FAQ's - Destroying the Myths About Reverse Mortgages
Below are some frequently asked questions that can help you understand the myths and facts about reverse mortgages.
Myth 1: I have to turn the ownership of my home (title) over to the bank.
Reality: Title to the property remains with the reverse mortgage borrower. As with any other mortgage loan, the reverse mortgage lender will place a lien against the property. The property is the collateral for the growing reverse mortgage balance, but the homeowner retains ownership at all times. Once you permanently move out of your home or pass it to your estate, the loan must be repaid.
Myth 2: I don’t qualify for a reverse mortgage; my home is not free and clear.
Reality: The home does not have to be completely paid for. If the existing loan on the property is 50% or less of the property value, a reverse mortgage will probably work just fine. In fact, the older the homeowner is, the less equity is required. Seniors with an outstanding first mortgage or some other debt on their home usually qualify for a reverse mortgage. The proceeds of the reverse mortgage, though, must first be used to pay off such debts.
Myth 3: If I have the reverse mortgage for many years, it might create a problem for my children.
Reality: Neither the senior borrower nor their heirs can ever be responsible for a “deficiency balance”. If, upon the passing of the last borrower on title, the reverse mortgage balance exceeds the value of the home, the lender would be reimbursed for the loss via the mortgage insurance required by the program. The reverse mortgage borrower, or their estate, can never be held responsible for a loan balance in excess of the value of the home if the home is sold. The lender can only look for repayment from the sale of the property, although the repayment may be made from any other source and your heirs may keep the home.
Myth 4: I can’t get a reverse mortgage, my house is not in the greatest shape.
Reality: A reverse mortgage can actually be a wonderful way to get some needed home repairs accomplished without increasing monthly payments. As part of the processing of the HECM reverse mortgage, a property appraisal is performed by a FHA-approved appraiser. In addition to estimating the value of the home, the appraiser gives a listing of any repairs that would be required to bring the home up to FHA property standards. Depending on the extent of the repairs needed, most repairs can be performed after the reverse mortgage is in place and paid for by the proceeds from the loan.
Myth 5: No lender is going to approve us for a reverse mortgage. Our credit has suffered in recent years, we are no longer employed, our monthly income is somewhat low and we are in poor health.
Reality: Traditional mortgage lenders will analyze credit history, employment and the amount of income borrowers earn for one primary reason. They want to verify their potential borrowers have the ability to make a monthly payment. With a reverse mortgage, no monthly payments are required. Therefore, there are no income, employment or health requirements to qualify for a reverse mortgage. As far as credit history is concerned, as long as the homeowners are not currently in a bankruptcy that is unresolved, the reverse mortgage will work just fine.
Myth 6: There are restrictions on how a reverse mortgage may be used.
Reality: There are no limitations on how the proceeds can be used. Proceeds can be used to pay off existing debt - thus no more monthly payments, provide additional monthly income, provide funds for home repairs or maintenance, additional cash for investing, funds to help grandchildren and loved ones, create a cash reserve for emergencies, provide funds to purchase annuities or Long-Term Care Insurance, pay off credit card debt, purchase a vacation home, go on a trip-the possibilities are endless.
Myth 7: A reverse mortgage is like an equity loan. I will need to make monthly payments on the reverse mortgage.
Reality: The homeowner is only responsible for paying the taxes, insurance and upkeep of the home. As long as the home is your primary residence, you will never have to make a payment until you permanently leave the property.
Myth 8: I can be thrown out of my home.
Reality: The homeowner can stay in their home for as long as they continue to occupy the property as their principal residence, keep their real estate taxes and homeowners insurance current and properly maintain their home so that it's value does not diminish.
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Have questions and want to speak with a Reverse Mortgage Specialist directly?
Call 800 459-5331 and ask for Joyce Hanson to answer all your questions with no obligation. To reach her directly dial 425 732-3349 or click here to email. An email will open in your mail program.