Qualifying Property Types
Q: Does my residential home property type qualify?
A: Single-family homes, 2-4 unit properties, manufactured homes (built after June 1976), townhouses, and condominiums all qualify. Co-ops do not qualify.
Do I Qualify for a Reverse Mortgage
Q: Are there special requirements I must meet to qualify for a reverse mortgage?
A: You must own the home you wish to borrow against. The youngest person on title to the home must be at least 62. There must be enough equity in the home to meet your goals.
Lenders will do a financial assessment to ensure that the borrowers’ have the financial capacity to continue paying mandatory obligations, such as property taxes and homeowner's insurance, as stipulated in the Loan Agreement.
If the lender determines that a borrower may not be able to keep up with property taxes and homeowner's insurance payments, they can be authorized to set-aside a certain amount of funds from the loan to pay these future charges.
Q: What if I have an existing mortgage?
A: Any existing indebtedness must be paid off using funds from the reverse mortgage or other funds you provide, such as money from your savings, or assistance from a family member or friend.
Amount of Proceeds from a Reverse Mortgage
Q: How Much Money Can I Get?
A: The lender will determine the total amount of funding you can receive, based on the age of the youngest person on title, the value of the home, the interest rate to be charged, and in the case of the government program, the FHA lending limit, which is currently $679,650. The older you are and the more valuable your home (and the less you owe on your home), the more money you can get.
During the first 12 months after closing, you cannot access more than 60 percent of the available loan proceeds. Beyond that, a borrower can access all of the remaining funds.
If you have an existing mortgage, there is an exception to the 60% rule. You may pay off the existing mortgage and access an additional 10 percent of the available funds.
Limits on Use of Proceeds
Q: How can I use the proceeds from a reverse mortgage?
A: The proceeds from a reverse mortgage can be used for anything you choose.
Q: What does “non-recourse loan” mean?
A: Most reverse mortgage loans are considered “non-recourse loans." This means that you can never be responsible for more than the value of your home at the time you or your heirs sell your home to repay your reverse mortgage. If your loan is a Home Equity Conversion Mortgage ("HECM"), the reverse mortgage debt may be satisfied by paying the lesser of the mortgage balance or 95% of the current appraised value of the home.
Application of Interest
Q: How does the interest apply on my reverse mortgage?
A: You are charged interest each month on the outstanding balance. Your balance due will consist of any amounts borrowed plus accumulating interest.
Q: My understanding is that the unused balance in the HECM Line of Credit Option has a growth feature.
A: After the first month of your HECM loan, the principal limit increases each month thereafter at a rate equal to one-twelfth of the mortgage interest rate in effect at that time, plus one-twelfth of monthly mortgage insurance premium rate.
This growth should be considered a further extension of credit rather than an accrual of interest.
Why Two Mortgages?
Q: Why will I be signing two (2) Mortgages and Notes at my closing?
A: Your lender is in a first lien position and the Federal Housing Administration is in a second lien position. If your lender fails to meet its obligations under the terms of the Loan Agreement, FHA can step in and assume responsibility for the loan, so that you continue getting uninterrupted access to your funds. Both the first and the second mortgage will be recorded with the county in which your property is located.
Q: Why am I charged a servicing fee?
A: The monthly servicing fee covers the costs associated with administering your reverse mortgage loan including: maintaining accurate records, tracking your property taxes and your hazard insurance, certifying your occupancy status, issuing statements of account, issuing and collecting payments, collecting on the loan when it becomes due, customer service, and discharging the mortgage.
Mortgage Insurance Premiums
Q: Why is there a Mortgage Insurance Premium (MIP) with my HECM reverse mortgage?
A: You will be charged (MIP) at closing equal to 2% of the home's appraised value or FHA lending limit ($679,650), whichever number is less.
Each year you will be charged with 0.5 percent of the outstanding loan balance. Th annual fee doesn't come out of your available loan proceeds, but rather accrues over time.
Q: I elected to receive monthly payments, when will those monthly payments begin?
A: Your first monthly payments are to be sent to you the first business day of the month following your loan funding date.
Q: Can I change the type of payment plan I elected at closing in the future if my needs change?
A: Check your loan documents. They will stipulate whether you are allowed to change the plan in the future. Most plans charge a fee for changes to your payment plan.
Q: Can I make a partial prepayment to my reverse mortgage account?
A: Most reverse mortgages will permit a partial prepayment to your reverse mortgage account without penalty.
Interest charges and your income taxes
Q: Can I deduct the interest charges for income tax purposes?
A: Interest charges can only be deducted when actually paid. In a reverse mortgage, you are generally not paying the interest charges, they are merely accruing. If you have made partial prepayments, then you must be assured that your prepayments have been applied to your interest charges. Check with your lender.
Q: Should I receive a statement of account from my loan servicer?
A: Yes. Your loan servicer must issue a statement of account for the following:
After each line of credit activity (your monthly statement).
A statement advising you of any impending interest rate change that may impact your reverse mortgage.
An annual statement of account by January 31 which details all of your previous year's reverse mortgage account activity summarizing all advances of principal, all Mortgage Insurance Premiums accrued, all interest charges, and all property charges paid in the prior year.
Q: Why do I receive “Occupancy Certificates”?
A: You must periodically certify that you continue to reside in the mortgaged property as your primary residence. You must truthfully attest to your occupancy status on this Occupancy Certificate by signing the certificate and returning this Occupancy Certificate to your loan servicer. Failure to complete this Occupancy Certificate in a timely manner may cause an interruption in your reverse mortgage payments and may eventually lead to a default in the terms of your loan agreement.
Q: Do I have to pay my property taxes?
A: Yes, it is your responsibility to ensure that your property taxes are paid in a timely manner. Failure to keep your property taxes current is considered a DEFAULT in the terms of your Loan Agreement and may be grounds for calling your loan due and payable.
You may choose to have your reverse mortgage servicer pay your property taxes on your behalf. The amount that is required to meet this tax obligation will be “set aside” from your available loan proceeds and will be used for the payment of your taxes. These funds do not become part of your loan balance until such time when the funds are actually paid to the taxing authority.
Q: Am I required to maintain Hazard Insurance on my mortgaged property?
A: You must maintain Hazard Insurance on your property in an amount that is equal to at least 100% of the insurable value of the improvements at the time of your loan closing. You must provide your loan servicer with a copy of your Hazard Insurance policy and ensure that the policy is renewed upon expiration. Failure to maintain adequate Hazard Insurance on your property is considered a DEFAULT in the terms of your Loan Agreement and may be grounds for calling your loan due and payable.
You may choose to have your reverse mortgage servicer pay your Hazard Insurance premiums on your behalf. The amount that is required to meet these premium obligations will be “set aside” from your available loan proceeds and will be used for the payment of your Hazard Insurance premiums. These funds do not become part of your loan balance until which time the funds are actually disbursed to your insurance provider.
Q: Do I have to carry Flood Insurance in addition to my Hazard Insurance?
A: If your property is in an area that has been identified by FEMA as having special flood hazards, then you must maintain Flood Insurance in compliance with the Flood Disaster Act of 1973. If you are required to maintain Flood Insurance, then you must provide your loan servicer with evidence of this coverage and ensure that this policy is renewed upon expiration.
Q: What is a maturity event?
A: A maturity event is an event which may cause your reverse mortgage to be called due and payable. Once a loan has reached a maturity event, then no additional funds may be advanced from the reverse mortgage. Such maturity events include:
All borrowers have passed away
All borrowers have sold or conveyed title of the property to a third party
The property is no longer the principal residence of at least one borrower for reasons other than death
The borrower does not maintain the property as principal residence for a period exceeding 12 months because of physical or mental illness
Borrower fails to pay property taxes and/or insurance and all attempts to rectify the situation have been exhausted
The property is in disrepair and the borrower has refused or is unable to repair the property.
Q: Can I pay off my reverse mortgage before a maturity event is reached?
A: Yes. You can pay your reverse mortgage in full at any time during the term of your reverse mortgage.