How Home Equity Release Works
Equity is the value of your home, less any money you owe on it .
Home equity release lets you access some of your equity, while you continue to live in your home. For example, you may want money for home modifications, medical expenses or to help with living costs.
Ways to access equity in your home include:
- reverse mortgage
- the Governments Pension Loans Scheme
The amount of money you can get depends on:
- your age
- the value of your home
- the type of equity release
Your decision could affect your partner, family and anyone you live with. So take your time to talk it through, get independent advice and make sure you understand what youre signing up for.
How Can I Receive My Reverse Mortgage Money
There are four options for how to receive your funds, and you can make changes to these once your accouunt is established:
Are Reverse Mortgages Safe
Reverse mortgages are offered by Equitable Bank and Home Equity Bank . These two banks are federally regulated and licensed, which ensures that they are safe to use. You will never owe more money than your home is worth with a reverse mortgage.
CHIP is endorsed by the Canadian Association for Retired Persons and The Royal Canadian Legion. Equitable Bank is Canadas ninth-largest bank and is a publicly-traded company on the Toronto Stock Exchange.
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Are There Any Income Or Credit Score Requirements
Yes. Since monthly payments are not required, proof of your income is used to ensure you can continue to pay your basic living expenses, plus home insurance, property taxes and any association dues. A credit check is used to confirm if you have any federal tax liens or other items that may affect qualification. Credit scores are not a consideration.
Do I Own A Condo Or A Townhouse
Condominiums are most similar to units in an apartment building however, condos are owned by the individual, not a landlord. Additionally, condominium owners have full rights to their particular unit and shared rights to the communal spaces in the condominium community. Condo owners pay substantial HOA fees to cover the costs of exterior maintenance, insurance, trash, snow removal, etc.
Townhouses are typically two stories within the unit also owned by the individual. Unlike condos, town-home owners maintain full ownership of the home as well as the land on which the home is situated. This may include a garage, backyard or front yard. Because they are responsible for their own maintenance, town-home owners typically incur lower HOA fees than condo owners.
About the Author, Tyler Plack
South River Mortgage is one of the nation’s top reverse mortgage originators. With a focus on reverse mortgages, South River Mortgage’s trustworthy advisors are able to help thousands of seniors each year.
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Insurance Premiums On Condominiums
Condo insurance otherwise known as HO-6 insurance policy usually comes at an average fee of $478 per year. However, this fee is not a flat one and varies significantly depending on the area where you reside and your choice of coverage limits. Condo insurance typically protects the dwellers from damage that occurs to the interior of their housing unit. In addition, an HO-6 policy also covers theft of personal property as well as if a guest sustains an injury while inside the property of the policyholder. Thanks to the financial protection that it offers, most mortgage lenders typically require condo insurance.
Data from the National Association of Insurance Commissioners indicates that the cost difference between the most expensive and the cheapest states regarding condo insurance stands at $720 per year. The table below indicates the average cost of insurance by the state both on a monthly and annual basis. The table also displays the percentage difference in comparison to the national average:
How To Tell If A Reverse Mortgage Is Right For You
It’s true reverse mortgages don’t have a stellar reputation and Gilbert says they aren’t right for everyone. For example, it might not be the best choice for someone who is definitely not planning on remaining in their home for at least the next two or three years to justify the cost.
Additionally, if there is another family member who needs to inherit the property, for example if you have a child with a disability and want the child to stay in the apartment long-term, a reverse mortgage may not provide long-term security.
However, Gilbert says she has seen cases where a senior child over the age of 62 and a parent have gone in on a reverse mortgage together and says “it allowed tremendous protections for both generations.”
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What Responsibilities Come With A Reverse Mortgage
Its important to remember that a reverse mortgage is still a loan and, as the homeowner, you still have responsibilities tied to the loan and the home. Youll need to:
- Continue to pay property taxes and homeowners insurance.
- Keep the home in good condition complete repairs and maintenance.
- Live in the home for more than half the year as the primary residence.
If you do not stay current on your taxes and homeowners insurance, fail to maintain the house or live in the home for less than 6 months of the year, your loan may come due.
However, if you uphold the loan obligations listed above, your reverse mortgage will not come due until the last borrower moves out of the home or passes away. When this happens, the home is sold, and the proceeds of the sale are used to pay the loan balance in full. If heirs wish to keep the home, they can refinance the reverse mortgage into a traditional loan. They will need to pay either the loan balance or 95% of the appraised value, whichever is lower.
A reverse mortgage is a nonrecourse loan. That means if the home sells for less than what is due on the loan, this insurance covers the difference so you wont end up underwater or with negative equity on your loan and the lender doesnt lose money on their investment. Depending on the type of reverse mortgage you get, the FHA or the lender will cover the difference and absorb the cost.
Are Reverse Mortgages A Ripoff
Generally, reverse mortgage scams operate with the intent of stealing a homeowners equity, which left them powerless to maintain the property, leaving them potentially at risk if the house were to be repossessed. A reverse mortgage is an extremely complex loan that makes it the perfect product for financial scam, especially since it comes with a long payoff period.
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What An Equity Release Agreement Costs
Its not a loan, so you dont pay interest. Instead, you pay fees such as:
- an application fee
- periodic service fees, potentially deducted in advance from your homes equity
- a fee to end the agreement
Get the fund to go through projections with you, showing the impact on your home equity over time. Get a copy of this to take away, and discuss it with your adviser. Ask questions if theres anything youre not sure about.
Are Condos And Townhomes The Same Thing
Condominiums and Townhomes are not the same thing and the difference is in the legal description. Some condos are listed as townhouse style condos but a condominium is where the unit owner has a right to occupy their unit and a fractional ownership in the total complex. A true townhouse owner owns their individual unit located on their lot.
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Recommended Action Steps For Fha Approval
The first step is to determine if your condominium is FHA-approved. HUD keeps a database of all FHA-approved condominiums. You can visit the opens in a new windowHUD website to find out if your condo is already eligible for a reverse mortgage.
On this publicly accessible database, you can search for your condo by state, county, or even the name of the property. Remember that these steps are crucial if you want to borrow a reverse mortgage on a condo and want to opens in a new windowenjoy a happy retirement.
If you notice that your condo project features a certificate of FHA approval in the past, its a sign that the association may consider FHA approval in the future. Open a discussion with your association and ask the member and find out if they are willing to allow reverse mortgage in the project.
You can also contact a lender, who can broach the subject to your HOA on your behalf to see it is feasible to do reverse mortgages in your project.
If you own an FHA-approved unit, consult with your mortgage loan officer to proceed.
How The New Condo Rule Is Playing Out For Reverse Mortgage Lenders
In late 2019, the Department of Housing and Urban Development issued new condominium guidelines that aimed to make it easier for single units to be approved for Federal Housing Administration financing. This included transactions under the Home Equity Conversion Mortgage program.
Historically, an entire condo complex would need to be approved for FHA financing in order for one unit to receive the financing, so the changes are significant. In terms of the new rules effects on originators, there has been a discernible effect in certain parts of the country, but additional perspective is provided when asking major lenders and brokers about the effects of the new condo rules handed down late last year.
While the new guidance has made it slightly easier to gain a single-unit approval, in many cases the process seems to remain in the realm of requiring a full project approval, according to reverse mortgage industry participants at several levels.
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What About Spot Approval
The biggest reverse mortgage condo change impacting property owners and aspiring borrowers is the new ability for spot approval. This allows certain individual condo units to receive approval for an FHA loan even if the entire condominium project is not FHA-approved.
You may be eligible for Single-Unit Approval if:
- The condominium project is completed.
- In projects with 10 or more units, no more than 10% of units are FHA-insured.
- In projects with fewer than 10 units, no more than two units are FHA-insured.
Yes You Can Get A Reverse Mortgage On A Condo In Colorado
For most of the time reverse mortgages have been around they were not available on condos and many people still believe this to be true. But that changed in 2019.
Previously most condos could not obtain HECM Reverse Mortgage loans because they required approval of the entire building, which included multiple units. The 2019 change now only requires approval of single units. This was a huge step forward for the industry, as many seniors find condos to be comfortable and affordable as they age in place.
Heres what former HUD Secretary Ben Carson had to say when this change was made:
Condominiums have increasingly become a source of affordable, sustainable homeownership for many families and its critical that FHA be there to help them, said HUD Secretary Ben Carson. This is an important step to open more doors to homeownership for younger, first-time American buyers as well as seniors hoping to age-in-place.
FHA deputy assistant secretary of single family housing, Gisele Roget, also clarified that the previous rules governing condo approvals shut out a lot of senior condo owners from obtaining a HECM in the past, and the new rule helped to address that.
We recognize that many seniors live in condominiums that were unable or unwilling to go through the process of FHAs project approval, Roget said. And so, by allowing borrowers to utilize the single unit approval, they will be able to age in place in condominiums that do not have the overall FHA project approval.
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Responses From Major Lenders
For some of the leading lenders in the reverse mortgage industry, the new condo rule changes have proved to be a generally positive development even if the simplicity around the process has not been significantly enhanced. This is according to Kendra Rasmussen, VP of credit at American Advisors Group .
Since the rule changes, weve received a significant number of requests for single unit condominiums seeking a HECM, Rasmussen tells RMD. While many of these still require us to submit for a full project review, it has given us a chance to help more seniors than ever before.
Even if a full project review is required, though, AAG has seen a noticeable uptick in approvals since the new rules were first handed down.
In fact, in the months since the rules were implemented, our team has gained FHA approval for more than 100 projects, which is nearly 80% greater than the entire previous year, Rasmussen shares.
At Finance of America Reverse , the new rules have opened up a new segment of business, according to a company spokesperson.
The new rules have opened up our products to a new set of customers, who may not have qualified for a reverse mortgage in the past, and weve seen our condo business increase since Single Unit Approval was introduced, the spokesperson says. In many cases, the condos are approved by submitting the project to HUD for full project approval because the borrower or the project does not meet HUDs SUA guidelines.
Does The Credit Union Or Government Own Or Get My Home
No, the credit union or government never owns your home. You remain the sole owner and can stay or sell at any time. When all homeowners have left the home for good, or loan obligations are not met, the loan then becomes due. If all homeowners pass away, the home goes to your heir listed in your will, and your heir can sell or refinance. Should one spouse pass away first, the surviving spouse on the title still owns the home and can sell or stay as long as they choose, as long as they remain compliant with the loan requirements.
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What Can Go Wrong With A Reverse Mortgage
Foreclosure: If you dont make your property tax and insurance payments, that could trigger a foreclosure. Similarly, if you dont respond to annual correspondence from your lender, that could also prompt foreclosure proceedings.
The impact:Explore foreclosures across the U.S.
Unfortunately, minor infractions like not returning a residency postcard, missing tax or property insurance payment, or poor servicing can lead to foreclosure quickly. In those cases, seniors can face long stressful battles to hold onto their homes and sometimes they still lose them anyway.
Non-borrowing spouse: If your spouse is not a co-borrower on the reverse mortgage when you pass away, what happens next depends on when the reverse mortgage was taken out.
If it was taken out on or after Aug. 4, 2014, a non-borrowing spouse can stay in the home after the borrower dies but does not receive any more of the loan funds as long as he or she meets these eligibility requirements:
Remain married until the borrower dies
Named as a non-borrowing spouse in the loan documents
Live and continue to live in the home as the primary residence
Able to prove legal ownership after the borrower dies
Pay the taxes and insurance and maintain the homes upkeep
If that doesnt happen, the surviving spouse can be hard hit, receiving a foreclosure notice within weeks of their husband or wifes death.
Shop around, too.
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Condo Reverse Mortgage Eligibility
Your property must meet specific criteria in order to be eligible for this form of financing. The HUD reverse mortgage guidelines require that the borrower must:
- Be at least 62 years old
- Own the property outright or have a considerable portion of the propertys equity
- Occupy the property as the primary residence
- Have no delinquency on federal debt
- Participate in mandatory HECM counseling
To confirm a senior homeowner meets the requirements above, a lender will verify the applicants income, assets, monthly living expenses, and credit history. They will also check for timely payments of property taxes and homeowner insurance premiums.
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What Are Some Alternatives To Reverse Mortgages
A reverse mortgage is best seen as a last resort to fund your retirement â there are other options for you to consider first. If youâre only partway through your retirement and can already see the balances of your savings accounts dwindle, you may want to consider one of these other options as a way to supplement your income: