Authored By: Legal Aid Services of Oklahoma, Inc.
Offering seniors a way to convert their homeowners equity
WHAT IS A REVERSE MORTGAGE?
A reverse mortgage is a loan using your home equity as collateral, which you will not have to pay back for as long as you live in your home.
To qualify you must:
- Be age 62 or over; and,
- Own your own home; and,
- Have equity either before the loan or by application of the mortgage proceeds.
THREE TYPES OF REVERSE MORTGAGES:
Because of different types of reverse mortgages, with different costs and interest rates, become an informed consumer. Shop and pick the one best for you.
1. Home Equity Conversion Mortgages (HECM) - Federally insured and offered.
HECM's and proprietary reverse mortgages tend to be more costly. The up-front costs can be high, so they are generally most expensive if you stay in your home for just a short time. They are widely available, have no income or medical requirements, and can be used for any purpose. The amount of money available depends on several factors, including age, the appraised value of your home, current interest rates, and where you live. In general, the older you are, the more valuable your home, and the less you owe on it, the more money you can get.
HECM's yield larger advances at lower total cost than proprietary loans. Higher-valued homes may draw bigger advances from a proprietary reverse mortgage. That is, a higher appraised value without a large mortgage may qualify for more funds.
HECM's also let you choose how the loan is offered. You can select fixed monthly cash advances, a line of credit to draw on as needed, or combine methods.
Before applying for a HECM, you must meet with a counselor from an independent government-approved housing counseling agency. For any reverse, be sure to learn all conditions that could make the loan due and payable. Ask a counselor or lender to explain Total Annual Loan Cost (TALC) rates, which show projected annual average cost of a reverse mortgage, including all itemized costs.
2. Single Purpose Reverse Mortgages - Offered by state and local governments and nonprofit corporations.
Single-purpose reverse mortgages generally have very low costs. But they are not available everywhere, and they only can be used for one purpose determined by the lender, ex.: winterizing; property taxes or repairing dilapidated dwellings. They are usually limited to low or moderate income persons.
3. Proprietary Reverse Mortgages - Private loans backed by private companies.
WATCH OUT FOR PHONIES!!!!
- if a salesman suggests a reverse mortgage would be an easy way to pay for something like an annuity. Money received from most of these annuities is taxable.
- if you don't fully understand what he's selling.
- if you're not sure you need what he's selling, be even more skeptical.
- of "Mortgage Elimination Programs." They pose as mortgage counselors with "official" looking documents used to confuse homeowners;
- they lead homeowners into believing loopholes exist which can eliminate their mortgage;
- Some programs attempt to trick you into deeding them your property. They offer and don't deliver a team dedicated to absolving your debt, for a high fee (up to $20,000);
- they seek homeowners in financial trouble and exploit their need;
- NO mortgage elimination program is approved by any government agency;
- they may even involve you in criminal activity if you sign or file false documents.
FREQUENTLY ASKED QUESTIONS
What if I own my house jointly or in common with others?
All owners must join in the reverse mortgage.
What if a joint owner is not age 62 or older?
That owner must transfer ownership to A qualified owner.
What type of homes can I get a reverse mortgage on?
All single family houses are potentially eligible. Some programs allow for multiple family houses, manufactured homes, or condominiums to participate. Mobile homes and homes in excess of four units are not eligible.
Can I get a reverse mortgage on any real property?
No. It must be the owner's primary residence.
Is there any way I can keep my house in the family when I move or die?
Yes. You or your heirs have the option of paying back the loan and regaining your equity.
Will I own my home after I grant a reverse mortgage?
Yes, and you remain responsible for taxes, insurance and repairs.
Can I still move or sell my house after I take out a reverse mortgage?
Yes, but the home, or the sales proceeds, will be used to satisfy the debt.
What can cause foreclosure of a reverse mortgage?
Possible grounds include, but are not limited to, bankruptcy, tax sale, condemnation, eminent domain, abandonment, or waste, or any violation of your loan agreement.
Who pays the costs of obtaining a reverse mortgage?
The costs of obtaining a reverse mortgage will usually be rolled into the loan amount, but you are paying the costs with your equity.
I am in default on my current mortgage. Can I use a reverse mortgage to pay it?
Is the money I receive from my reverse mortgage income?
The IRS does not consider reverse mortgages income. BUT, if you keep money from a reverse mortgage in your account past the end of the month you receive it, Medicaid, Social Security and other agencies will consider it to be "liquid assets". This may affect benefits.
NOTICE TO READER
This information is offered only for educational purposes. It is not intended to be used as specific legal advice. Every individual case is different.