insure the loan. So, there are steps the lender must follow to be sure that the loan meets HUD requirements. To be a lender for a HECM loan, the lender must be approved by HUD.
That does not mean that the originator is necessarily a HUD-approved entity. Some originators, like mortgage loan brokers, are not HUD-approved but must take the loan to a HUD-approved lender to be underwritten and closed. The loan is the same HUD HECM loan either way, but there may be additional or higher costs with more people in the mix.
Borrowers are encouraged to be good shoppers and compare different lenders . Not all lenders are priced well, and not all brokers are priced higher, but it is prudent to compare. After all, if you get the same loan with the same parameters and insurance no matter where you go, you should get the best terms for yourself and your family.
HUD is involved in every loan completed, regardless of the originator.
HUD will require every borrower to attend counseling with a HUD-Approved counselor . They will assign a HUD Case Number to control the loan’s origination. Currently, HUD reviews each appraisal and determines if another appraisal will be required. The appraisal can only be completed once it is delivered from the appraiser to the HUD EAD (Electronic Appraisal Delivery) Portal.
Lenders may only give approvals to borrowers under the program’s terms after receiving appraisal clearance through the HUD EAD. Then, the lender will deliver certain documents to HUD for insuring the loan after the loan closes.
Each set of legal documents that borrowers sign states that the lender may call the loan due and payable if HUD does not insure the loan within 9 months, so it is critical that if your lender contacts you and requests something needed for insurance, you assist them (and another document in the package that you sign says you agree to do so).
The borrower takes all the funds at closing in one lump sum draw . This is mainly used with purchase transactions when all the funds are needed to buy the home.
This is the most common option wherein the borrower can draw up to their maximum available amount but can also choose any other amount and leave the remaining funds in a line of credit to be used as they desire.
A Tenure payment is a payment for life. The HUD calculator determines your payment amount based on your value, age, and interest rate.
The borrower chooses the payment amount they want rather than letting the calculator decide based on the amount to be paid for life. The payment might only last for a few years in this choice, but that might be all the borrower needs until another income stream kicks in.
The modified option is when you combine any of the options above. I.e., you choose to set part of the line aside as a line of credit for repairs but then use the rest for a tenure payment.
HUD limits any borrower’s amount in the first 12 months based on their mandatory obligations. Suppose you are not repaying qualified existing liens on the property or using the loan to purchase the home. In that case, you are limited to 60% of the Principal Limit in the first 12 months, and then you can receive the remaining 40% of your proceeds any time after 12 months. However, the fixed-rate loan program is a single-draw option.
Therefore, if you choose the fixed-rate program and your initial disbursement limit gives you less money at the close, you can never draw the remainder of the funds as you can after 12 months with the adjustable-rate line of credit program.
Reverse mortgages use many of the same terms as forward mortgages. But some terms are exclusive to reverse mortgages that you may have yet to be exposed to, and we want to help by defining some of the more often used terms. This list is not all-encompassing but will give you an excellent start on understanding the more common reverse mortgage terms you may hear used during a transaction.
All refinance transactions must follow the Federal law permitting a 3-day right to rescind (or cancel). If a borrower rescinds during these 3 days, the lender must cancel the loan. Even after a borrower has signed their final loan documents, the loan can only be funded once this mandated rescission period has elapsed.
The amortization schedule is an estimate given to each borrower that shows how interest and mortgage insurance will likely accrue on your reverse mortgage loan over the life of the loan. Unless you are getting a full draw at the close of the loan and have a fixed-rate reverse mortgage, this schedule is just an estimate because it cannot consider any future draws you may want to take or interest rate changes. Use this for comparison purposes only.
This document is used by administrators and title companies to determine ownership of real property in the case of a deceased relative, especially if the property was not specified in the decedent’s will. This is often required in states with strong heirship laws ( i.e., Texas ).
This is a company that employs an appraiser to evaluate your home . The AMC hires the appraiser, and, in this manner, the lender has no direct conflict or pressure on the appraiser and can remain compliant with HUD and federal Appraiser Independence Laws by allowing the appraiser to appraise the home free from any possible pressure from anyone associated with the loan transaction as required by law.
HUD allows lenders to use the dissipation of cash assets in the bank to count toward income to qualify borrowers when underwriting the loan. HUD has a formula the lender uses to determine how much of the borrowers’ assets can be used as annual income based on their age(s). That amount may be added to their other income and used to qualify borrowers for the loan.
HUD assigns a case number to each property when the borrower begins a new FHA loan. Lenders use the Case Number for several purposes. That number runs with the property even if the borrower chooses a new lender.
Property held jointly by married individuals or acquired by either spouse while married, is generally considered community property.
Your loan must be underwritten by an FHA-approved underwriter with a “DE” (Direct Endorsement) qualification. That underwriter will determine anything not present in the loan file needed to close the loan, and those items become “conditions” to close. You must satisfy the underwriting conditions to receive and close your loan documents.
HUD must approve property in a condominium project to be eligible for the HUD HECM program. The project must either already appear on HUD’s list of approved projects , or the documentation must be submitted to obtain project approval, or the lender cannot close a loan in that project (some exceptions do apply – speak to your lender about your project).
The counseling agency is a third party that HUD approves to educate borrowers about the reverse mortgage from an educator, not a lender. Once a borrower has completed the counseling session and demonstrated a general understanding of the loan program, the counselor will give the borrower(s) a Counseling Certificate indicating successful session completion. A lender cannot get the HUD Case Number to proceed without this certificate number.
Reverse mortgages are due and payable when the last borrower on the loan passes or permanently leaves the property . In the case of eligible non-borrowing spouses, though, they are given a deferral period if the borrower passes before the non-borrowing spouse and can remain in the home for as long as they live under the same terms as a borrower (must pay the taxes, insurance and any other property charges as due and must live in the home as their primary residence).
It is important to note that a non-borrowing spouse cannot access any funds in the line of credit during the deferral period.
In 2014, HUD implemented Financial Assessment guidelines that spelled out how reverse mortgage borrowers must qualify for reverse mortgages. Those guidelines include credit requirements and income and debt requirements. HUD’s guidelines do not use debt-to-income ratios, and credit scores are not considered, but rather, you will see terms like residual income, family size, and asset dissipation used.
The Good Faith Estimate, or GFE, estimates all settlement charges. This will be one of the disclosures you will see in your counseling session and one of the forms that the lender should provide you when they send you a loan application package.
Remember that when you receive a proposal, lenders often use various versions of different forms. Once it gets to the application, they must use the federally approved forms, and all charges must be clearly shown. Be sure to compare all fees on each estimate.
HUD is the Department of Housing and Urban Development, and FHA is a division of HUD, the Federal Housing Administration. People use HUD and FHA interchangeably when discussing the reverse mortgage program because it is a HUD program that FHA operates.
The final closing statement that outlines all the details of your transaction, including all charges, is the HUD1 Settlement Statement.
With every HUD/FHA-insured loan, borrowers have an initial mortgage insurance premium and an annual renewal. The insurance premiums are not paid out of pocket but are paid from the loan proceeds initially and then accrued on the renewals. The initial premium is 2% of the maximum claim amount, which is the lower of the value or the HUD maximum lending limit (currently $1,149,825). The renewal is .50% of the outstanding balance of the loan.
People often need clarification on all the rates they hear quoted with reverse mortgages, especially on the lines of credit programs. There is the initial rate, the expected rate , the capped rate, an index rate, and a margin. The index is the instrument used to set the basis for the rate out of the lender’s control.
The LIBOR is no longer being used and replaced with the SOFR (Secured Overnight Financing Rate). However, borrowers still see mostly Constant Maturity Treasuries as of this writing. To this rate, a Margin is added. Lenders cannot control what the index will do in the future, and most will be about the same in the long run, so borrowers should pay attention to the margin, as this will determine the ultimate interest rate charged for as long as the loan exists.
The initial rate is the rate that is the combination of the index plus the margin for the first period of the loan. Whether for one month on a monthly loan, three months, or one year, that rate may change as soon as the initial period is over. The expected rate is not charged to the borrower.
It is determined using a longer and higher index. HUD uses this only to determine how much money borrowers will receive on their reverse mortgage loan. Interest rate caps are the preset limits that kick in and keep the interest rate from rising above certain levels.
When marketing and HUD guidelines allow, lenders may be able to pay some or all of the borrower’s costs on some loans. The lenders must disclose when they are paying fees for the borrower on their behalf in the form of lender’s credits.
In other words, they must show the actual charges incurred and then show that they paid those charges for the borrower. Federal disclosure laws do not allow lenders to exclude the charges from the transaction simply.
The HUD financial assessment guidelines require borrowers to meet specific guidelines for income, credit, and other considerations. However, approval would be entirely in the borrower’s worst interests if borrowers are within a point. In that case, HUD will allow lenders to still approve borrowers in some cases by setting funds aside from the loan to pay Property Taxes and Homeowner’s Insurance.
These set-aside funds are set aside for the youngest borrower’s life expectancy. They are known as a LESA, a Life Expectancy Set Aside . They result in borrowers receiving less money for discretionary purposes, but many like them. They only accrue interest once used to pay taxes and insurance. There is no cost to the borrower for this service.
When determining how much money is available to borrowers at closing or in the first 12 months, HUD reviews the borrowers’ mandatory obligations, including the current eligible liens on the home, any due property taxes, insurance premiums, and the costs to obtain the reverse mortgage. Eligible liens would be a current mortgage that was not a cash-out transaction obtained in the last 12 months.
An Eligible non-borrowing spouse is the spouse of an eligible borrower who lives in the subject property but is inactive due to either age or other factors (credit, etc.). Suppose the spouse passes while the eligible non-borrowing spouse still lives in the property. In that case, the loan goes into a deferral period. The non-borrowing spouse can remain in the home under the loan terms (but cannot access any remaining funds on the line of credit).
An ineligible non-borrowing spouse does not meet the HUD requirements (I.e., does not occupy the home) and, therefore, is not eligible for the deferral treatment in the case of the passing of the occupying spouse.
These three legal documents outline the transaction between the borrower and the lender. Lenders have no more rights than those granted to them by borrowers in these documents, and borrowers must adhere to their agreements, so these are important documents to read and understand.
The Promissory Note is the promise of the borrower to pay the lender for the money borrowed. It outlines the amount the borrower is borrowing, at what interest rate, and when it is due to repay the lender.
There are two Notes and Two Deeds / Mortgages for every adjustable-rate reverse mortgage transaction, one to the lender and one to HUD in case HUD needs to step in and advance funds on behalf of the borrower. Fixed Rate reverse mortgages have just one note and one deed/mortgage.
The Deed of Trust or Mortgage (depending on which instrument is used in the state where the property is located ) secures the loan. The instrument is recorded and creates a lien on the property, which allows the lender to foreclose on the loan with a borrower’s default.
This is the same right all lenders of forward loans have as well. You need to read the documents and understand what can create a default, which includes:
The Loan Agreement outlines the overall reverse mortgage transaction, including advances, mortgage insurance, and rights and obligations of both the borrower and the lender.
A Power of Attorney is a legal document that allows one person to act for another in some circumstances. It is important to note that HUD has particular requirements for using a Power of Attorney depending on the reason for its use.
The Principal Limit in a reverse mortgage is the loan amount you will receive based on your age, interest rates, the maximum lending limit, and property value. The Principal Limit Factor is the percentage of the home’s value or the maximum lending limit, whichever is less, that determines the Principal Limit you will receive based on the formula set by HUD or the investor for the program you are interested in.
Probate is the legal process of proving or verifying a will or giving the courts time to determine what to do with a deceased individual’s property/assets when there is no will. Often, real estate must go through probate to avoid any claims of heirs or debtors later.
For a reverse mortgage, your primary residence is one at which you live most of the year and at which you are legally registered to vote (if you are registered), where your bank accounts and other legal documents are directed, and where your legal identification labels your residence (i.e., your driver’s license). If you have a reverse mortgage on this property, you must notify your lender if you plan to take extended leaves away from the home.
A repair set aside occurs when the lender sets funds aside from your reverse mortgage to pay for repairs to your home that cannot be completed before the loan closing. They must be completed within 6 months, and the lender will set aside 1.5 times the amount of the repair cost.
It is important to note that if you have a fixed-rate loan, there is no second draw available, so unlike the adjustable-rate options where you would have access to the unused repair set aside funds after all repairs are completed and paid, any funds not used on the fixed rate program are not available to borrowers (they are also not used and therefore unborrowed and not added to the balance owed).
Residual income is the amount of money left over for use by the borrower(s) after all required debts are paid each month, and the lender uses fourteen cents ($0.14) per square foot maintenance factor for each borrower for utility costs. For example, if a borrower’s home is 1500 square feet, the maintenance and utility factor is $210 monthly. It is added to all other debts (cars, credit cards, taxes, insurance, etc.).
The total is subtracted from the borrower’s income, and the amount left is the residual income. It must meet HUD requirements for the family size of the region where the home is located.
Short to close refers to the amount owed exceeding the Principal Limit (loan amount) that a borrower is eligible for on the reverse mortgage. A reverse mortgage can still be accomplished when someone is short to close if they can cover the difference with their seasoned funds or a gift from a family member.
Borrowers who have solar power in their homes often have leases because they do not own the equipment. A lease is a lien on the property. The lease must be released to do a reverse mortgage, even though it can be re-recorded later.
Most solar companies will cooperate with borrowers wishing to get reverse mortgages. Still, not all will; you must check with your solar company. The companies will file a “UCC Filing,” a notice of lien on your property that they must abandon so that the HUD mortgage has priority.
Again, they can refile after the reverse mortgage closes. Still, not all companies will cooperate, and it is best to know if your company will before you spend money and time processing a loan and paying for an appraisal if your company will not.
This disclosure is used for reverse mortgages and is not seen in forward loans. Because reverse mortgages are front-loaded (the fees are charged at the start of the loan and added to the balance owed), reverse mortgages can be pretty costly, especially if used for short-term financing.
The TALC shows borrowers the cost of financing over the years, and borrowers can readily see the actual cost reducing over time as the initial cost is spread out. This may help you determine if the loan is right for your needs based on how long you intend to keep the loan.
A trust is a fiduciary arrangement established by a trustor that allows a third-party Trustee to hold assets on behalf of a beneficiary(ies). The third-party trustee can be anyone the trustor wishes, including themselves or family members (often for other family members). The trustor is also known as the donor party because they are the individual(s) who granted the assets to the trust.
When using a trust for a reverse mortgage , the trust must meet HUD requirements so the lender will have the trust reviewed by an attorney. If changes are required, most trusts can have an amendment drawn to correct any terms that violate HUD requirements at the borrowers’ and attorneys’ review, approval, and draft.
A third-party cost refers to any costs in your reverse mortgage that the lender or HUD does not charge. Lender costs are those charged by the lender and paid to the lender, who has control over and receives that payment. HUD’s cost is the Mortgage Insurance Premium, payable directly to HUD.
Third-party costs are charges from others, such as title companies, appraisers, country recorders, etc., that are not lender fees and over which the lender has no control and does not receive those funds. The lender may not charge anything whatsoever above the actual cost of the charge from that third party. A line-by-line list of closing costs can be found here .
When cash assets must be used to close a loan transaction, those funds must be verified as being the borrowers. The borrower must be able to produce at least 3 bank statements showing they had the funds in their account with no large deposits.
This verifies that the borrower has liquid assets and that the funds are “seasoned” in their account and not recently borrowed funds. HUD only allows using unverified funds for down payment or closing costs since that could indicate a new obligation not considered in the qualification criteria.
Closing a reverse mortgage is similar to getting a forward loan, with a few notable exceptions. Because the loan is a complex financial transaction, HUD, Lenders, and State Laws have included some essential safeguards for borrowers, which can sometimes lengthen the process.
How do you find the best deal for your circumstances? Do you call the company based on a commercial you saw , a flyer you got in the mail, or what?
It is much easier for some borrowers because they are proficient in using the Internet and have no problem shopping and comparing loan programs and costs. This is a crucial step, and we advise borrowers to check online reviews and to get several proposals. Review the whole deal; don’t look at just one or two items.
For example, some companies have learned that they can artificially lower the cost of just one or two fees by a small amount and then raise rates or other fees that can cost borrowers tens of thousands of dollars in other areas. Don’t settle for one company that charges a lower appraisal fee only to find out too late that you just incurred a margin or other costs that will mean thousands of dollars more to you or your heirs.
Do your HUD Counseling as Soon as You Make the Decision to Get the Loan
Sometimes, HUD counselors are easy to reach and book an appointment. Sometimes, they are not. If you think you will get a reverse mortgage, book a counseling appointment with a HUD-approved counselor and complete the counseling session. In some states, you can begin the loan as soon as you have your counseling certificate; in some states like California , there is a 7-day cooling off period after counseling that your lender cannot do anything on your loan.
You need the certificate they will give you to proceed anyway. Suppose you wait until you are ready to apply to get counseled. In that case, you may have an additional waiting period that you will be forced to observe before you may proceed.
Also, the HUD counselor may bring up some information in the counseling session that lets you know what additional questions you should ask your lender before applying.
The reverse mortgage application is lengthy and requires many borrower signatures. One of the recent innovations, though, is the ability for borrowers to use electronic signatures rather than having to hand-sign every document. This allows a lender to send you a package over the email you can receive, review, and “click” for your acceptance. Still, it does not replace your need to review the documents carefully.
Some borrowers find it easier because they can increase the font size (the letters) as large as needed to read easily. Some have more difficulty reading documents on the computer.
Suppose you like reading the documents on the computer. In that case, electronic signatures are much more accessible. You can store the signed documents on the computer, print them in your home, or ask the lender to send them if you cannot print a large package of loan documents.
Sign all required signature lines and return all required documents to the lender (copies of your license, social security award letters, homeowner’s insurance, etc.). If you cannot print and do not wish to sign electronically, let your lender know you still want an application package printed on paper for your review and signature. Here is a hint: if you cannot take copies, you can take pictures with a smartphone and send them if you can get a clear picture of the entire document.
Once the lender receives your completed package, they will process your loan request, which includes ordering your title review, ordering the appraisal, and, once completed, having the loan underwritten. Your processor and Loan Officer will contact you when approved to set up a loan closing.
Your processor will schedule a time to have a Notary visit you at your home or location where you can sign all your loan documents. Because the loan is considered a refinance transaction (unless you are using your reverse mortgage to purchase a property ), a 3-day right of rescission is required by law.
The right to rescind does not include the day you sign your loan documents or Sundays or Holidays, so a 3-day right to Rescind usually stretches to 4 – 5 days, but this is true for all refinance transactions, not just reverse mortgages.
After the right of rescission period is over, the closing agent will wire your funds directly to your bank account for same-day availability of funds (unless you chose to receive a check, and then you would be subject to delivery times and funds availability based on your bank’s rules). We recommend you opt for the wire to have your money available that same day.
At All Reverse Mortgage, Inc. , we understand that getting a reverse mortgage can sometimes be a bit daunting. While many of the steps or procedures are the same as any other home loan you are likely to have gone through in the past, some of the things borrowers need to do for reverse mortgages are not like any other loan they have ever closed. And we know this is for several reasons.
Anyone who has not closed a loan in the last 6 years might think any loan they worked with now seemed foreign, even if it wasn’t a reverse mortgage with all the changes the industry has undergone with TRID (Tila-Respa Integrated Disclosures) that are not like anything anyone used before October of 2015 (a disclosure that is not used with reverse mortgages).
Lenders who close all or mostly forward loans have been using the TRID disclosures and not the disclosures used by reverse mortgage lenders for the past 6 years. We understand that many borrowers have never experienced lending like it is today because just a few short years ago, it was never like this before. That is why borrowers need a company like All Reverse Mortgage when considering a reverse mortgage loan.
We do not originate any other loan programs. As our name implies, reverse mortgages are all we work with. You need a lender who has your best interests and knows the loan program inside and out, not an originator who closes mostly forward loans and only one or two reverse mortgages a year. We invite you to review our BBB reviews or our Google reviews .
These are just a couple of review sites where lenders and others cannot “buy” a review, and you can read the comments of actual customers. We hope you find information like this fact sheet and the reviews at the agencies helpful and will decide that All Reverse is the right company to help you with your reverse mortgage needs.
Michael G. Branson CEO, All Reverse Mortgage, Inc. and moderator of ARLO™ has 45 years of experience in the mortgage banking industry. He has devoted the past 19 years to reverse mortgages exclusively.
Look no further. Michael G. Branson, our CEO, brings a wealth of knowledge directly to you. With a robust 45-year tenure in mortgage banking and 19 years dedicated solely to reverse mortgages, he's the expert you want on your side.
Post your question in the comments below and anticipate a personalized response from Mr. Branson himself, typically within one business day. He's here to illuminate all angles of reverse mortgages, ensuring you're equipped with the knowledge to make informed decisions. Take this opportunity to gain insights from a seasoned professional.
75 Comments on this Article| Becky H. November 2nd, 2021 |
My mom is in a Reverse Mortgage contract initiated in 2009. She is living in the home, but it is becoming too much for her to handle at age 81. We are considering moving her to a very small government assisted living center, so she will not have taxes to pay and large utility bills. She has kept up the air conditioning and heating repairs, but has had to do nothing to the roof. It isn't leaking. Can she walk away with no further requirements and move into something much less expensive without paying the reverse mortgage balance? Will the home need a new roof if it is not leaking? Thank you, Becky Holman
 | Michael Branson November 7th, 2021 |
Many areas have experienced a great deal of appreciation, especially over the last year. I would encourage you to check with a local real estate specialist to be sure that your mom has no equity if the house were to be sold first but yes, she can move to assisted living and you can give the home back to the lender.
The loan is non-recourse which means that the only security the lender has is the property but I also always encourage borrowers and their families to sell the home whenever possible to retain any and all equity but also because a sale ensures there are no other liability issues while the home goes unoccupied and before the lender takes ownership.
You should also always consult with a tax professional when making decisions such as this and remember that if mom leaves a balance due on the loan that becomes a loss to HUD, she would not be eligible for another HUD insured loan until that balance had been repaid (but that sounds like it is not an issue in this case).
| Michael Branson September 29th, 2021 |
| Stacy P. June 28th, 2021 |
My mom who recently passed away had a reverse mortgage on her home. The balance due is about as much as the house is worth. There will not be an estate opened nor will her matters go through probate considering she leaves nothing behind to distribute. What steps do I take if I want to just "walk away"? How much time will I have before I must get any personal items out of the house before it is foreclosed?
| Michael Branson June 29th, 2021 |
The timing will depend on how quickly the lender moves to start the foreclosure process after you let them know that you are not going to attempt to sell the home or refinance the loan and keep it. I would suggest that you at least contact a real estate salesperson who works in the area where the home is located as so many properties have risen dramatically in value recently and you may be surprised to find there is still equity if you sell the home yourself.
But a foreclosure usually takes at least 5 - 6 months from the time the lender first files the initial paperwork that they are beginning the process. You would have this entire time to clear out the home in most circumstances but if the home is not secure or you allow the home to fall into decay and the lender can demonstrate that they are at risk by not entering the property sooner to secure the property against vandalism, etc., they could gain access to the home sooner. However, this is rare and so you would have until the lender became the owner at the end of the foreclosure process to remove all personal items from the house in most instances.
The total time needed to do this is usually between 8 and 12 months because the lender must first determine that the owners have passed, they must order an appraisal and contact heirs to ascertain what they wish to do with the home and then follow all foreclosure laws to foreclose and gain title to the property. You should not plan on waiting though and it would be wise if you know you are not going to keep the home to plan to have everything moved out within 6 months.
| Norma April 13th, 2021 |
| Michael Branson April 13th, 2021 |
HUD does allow trusts, but they must meet the established requirements. Before you change the title, send the trust to your servicer for approval and once you receive approval to do so, you can move the title into the name of your trust without issue.
I recommend that when that time comes, you use a title company or attorney to be sure that your change of title does not create a taxable event and they can help you with that change.
| Lee and Susie V. February 18th, 2021 |
| Michael Branson February 18th, 2021 |
A quick explanation is that a reverse mortgage is a loan, not a grant and you are not selling your property to the bank. You receive a loan amount based on your age, property value (of HUD maximum lending limit whichever is less) and interest rates that must be used first to pay off any outstanding loans/liens on the property and then can be used for any purpose you wish.
There is never a monthly or other payment for repayment purposes due on the loan if you live in the property as your primary residence and abide by the loan terms (pay your property taxes, insurance, and any other property charges) in a timely manner.
Because there is not payment due, instead of the loan balance going down monthly as would happen with a forward or standard loan as you made payments, the balance on the reverse mortgage rises as the interest accrues.
However, there is never a prepayment penalty with a reverse mortgage so if you want to make a payment in any amount at any time, you may do so without penalty up to and including payment in full.
The entire loan is due and payable when the last borrower on the loan is no longer living in the property or you sell the home. And that is an important point, you own the home so you can sell it at any time you wish and pay off the outstanding balance, without a prepayment penalty.
The costs on a reverse mortgage are higher because the single largest expense is the HUD mortgage insurance that ensures that you will always receive your money (the lender pays you on a reverse mortgage until you have received all the funds allotted to you under the loan), insures the lender against any risk of default and insures investors who but the securities backed by the loans.
This makes the loan a bad choice for borrowers who are looking for a short-term loan but a much better option for those looking for the last loan they will ever need.
You will need counseling from a HUD-approved counselor and that will give you the opportunity to ask all the questions about the loan from a third party whose only job is to educate you about the program - they are not trying to sell you the loan. It is always advisable to get a proposal and look at the numbers from several lenders and compare quotes.
That is the short version. Reverse mortgages are not for everyone. Be sure you understand the program and that it meets your goals because there are also several reverse mortgage options available that will help give more money up front or preserve more equity in the long run, depending on your objectives.
| Jim M. February 8th, 2021 |
I've been looking at RM for some time now and I am trying to understand how a person actually receives or accesses the funds from the RM. In the past I had read that the funds were paid to the borrower in monthly payments, but from what I am reading here, it seems like it is either done as a line of credit or a lump sum. Can you help clarify how the borrower accesses the funds?
| Michael Branson February 8th, 2021 |
Borrowers have 5 different options for the receipt of their funds. And the options are based on the program they choose when they receive the loan but if they still have funds available, they can always change that option later.
For example, the first option is a lump sum draw. This is where borrowers take all the money available to them on the initial draw at closing. Since they are taking all the money the program will give them, they obviously cannot change later to a new program because there are no more funds available to them.
Most borrowers do not choose the lump sum option anymore unless they are buying a home and need the total amount for the purchase or need the entire amount to pay off an existing mortgage.
The next option is a Line of Credit. As the name implies, this is where the borrower establishes a line of credit from which they may draw funds as they need them until such time as the total amount available to them is exhausted.
The borrowers may take an initial draw from the line if they need funds right away or they may wait, but that choice is entirely up to them. To receive money, if there are still funds available in their line, they simply contact the lender and have the funds sent to their bank account (which is the easiest and fastest method) or have a check sent to them in the mail - their choice.
Following that is a Tenure or payment for life. This is where the lender will let you know what amount you would receive as a payment for life based on your age, the value of the property and interest rates at the time you get the loan.
The lender would send you a monthly payment based on that eligibility. If you later decided you wanted to change your option, for a small change fee (usually about $50.00), the servicer will do the calculations to determine how much would still be available to you under the other options and you could change to a line of credit, take a full draw of the remaining funds, or change the option to a term payment where you decide the payment amount.
The Term option is the option mention briefly above. You set the amount of the payment you receive from the lender every month rather than allowing the HUD calculator to set it based on your age and other parameters.
You can set a higher payment (or any amount you desire) than with the tenure option but you need to realize that you are more prone to using all the funds earlier and may outlive your funds availability. If that happens, you can still live in the home without having to make a mortgage payment, but once all the funds are gone, you will receive no more monthly payments.
And then finally the option is to make the loan a modified Term or Tenure. This is where you take a portion of the funds and use them for a line of credit and then use the remaining funds for a tenure payment or a term payment.
For example, if you had a total of $200,000 available to you and you want a monthly payment, but you have some work you want to do around the house as well, a modified tenure payment might be a good option for you. You could have $35,000 put into the line of credit to complete the work you wanted to do and then use the remaining $165,000 for monthly payments for life.
All of the options work the same way with regard to the amount you owe, or your heirs owe should you decide to sell the home or if you pass before you receive all the funds. You only owe what you borrowed plus any interest that accrued on that amount (plus any fees or mortgage insurance you finance).
You may have had $200,000 available to you in the example above, but if you only received $75,000 in payments, that plus any fees and mortgage insurance you incurred is the amount plus interest that you will need to repay if you pay the loan off early or pass before you received all the money.
| Wilda October 26th, 2020 |
Do you feel you ethically assisted your borrower with this loan? What could you have done differently?
| Michael Branson October 26th, 2020 |
We have no paid national spokesperson and we do not engage in the countless mail pieces many of you receive constantly from companies urging you to get a reverse mortgage or refinance your existing reverse mortgage.
We do not engage in the practice of live calls so you will never receive a call from a solicitor from our company trying to sell you anything.
Our sole marketing effort is online and then we seek to educate borrowers and their families as much as possible.
Often, this talks as many people out of the loan as it encourages to apply but we are ok with that.We started the company about 16 years ago with the philosophy that we would rather you do not get the loan for the right reason than get it for the wrong reason.
Does that mean we have always done everything perfectly?There are many things out of our control, and we cannot change things like HUD rules, appraisal laws and values, periods of extreme volume when everything slows down and secondary marketing changes when programs disappear, or rates rapidly change.
We all need to live with those factors and then yes, we too make errors upon occasion. We can fix our company's issues, but we cannot fix HUD or the market. Those things we live with. But we tell borrowers what is happening and keep them informed. Another common expression around here is that bad news does not get better with age!If something comes up that a borrower needs to know (i.e. their appraised value comes in much lower than expected), we tell them immediately and don't go silent on them as we hear from borrowers writing in happens far too often.
We are a finalist for the Better Business Bureau Torch award for Ethics in 2020 and we are extremely proud of this fact.
We believe in doing the right thing, even when no one is looking.That is not always easy to relay to borrowers when what they want you to do is something that is beyond your ability to do.
We cannot make the appraisal higher than it is, that is illegal. We cannot alter HUD's guidelines to allow for some thing's borrowers would like. We do not control the market for programs and rate availability.We have no control over old liens on the borrower's property and cannot ignore them -but we can always be open and honest with people when there are changes.
And of course, when the loan is not right for them or will not help them, we can tell them honestly. And that we do.
So, do we help our borrower with this loan? I helped my own mother with hers - a lot. It gave her financial independence and allowed her to live in her home for many years happily.I would honestly not have done anything any differently with her as she was able to fix the home up enough to be much more comfortable and had the extra income to do the activities she loved so much.
| Lila D. September 14th, 2020 |
| Michael Branson September 14th, 2020 |
With the line of credit option, you can decide how much of the total loan you choose to borrow. For example, you may have a total of $200,000 available to you, but you can choose to only draw $50,000 and you are not charged interest on any funds you do not use.
Also, you or your heirs never have to repay any loan proceeds you do not borrow so even though you had the larger amount available, you only repay what you borrow plus any interest that accrues (including the mortgage insurance premiums).
| Linda R. November 4th, 2019 |
| Michael Branson November 4th, 2019 |
If you are still living in the home as your primary residence, yes you may rent out rooms in the house as long as it is not on a transient basis (nightly). Many reverse mortgage borrowers do have renters who live in a portion of the home to generate additional income.
| Deborah H. October 27th, 2019 |
| Michael Branson October 27th, 2019 |
This is a government-insured loan and so the documentation is standard. Proof of identity, the income you use to qualify, the appraisal on the property, title work to see what liens are on the home and if it is a purchase, all the purchase documentation.
If this is any property other than a single-family detached residence (condominium, manufactured home, etc.) there may also be additional items needed for the property itself. During the processing of the loan, the lender will run credit and verify the information received for the loan file.
In addition, every borrower must go through HUD-approved counseling and obtain a certificate from the counselor. We have a list of the items you will need to send in for your initial package which you can review here that will give you a pretty good idea of the things needed but there is always the possibility that due to unique circumstances in your loan request, other requests may be made of you.
If you have specific questions or situations you would like to go over with us, we would be happy to review the areas of concern with you in advance.
| Mamie October 15th, 2019 |
| Michael Branson October 15th, 2019 |
No, it does not but HUD does have rules about the seasoning of the loans it will allow you to pay off with the reverse mortgage and all existing loans must be paid in full to close a reverse mortgage.
The reverse mortgage can pay off existing financing without any limitations on seasoning of the loan if the amount of the loan to be repaid does not require the reverse mortgage to exceed 60% of the eligible Principal Limit or loan available.
If paying off the existing loan would exceed 60% of the Principal limit, then the loan must be seasoned for no less than 12 months. If the existing liens on the property are over 12 months old, you would be able to use up to 100% of your Principal Limit to retire existing liens.
| Catherine A September 10th, 2019 |
| Michael Branson September 10th, 2019 |
I assume you mean use your home for collateral for another loan or lien? And the answer to that question is entirely up to the other party from whom you wish to borrow.
Nothing in the reverse mortgage prohibits you from taking out additional mortgages however, because the balance of the loan goes up as borrowers accrue interest and do not make payments, and because the amount available grows over time on the unused portion of the line, many other lenders are hesitant to loan behind a reverse mortgage simply because they do not know how high the balance or available line of credit could grow.
If you do have a lender who is willing to lend behind the reverse mortgage though, there is no problem with the reverse mortgage under those circumstances.
| Debra August 25th, 2019 |
I have "right of estate" in a home left to me and my siblings by my mother's trust. I am 64, currently living in that home and don't plan to leave. Of my 4 siblings, 1 is still living. My home is old and needs many repairs. How is the fact that I share ownership with living and nonliving siblings impact my ability to obtain a Reverse Mortgage? I assume I am only eligible for a portion of the home's value.
| Michael Branson August 25th, 2019 |
If there are other owners, they would have to also go through the required counseling and agree to the loan. They would not be borrowers though and when you no longer occupy the home as your primary residence, the loan would become due and payable. The other owners would have to refinance the loan at that time or sell the property.
| Nancy R. July 21st, 2019 |
Can I qualify for a reverse mortgage on my home that is paid for if my name is also on my daughters mortgage?
| Michael Branson July 21st, 2019 |
The simple answer to this is yes, but you must qualify with the additional obligation. If you signed on the loan for another person, in this case for your daughter's mortgage, you are legally obligated to make that payment if she does not.
Therefore, under residual income requirements, this payment amount will also be considered when determining your ability to qualify for the reverse mortgage.
Even if your daughter has been making the payments, you are obligated to make them if she ever doesn't and so HUD includes them in your monthly obligations calculations.
So, when you ask can you qualify, yes you can. The fact that you co-signed the loan does not in and of itself disqualify you for the reverse mortgage if you are living in your property as your primary residence and meet all of HUD's other requirements. But just know that if the payment amount itself disqualifies you, that is a different issue.
Borrowers need to know that when they sign on a loan for a family member or friend, they are promising to also make those payments if needed and that can affect their ability to obtain other credit later. If you don't qualify with the payment on that other property, perhaps your daughter can qualify for a refinance loan on her home on her own now and could refinance that loan in her name alone?
It might even work to her benefit if the rate or terms are better now than when she purchased. If she has owned the home for more than a couple years, there is a good chance she has built up some equity and it might be worth looking into if needed.
| Pamela L. June 17th, 2019 |
| Michael Branson June 17th, 2019 |
Ordinarily, any delinquencies from the past 24 months on the property obligations (mortgage, taxes, insurance, HOA if any), would require you to have a Life Expectancy Set Aside (LESA) to pay the taxes and insurance. If there was just one late and it can be well-documented that the circumstances for the late were beyond your control and your other credit is all as agreed, we can often get an exception to this requirement. If you are very close to being over 2 years for that late, I would advise waiting to apply so that it is over 2 years ago. The underwriter will still look at your credit, but it is not mandatory for the LESA for a late over 24 months ago.
Also, a LESA is not the end of the world and many borrowers like them. Funds are "set aside" from your proceeds to pay for taxes and insurance but are not considered borrowed until they are sent to the taxing authority or to your insurance company. Therefore, you do not accrue interest on the funds until you use them to pay for the expense. You never have to worry about paying taxes or insurance again, so you're not caught short during those times of the year. And there is no additional cost for the lender performing these functions. So, if you do have to get a LESA, you may find that you like it!
| Sylvia June 3rd, 2019 |
I have always paid my bills on time; including my mortgage. No lates on my credit report - but I have a lot of credit and a high debt to income ratio. I have been told that this will prevent me from getting a reverse mortgage. Are there any products available to me?
| Michael Branson June 3rd, 2019 |
Reverse mortgages do not use ratios for qualification. Instead, the underwriting uses a residual income method that subtracts all your monthly obligations from your income (including your home taxes and insurance) and you need to have minimum amounts left to live on each month in accordance with HUD requirements.
The residual changes with family size and where you live due to the cost of living in different parts of the country and the increased cost to feed and care for a larger family. The required residual is not high and is much easier in most cases to meet than ratio guidelines.
Another great feature of the residual method is that cash in the back can be dissipated to equate to income as can the reverse mortgage line itself, even if you don't plan to use a portion of the money every month because you could use it in the manner if you wanted to or needed to.
And HUD takes it one step farther by letting folks who still don't meet the residual income requirement still qualify in many cases with a LESA (life expectancy set aside) wherein a portion of the funds are set aside to pay for the taxes and insurance on the property for life which brings your monthly obligations down since you no longer have to pay them -the lender does with funds from your reverse mortgage that are set aside for the sole purpose of paying these expenses when they come due.
The bottom line is that you should not automatically assume that you will not qualify. Feel free to visit our calculator and you can see what you might expect to see in benefits from a reverse mortgage based on your age and property value with no personal information other than your month and year of age and the zip code where you live.
After that, if you feel the numbers look good for your circumstances, we would be happy to discuss qualification with you based on your income and debts and let you know exactly what you would be looking at in advance.
| Rodney F. May 29th, 2019 |
| Michael Branson May 29th, 2019 |
I'm not sure what you mean. Typically, shortfall on a reverse mortgage refers to the amount of money that the loan will not cover that would be needed to pay off an existing mortgage on the property.
For example, your reverse mortgage benefit is $150,000 and you owe $175,000 on the existing loan on your property and therefore there is a shortfall on the reverse mortgage that you would have to cover by bringing the $25,000 difference (plus any costs) in to closing if you wanted to still get the loan to eliminate your monthly payment.
Since there isn't even enough money in the reverse mortgage to pay off your existing loan, there would not be any money to deduct from the loan to achieve some goal -if I am reading your question correctly. The reverse mortgage must be in first lien position with no other loans on the property so any shortfall would have to be paid by you with other funds available to you.
Those funds could not be borrowed; however, you could get a gift from a family member if that is a possibility for you.
| Peggy S. May 28th, 2019 |
How much income a month do I have to have in order to qualify reverse the mortgage that is my question for the day thank you dear have a good weekend. God bless!
| Michael Branson May 28th, 2019 |
HUD uses a residual income method to qualify borrowers for a reverse mortgage. They will require borrowers to have different amounts depending on what part of the country in which they live and the cost of living and the size of the family living in the home. A single borrower has to have a residual income of $529.00 to $589.00 per month in order to qualify (depending on where you live and you can see the exact amounts in our article here. Residual income is the amount of money left over after paying all other debts.
And before you panic if you think you don't quite make it, many times the reverse mortgage proceeds themselves or cash you have in the bank may be able to get you to the required level through a method known as asset dissipation. This is where the underwriter can assign an income value for funds you have assuming that if you had to use some each month to assist your income, you could.
| Nanette H. May 24th, 2019 |
My 97 yr. old mom is moving to an assisted living facility. If her mortgage is still active for 12 months after she moves (before it's seen as permanent) can she still request payments from her available credit line to help pay for the facility? Thank you!
| Michael Branson May 24th, 2019 |
Loan draws are supposed to be taken while the borrower is in the home, and not during absences. And the 12-month time period you cite is for an absence that is due to a medical necessity that is not yet known if it will be permanent.
If the borrower is still out of the property after 12 months, the HUD no longer deems the absence temporary, even if the original plan was for a temporary absence (such as would be the case with a broken hip or other medical issue that required a stint in a skilled nursing facility to recuperate before the borrower could return home).
However, if you know from the start that the move is permanent, it is considered a permanent move, there would not be a 12-month period where she would be considered temporary. If you moved her into a permanent assisted living arrangement now, that would be considered a permanent move and enough for the lender to call the loan immediately due and payable.
If you are aware that this is a permanent situation, rather than having the loan remain open and continue to accrue interest, it would probably be to mom's benefit to sell the home now and stop accruing interest on the loan so that she will retain as much equity in the sale as possible.
You can take the sale proceeds and put them in an account for her use rather than falsely attesting to her occupancy to obtain additional funds from the lender and HUD which is never a good idea.
| Utsav A. May 23rd, 2019 |
Assume an elderly person owns a $350,000 home that is free and clear of mortgage debt. A lender has agreed to a $350,000 reverse mortgage with monthly payments. The loan term is 15 years. The annual interest rate is 6%. Questions: 1. What is the interest charged in the 1st month? 2. If the elderly passes away in 5 years (60 months), what will be the loan balance? 3. How much of the loan balance at the end of 60th month represents the interest portion? 4. Suppose that there is $2,000 origination cost associated with the reverse mortgage and the elderly passes away in 5 years (60 months), what is the annual effective cost of the loan to the senior?
| Michael Branson May 23rd, 2019 |
Firstly, if you own a home valued at $350,000, your loan will only be a portion of that value and that portion will depend on your age, the program you choose and the interest rates in effect at the time.
Furthermore, your loan "term" is for your life, but you can choose if you want the payments to continue for as long as you live in the home and that option is called a "tenure" payment option or for a specified time period (such as the 15 years you mentioned) known as the "term payment" option. Both options could calculate differently, depending on the age of the youngest borrower.
In short, I cannot give you the exact numbers based on the information you have given me, but I can go one step better. You can access our online calculator where with very little information (never a social security number or anything private), you can get the answers to all of these questions and compare the different options to see which is better for you.
The information available to you includes the amount for which you are eligible based on your age(s), property value and current interest rates. You would be able to review the amortization schedule for any program you wish so you can see under both the term and the tenure options what you would owe at the end of 1, year, 5 years, 10 years and so on year by year, through the life of the loan.
You would be able to see a list of closing costs for your area and a TALC which is a disclosure for reverse mortgages and stands for Total All Loan Costs that shows you what the effective cost is at various points in the loan. And as I said, there is a separate loan comparison so that you can see what the line of credit, different payment options or even the fixed rate lump sum payment would look like if you so choose.
I think you will be much happier having the actual information you have requested rather than me giving you all estimates because I don't have the full information needed. If you want any further information after that, we would be happy to help you but if not, you will not be hassled or pressured. Give the calculator on our website a try, I think you will like it!
| Celeste W. May 23rd, 2019 |
| Michael Branson May 23rd, 2019 |
If you remain on title, you can add anyone else in addition to yourself that you desire. There is no problem with your reverse mortgage if you still occupy the property as your primary residence, pay the taxes and insurance as well as any other property charges, and you are also on title.
| Gustavo April 16th, 2019 |
Can I do a reverse mortgage on a property that l just bought cash, and do I have s time limit before I can apply?
| Michael Branson April 16th, 2019 |
You can do a reverse mortgage at any time with no waiting period required. There is a very good possibility that the loan amount would be determined by the purchase price or the current appraised value, whichever is less, if the purchase price is considerably lower than the current appraised value though. If that is the case (the value is now much higher than the amount you paid to purchase), you are safe at just the appraised value after one year.
| Stan April 8th, 2019 |
| Michael Branson April 9th, 2019 |
No mystery to it. An "FHA" simply refers to one of the loan programs that is insured by the Federal Housing Administration (FHA) a division of HUD. An FHA reverse mortgage carries with it insurance that the borrower pays for that insures the lender from the risk of default and in the case of the HECM reverse mortgage, also insures the borrower and the borrowers heirs against the risk of the lender becoming insolvent or the property not being worth enough to repay the loan.
There is never any recourse other than the property and heirs can pay off the loan at the lower of the amount owed or 95% of the current value after the borrower passes if the property is not worth enough to repay the outstanding balance on the FHA-insured reverse mortgage. By the borrower paying for mortgage insurance, they can usually get a higher loan to value on a forward or traditional mortgage or obtain a reverse mortgage on which they make no monthly payments which might otherwise not be available for them.
| Danny December 25th, 2014 |
In one of the statements above it said that a rm is not recommended for someone who will not live in the house for several years, due to costs, in order to benefit properly. What generally is a reasonable amount of years minimum to benefit? My mother probably has five years left (and my father may stay in the house), and my father may have ten years. Thank you.
| Michael Branson December 29th, 2014 |
We don't recommend a reverse mortgage as a short term or bridge type of financing because all of the costs are typically front end loaded but there are many factors that depend on the individual. Even though HUD has taken steps to lower costs on some of the loans and there are many low cost options available today, we still believe that if the borrowers think that they may want to move in the next 12 -24 months and do not have a dire need for a reverse mortgage, care should be taken with regards to the terms of the reverse mortgage they choose.
Firstly, in direct answer to your parent's situation. 5 -10 years is more than ample time to consider a reverse mortgage. We were seeing borrowers considering reverse mortgages at a time when there were no low cost options and the loans were all very expensive and borrowers intended to stay in the properties for no more than 24 months at the longest and maybe less time.
For those borrowers we habitually recommended they wait until they made the move they were planning if they could and then use the reverse mortgage on the home they planned to retire to. We had some borrowers who had no choice, it was a reverse mortgage or face loss of the home even if they thought they might move in a shorter time frame and those borrowers had to factor in the costs of the loan with the costs of selling in a bad market (2011, 2012) and many did well be waiting but that was a decision they had to make at the time and no one can tell the future.
Now we have lower MIP payments available when borrowers are not using more than 60% of the funds available to them and typically lower lender fees available at this time when they do have to use most or all their funds. Either way, the closing costs have dropped significantly on many of the reverse mortgage loans closing today and therefore even though these costs are still front-loaded, many borrowers have the opportunity to use the reverse mortgage as an even greater tool today due to those decreased costs.
| steve August 10th, 2013 |
I purchased my home with a via loan,so naturally the home is under my name.if I had a reverse mortgage on my home at the time I passed away,would my wife be treated as an heir and need to sell the home?
| Michael Branson August 28th, 2013 |
If you had a reverse mortgage with just you on title and on the loan and then you passed away, the loan would become due and payable at that time and if your wife was your heir, your wife would still own the property but she would have to secure financing in her name at that time or sell the home.
Therefore we do not recommend married couples leave one spouse off title to obtain a reverse mortgage. When a spouse passes, that is a difficult enough time in your life and you don't need to have to start worrying about where you are going to live as well if you do not have other plans already in place.
| Sally K. July 8th, 2013 |
My husband and I would like to know if we should go live with my stepdad, rent free, just pay our bills. He has a nice 2-bedroom trailer (for us-all new) and the main house, which is brick, but sadly not kept up to par-as he was taking care of my Mom for 4 years as she was sick.
They have a reverse mortgage of now-going up each month- of about $170,000. The property is worth about $275,000. It is 110 acres, with a new barn cost $25,000. He can't just split it and give us some of the land and the trailer or it must go all as one piece? We want to live there but it seems like we may never pay off the reverse mortgage and if we do, is the property now worth it.
My stepdad is 70. we are 58 and 56. Is it worthwhile to live there and save money until he passes, they move or try to keep the place- confused really -many, many thanks
| Michael Branson July 11th, 2013 |
I can't possibly advise you on whether you should go live with your father, that is a call you would have to make. I can tell you that whether you go live there or not, your dad will be able to live in the home for the rest of his life and then when he permanently leave the home (either from his death or if he had to go to an assisted living facility), the loan would then become due and payable.
If you are his heirs, then you would have to option of keeping the home or selling the home at that time but if you choose to keep the property, you would have to be able to pay off the existing loan with either money you have available to you or be able to qualify for a new loan in your names at that time. Otherwise, you would have to sell the property at that time. You don't have to "buy the property" from the lender if you are your dad's heir, you would already own the property.
You just need to keep these things in mind and plan accordingly whether you choose to move there or not if you are the heir and will be the owner of the property one day. It might make a difference as to how you prepare for ownership and loan payoff.
| dave June 2nd, 2013 |
Reverse mortgages, or Home Equity Conversion Mortgages (HECM), are available to homeowners who are at least 62 years old. The loan taps your home's equity, and the bank gives you the money either as a lump sum, a line of credit, or a monthly draw.
You still pay for property taxes, insurance and the costs of maintaining the home. The lender can foreclose if you don't. Also, because interest accrues over the life of the loan, your debt can ultimately exceed the value of your home.
You don't make monthly payments, but if you sell the house or move out for more than a year, the loan is due and the income stops. If the house is sold upon your death, proceeds go to pay the loan.
| Pete B. May 30th, 2013 |
The loan amount on my home is higher that the value of the house. I am ready to move and leave the house. What do I have to do before I move? Do I call Wells Fargo and just give them the deed and is there any fees that I should be concerned about? Also does turning over the house, take time to do?
| Michael Branson June 14th, 2013 |
If you have the HUD HECM loan, the loan is a non-recourse loan and there would not be any fees to leave the home. You should contact the servicing agent and let them know that you plan to move out and that you want to work with them to make the transfer to them smooth and easy and I am sure they will work with you to do so. they would rather not take the house, and would rather the house be sold, but if that can't be done, it is much easier for them to work with you on obtaining a Deed than to go through a lengthy foreclosure. I wish you the best.
| Walter G. April 24th, 2013 |
What does it mean when you say, Instead of the mortgage going down it will go up with a Reverse Mortgage?
| Michael Branson April 24th, 2013 |
We're simply referring to the principal balance (the amount you owe) on the loan. With a reverse mortgage, the amount you owe increases over time since you make no payments and the interest accrues whereas on a typical standard or forward mortgage, you pay a monthly payment that pays the interest that accrues and usually a portion of the principal balance so that the balance goes down until the loan is paid in full within a set amortization period (30 years being the most common).
| Jack D. April 19th, 2013 |
In order can make an inform decision, need to know how the financial institutions fund these types of transactions. Someone has to fund them because no one will keep the paper on the books without getting pay. Even though are guarantee by Feds, from where the monies come?
| Michael Branson April 19th, 2013 |
Reverse mortgages are just like most forward or traditional loans in this regard. Very few loans these days are made from a lenders' own funds to remain outstanding for the term of the loan.
Lenders fund loans with a warehouse line of credit and then sell that loan in the secondary market, reverse mortgages included. The loans are sold in securities which in turn replaces the lenders' funds and allows them to remain liquid and to keep making loans. The securities are sold with the lender retaining the servicing rights since the investors who ultimately purchase the securities do not collect payments on forward loans, or make disbursements on reverse mortgages (in addition to all the other duties of a servicer that I won't go into here). Without having an avenue to sell the loans into the secondary market, lenders would not have a flow of cash available to continue to keep making loans.
| Nicole February 27th, 2013 |
My parents have been trying to do a home modification for the last year and a half. Are they eligible for a reverse mortgage even if they still owe on there property.
| Michael Branson February 27th, 2013 |
The reverse mortgage can be done on properties with or without a current mortgage. The thing you have to remember is that all loans and liens currently on the property must be paid in full, either by the reverse mortgage or by the reverse mortgage and additional cash the borrowers have available to them if the proceeds of the reverse mortgage are not adequate to pay the current mortgage(s) in full. In any case, all current loans must be paid off so the best thing to do is to give us a call and determine the benefit amount to see if that will work with your lien situation.
| Phil L. January 28th, 2013 |
I'm 69 years old and have owned my own small business for 20 years. I have no interest in retiring. But I do not yet own my own home. I owned a co-op in NYC for 12 years and sold it a while back to move in with my girlfriend. I am planning to move out in a few months and am considering buying a condo or apartment in NJ. I understand that there are times when a reverse mortgage can be attained by someone like me -who does not yet have a home. I have excellent credit and no debt.
| Michael Branson January 28th, 2013 |
The reverse mortgage for purchase program may be exactly what you need. If you can still qualify conventionally then you would not have to put as much money down, but then you would also have a monthly mortgage payment. If you do choose to go the route of the reverse mortgage, just remember that if you wish to buy a condominium, the project must be approved by HUD and many are not. In fact, many do not meet HUD's requirements and not only are not approved but CANNOT be approved.
Getting a project approved can take many weeks and then you may find out that it does not meet the requirements and if that is the determination, you would not be able to even place a reverse mortgage within that project.
Sellers do not like to wait for 6 -8 weeks only to find out that your financing cannot be approved and most borrowers do not have a clause in their contract that allows them to get their deposit back after waiting so long to find out that the financing cannot be approved. Therefore, it's important to know that it will work before you make the offer.
| Mari January 27th, 2013 |
I am wondering if wells fargo still continues to have reverse mortgage program if so I also have few other question (1)my father is 71 my mother is 61 she will be 62 next year my father is going to dialysis for his kidneys will this affect his medical? (2)he is retired my mother is his caregiver but both cant afford there mortgage they tried to modify there mortgage and were denied the first time they are trying once again can they still ask for reverse mortgage at this time?Also approximately how long will this take?
| Michael Branson January 28th, 2013 |
You have several different issues here. The first answer is that Wells Fargo is no longer in the reverse mortgage business. Whether or not they ever have plans to return, only they can say. Secondly, all borrowers on a reverse mortgage must be a minimum of 62 years of age. Your mother cannot get a reverse mortgage until that time. Once she turns 62, the entire process can be completed in about 30 - 45 days from the date the lender receives all the signed applications back as long as your parents have completed their counseling before that time (no work can begin on the reverse mortgage until the borrowers have been counseled). There are things that can slow down this process such as clouds on title that must be resolved, appraisal or property issues, etc., but most loans are completed in a timely manner. Borrowers can speed up the process if that is their goal by having their counseling completed before their 62 birthday and be ready when the time comes (it does not pay to receive the counseling too early though as the certificate is only valid for 6 months).
| Terry K. October 14th, 2012 |
Thank you for this article. I have questions. My home is currently held in a LIVING REVOCABLE TRUST in which I am the trustee. I also have a will. I set up my affairs this way to avoid probate for my beneficiaries.
Question #1: Can I obtain a reverse mortgage if I hold ownership of my home in this type of trust? I am retired and purchased a modest $200,000 home. I am sure it has lost some value in this down economy. I have $40,000 left to pay on my mortgage. It is my understanding that I can obtain a reverse mortgage with an existing mortgage.
Question #2: Is there a general percentage of my mortgage that needs to be paid off to qualify as having "substantial equity" in my home and thus qualify for a reverse mortgage? Assuming my understanding is correct.
Question #3: Can I obtain a reverse mortgage with an existing traditional mortgage on my home, or do I have to pay off my $40,000 mortgage with the funds from the reverse mortgage? Stated differently, what happens to my existing mortgage if I qualify for a reverse mortgage?
Lastly, the article mentioned that my heirs/beneficiaries will have ample time ("up to 12 months") to decide how to pay back the reverse mortgage loan. I have an adult child that resides with me. He has promised to live and care for me until my death. I do not want him thrown out of the house upon my death as a result of a mortgage of any kind (traditional or reverse) without some time for him to plan how to pay back the loan.
Questions #4: During the ample time referenced in the article before a foreclosure is sought by the lender, are fees, charges and/or interest accruing that are added to the reverse mortgage loan repayment amount? Sorry for all the questions. I need to get clarity before calling.
| Michael Branson October 23rd, 2012 |
Yes, a trust is acceptable. The lender will review the trust to be certain that it meets HUD guidelines, but most do. The things they check for are in the borrower's interests and most attorneys make certain they are included. Depending on the current value of the home, there is no problem with an existing mortgage. Your existing mortgage would have to be paid in full of the reverse mortgage proceeds.
Terry, I'm glad you asked the question about the repayment. The lender and HUD work with families as long as they see that the family member is taking adequate steps to either pay off the mortgage or sell the home. This is very important when you have family who are still living in the property. HUD and lenders have seen circumstances in the past where remaining family members really didn't want to leave the home and therefore, made no efforts to repay the mortgage or sell the home. In these cases, the properties may not have been listed in a timely manner, listed at prices above current market or when inspected, were not in "show condition" which meant that no buyer would probably be interested in purchasing the property the way it was being represented.
If the family members are doing everything the lender or HUD could do to sell the home, then the lender and HUD have no desire to step in, incur the costs and labor to do the exact same things already being done. If the house is being priced competitively, and marketed well, nothing is gained by taking the home through foreclosure and having it off the market or falling into decay while that happens. Remember, foreclosure itself takes many months in most states so if there is nothing to be gained, the lender and HUD do not desire this route.
Communication is key and if your heir works with the lender, they will continue to work with him unless it got to a point where after that 12-month period they felt a price reduction was in order and your heir refused. At that, if they deemed they needed to begin foreclosure, you still have the time frame needed to complete that process and as stated, this alone can take many months.
He should have a plan going in as to what he wants to do when the time comes. If he plans to pay the loan off, then he will need to have financing available so he would need to know he can qualify for a mortgage of his own at the time (or a reverse mortgage if he is 62 or older and there is still sufficient equity in the home). His advance planning will be his biggest advantage so that he is not left unaware at the time when he has to start making decisions.
| Carol September 20th, 2012 |
I thought a reverse mortage was when the bank gives you money for the value of your home, and you can live in your home, however when you die the bank takes your home and sells it, am I wrong?
| Michael Branson September 20th, 2012 |
Many people mistake reverse mortgages for a "transfer" of the home from the borrower to the bank. This is not the intent or the way the loan works. You always own your home, you are responsible for the payment of the taxes and insurance and for the maintenance on the home, just like with any other mortgage or home loan. The difference is that you make no monthly payments on the mortgage so instead of your balance going down as you make payments as is the case with a traditional or forward mortgage, the balance on a reverse mortgage goes up.
| Jimmy D. September 20th, 2012 |
I'm kind of confused on the term *heirs* would that mean like your children or grandchildren or does that mean surviving spouse provided one passed before the other?
| Michael Branson September 20th, 2012 |
Heirs can be all of the above. If your surviving spouse is also on the reverse mortgage, they may be your heir for some other parts of your estate, but they are still the owner of the property. The reverse mortgage would remain intact so long as any of the original borrowers remain living in the property. For purposes of the reverse mortgage, a surviving spouse is not an "heir", they are an original borrower/owner if they were on the title and loan when it was originally done.
| Robert S. April 23rd, 2012 |
Great explanation in layman's terms of what reverse mortgages are. I found this article helpful in my research and will be in contact after my counseling session is completed. Thanks -Bob
| Elizabeth April 17th, 2012 |
Once the family member dies does the Reverse Mortgage keep all contents in the house or can the remaining family members left remove the furniture out of the house etc before the Reverse Mortgage company claim the property back?
| Michael Branson April 20th, 2012 |
The reverse mortgage company does not "own" the house at the time the borrower passes. The loan becomes due and payable and it is up to the borrower's heirs to determine how they want to accomplish this. They can choose to sell the home and repay the loan, refinance the loan in their own name(s) or they can pay the loan off with other funds available to them. The lender does not own the property at this time and they do not own any personal property inside, it still belongs to the heirs of the borrower.
Also, since the loan is a non-recourse loan, the lender can never seek repayment from any other assets to repay the loan. In other words, if the borrowers received all the funds before the prices of homes fell so dramatically in most areas of the country and lived there for many years without having to make payments, all the while accruing interest and now upon passing the property is not worth as much as is owed on the reverse mortgage, the heirs have the option to choose to either repay the obligation at 95% of the current appraised value or simply allow the lender to take the property to repay the obligation.
Regardless of which option they choose, they still have the right to all the borrower's personal belongings and, as stated, the lender cannot seek repayment from any other assets other than the property itself.
| Robin Adair Logan April 16th, 2012 |
Does a reverse mortgage give you all the money your house qualifies for up front? Let's say the house appraisal is $280,000 and the qualifying amount of the reverse mortgage is $175,000; does the home owner get a check for $175,000? Or is it parceled out in monthly payments?
| Michael Branson April 16th, 2012 |
That's one of the great things about a reverse mortgage, there are a number of ways you can choose to take the money. If your benefit amount is $175,000 and you have no liens on the property, then the next choice you need to make is whether you want the fixed rate or the adjustable rate option. This is one thing that would determine how you would receive the funds.
The fixed rate loan is a "closed-ended" instrument which means that you can only take one draw and that occurs at funding. So if you absolutely want the fixed rate loan, then you would have to take all the money as just a one-time payment. However, the adjustable rate loan has several options available for you to receive your funds. You can choose the same lump sum payment, you can choose to receive monthly payments, you can leave the money in a line of credit that you can access whenever you want or you could choose to take a combination of all the above (i.e. take $50,000 at close to pay off some debts and make home repairs, put $50,000 aside in a line of credit to be used whenever you want and then have the lender use the remaining $75,000 as monthly payments for life).
The choice is yours and the funds can be taken based on your needs and desires and which program you choose. But you do have to remember that your choice will be limited to the lump-sum distribution if you decide you want just the fixed rate option.
