Contact The Reverse Mortgage Lender
When you initially make the decision to sell your home, you should contact your lender and talk to them about it. They can walk through your options with you and explain exactly how the process will work. Depending on your specific situation, you may have some mortgage left to pay off after you sell the house. Your lender will lay all of this out for you in a quote. They will let you know how much equity you have and how much you owe as part of any liens, as well as what that will leave you with after the sale of your home.
Remember, you do have to pay back your reverse mortgage loan, so that amount will be taken out of your total equity. This means, if you dont have enough equity leftover to repay the loan, you wont be able to sell your home without paying it back another way. When they give you a quote for your earnings after you sell the home, make sure that you get it in writing and that it has an expiration date as well. Quotes usually become void after a certain period of time, so if it takes you awhile to sell your home, you might need to get another quote for the value of your home and your final earnings at closing.
How Should I Deal With A Reverse Mortgage When The Owner Dies
If youre the heir to a reverse mortgage taken out by someone who has recently passed, here are the steps youll need to take in dealing with a reverse mortgage when the owner dies:
- Take a deep breath. You have a full month before you need to deal with your newly inherited property. Take some time to grieve before overwhelming yourself with reverse mortgage proceedings.
- Contact the mortgage company. Within 30 days, you must send the lender a death notification with the name and account number of the deceased, the date of their passing, and an attached death certificate, stating that you are the heir to their estate and wish to know the remaining balance on the reverse mortgage.
- Inform the lender of your decision. 30 days after the mortgage company provides you with the due and payable notice for the loan, respond to them stating how you intend to pay off the balance.
- Close the loan on time. Make sure to settle the debt within six months of your loved ones passing or ask for extensions if you need more time to sell the house. Failure to meet the necessary deadline can lead to foreclosure.
Pay It Back With Your Own Funds
When it comes to paying back the loan, youll need to pay back the amount you borrowed plus any interest that has accrued on that amount. If you wish to stay in your home and dont want to sell it, youll need to pay back the loan out of pocket. That may mean drawing from your savings to pay it off in one lump sum or creating a payment plan in which you make several payments to finish it off. This may require you to start making monthly payments on the loan and setting up a new budget to make those payments.
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Be Sensitive To Timelines
Realtors need to be mindful of the sensitive timelines that are associated with reverse mortgage loans. The loans will become due and payable, and unless the home is sold, the homeowner wont have the money to pay it off. Not only could the stress of pending payback dates be taken out on you, but if the home is not paid in time, homeowners are more likely to break their contracts and find another realtor. Although the time the house is on the market is not always dependent on the realtor, homeowners will see it that way and take their frustrations out on you.
Requirements For Reverse Mortgage
Reverse mortgages are intended to help seniors, who may need the extra income during their retirement years. Because of that, there are certain qualifications that must be met.
- You must be at least 62 years old.
- You must be on the title of the home. Additionally, you must either own the home outright , or the remaining mortgage balance must be low enough to be paid off by the reverse mortgage.
- Your home must be your primary residence.
- You must complete a counseling session with an agency approved by HUD so that you are fully aware of all your financial options.
When you have a reverse mortgage on your home, you still have certain financial responsibilities. You must pay property taxes, homeowners insurance, and any HOA fees.
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There Are Several Costs
You could be subject to several costs when you decide to get a reverse mortgage. Some of the fees that come with a reverse mortgage include:
- Mortgage insurance: An initial premium of 2% of the loan amount, plus 0.5% of the annual outstanding loan balance each year.
- Closing costs: You might be stuck with these third-party charges, depending on the lender you use, and they vary.
- Origination fees: Lenders can charge up to $6,000 in origination fees, based on your homes value.
- Servicing fees: The FHA allows lenders to charge monthly servicing fees.
All of these fees can be included in your loan, but they will reduce the amount you receive.
How Long Can A Caretaker Stay After Owner Dies With A Reverse Mortgage
This is a tough question to answer. If the owner has heirs who want to sell the home or move in, they could begin an eviction process almost immediately and then it would be up to the individual laws in your area to determine your rights to remain before you must vacate.
If no heirs come forward to claim the property, the lender would not be able to remove an individual from the property until they owned the home and that could not be completed until after a foreclosure action which could take 5 months or longer.
At any rate though, you need to realize that eventually there will be a new owner and unless they keep the home as a rental and you are able to decide with the new owner to continue to rent from them, you will need to move.
It would make sense to start planning for that eventuality early on.
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Requirements Of A Reverse Mortgage
A reverse mortgage is generally a type of FHA loan, called a, “HECM loan,” While some lenders offer proprietary reverse mortgages, most of these loans are offered by lenders who use the HECM program through the FHA. When considering a reverse mortgage, consider focusing on programs that are FHA-insured and must adhere to federal guidelines. With non-HECM reverse mortgages, you could lose important consumer protections, and you wont be guaranteed the uniform requirements provided by the FHA.
In order to qualify for a reverse mortgage:
- You must be at least 62 years of age.
- You must live in the home as a primary residence.
- You must not be delinquent on federal debt.
- You must be able to keep paying taxes, insurance, and other costs.
- The property must meet FHA requirements.
You can choose to receive your payments as long as you live in the home, or you can set up a set term to receive payments. Its even possible to use a line of credit for your reverse mortgage. No matter what type of payment setup you choose, you cant be forced to sell your home to pay off the mortgage, and you wont have to make payments until you no longer live in the home.
Given this information, a reverse mortgage might seem like a slam dunk, and there are situations in which a reverse mortgage makes sense. However, there are some drawbacks to reverse mortgages that can cause financial harm to some retirees.
Can You Get Out Of A Reverse Mortgage
Like a traditional mortgage, the best method of getting out of a reverse mortgage is to repay the entire loan balance. You might be able to use the proceeds from the sale of your home to pay off your reverse mortgage if you have a large balance you are unable to pay in cash.
To confirm the homes payoff in writing, you will need to obtain the formal payoff quote, which is an estimate of how much money is needed so that your reverse mortgage loan can be fully repaid and your account closed.
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Would You Benefit From One
A reverse mortgage might sound a lot like a home equity loan or line of credit. Indeed, similar to one of these loans, a reverse mortgage can provide a lump sum or a line of credit that you can access as needed based on how much of your home youve paid off and your homes market value. But unlike a home equity loan or line of credit, you dont need to have an income or good credit to qualify, and you wont make any loan payments while you occupy the home as your primary residence.
A reverse mortgage is the only way to access home equity without selling the home for seniors who dont want the responsibility of making a monthly loan payment or who cant qualify for a home equity loan or refinance because of limited cash flow or poor credit.
If you dont qualify for any of these loans, what options remain for using home equity to fund your retirement? You could sell and downsize, or you could sell your home to your children or grandchildren to keep it in the family, perhaps even becoming their renter if you want to continue living in the home.
Can I Lose My Home If I Get A Reverse Mortgage
Yes, however the lender may only foreclose if you do not pay your home insurance, property taxes, and any association dues or make required repairs. In addition, the IRS could take action if there is unpaid tax liens, but that is the same as with a regular forward mortgage, too. Remember, because you are not required to make monthly mortgage payments with a reverse mortgage, there is a much lower risk of default.
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Whats An Alternative To A Reverse Mortgage
Typically homeowners who need to access a reverse mortgage, need additional capital now. So what else can you do?
- The most obvious alternative solution to a reverse mortgage is selling your current home and downsizing. This may be hard to do – especially if you have built a lifetime of memories there – but it can allow you to access the equity youve put into your home.
- Another option is refinancing your home, if youre still paying off the mortgage. If the issue is simply too many bills, this can allow you to get your monthly payments down to a more manageable amount.
- Get a HELOC, or home equity line of credit loan – a line of credit on your home. The length of a HELOC can run fairly long – think 10 years .
Time To Access Equity
Think of the HECM like an equity line of credit that sends you a check every month that you don’t make payments on. Assume the monthly payment is $500 per month on the $100,000 HECM. You decided to sell the house one year after you started the loan. This means you have used $6,000 of your $100,000 limit.
Just like an equity line of credit, it’s the $6,000 accessed that is owed upon sale, not the $100,000 limit. This is a better scenario than having to repay $100,000 you didn’t get to enjoy. However, the more years the HECM pays out, the closer to maxing out your equity and tighter your profit margins will be upon selling.
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Selling A House With A Reverse Mortgage
Editorial Note: The content of this article is based on the authors opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.
Selling a house with a reverse mortgage isnt as simple as selling a home with a traditional mortgage but it can be done with a little planning.
With a reverse mortgage, you borrow against the equity in your property to receive cash upfront or a stream of monthly payments. Instead of paying your bank, your bank pays you. This can be a great way for seniors to meet living expenses in retirement while staying in their home, and the reverse mortgage does not need to be paid back until the homeowner die or leave the home. That includes selling.
How Does A Reverse Mortgage Differ From A Regular Mortgage
Unlike a regular mortgage, a reverse mortgage does not require the homeowner to make monthly payments. However, they still need to live in the home, pay property taxes and homeowners insurance, and keep the property in good condition.
In the case of a married couple co-borrowing a reverse mortgage, only one spouse needs to meet the reverse mortgage requirements. The loan will need to be paid back with accrued interest when the homeowner no longer resides in the house as their primary residence, whether it is due to their passing or relocation to a care facility. Whoever inherits the home is responsible for paying this amount back in full.
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What Is A Reverse Mortgage
A reverse mortgage is a loan that you take out using the equity in your home as collateral. In that sense, it is similar to a traditional mortgage. And like a traditional mortgage, you do keep the title to your home.
However, you wont be making monthly mortgage payments. Instead, you will pay off the loan when you no longer live in the house.
Because interest and other fees are added to the loan balance each month, the balance actually increases during the life of the loan. You will end up paying back more than you borrowed. However, if the price of your home also increased, that might not be an issue.
When Selling Your House As Is Becomes An Issue
Selling your home with a reverse mortgage is significantly easier if your property has increased in value over time. In this case, youll have enough equity you can use to pay off the loan, and the situation has significantly less red tape.
Its a bit trickier if your homes value has dropped over time to a value less than what you owe the lender. For example, your real estate broker cant list a property for a price that is less than what you owe your lender. The only way out of this complication is to make up the difference at the time of the sale. Unfortunately this means walking away with less money in your pocket.
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Why Sell A Home With A Reverse Mortgage
The act of selling a home with a reverse mortgage is typically triggered by what lenders call a maturity event. Anytime a maturity event is reached, your reverse mortgage comes due. You can trigger a maturity event yourself . Or a maturity event might be reached automatically, due to the homeowners death or illness.
Maturity events that require reverse mortgage payoff:
- Choosing to sell
- Illness that requires a move into assisted living or a nursing home
- Unpaid property taxes or HOA fees
- Home in disrepair
If youre being forced to sell due to a maturity event, stay in contact with your lender to prove youre actively trying to sell your home. If your lender thinks youre not actively trying to sell after a maturity event, they may take action, like starting foreclosure proceedings.
Reverse Mortgage After Death: What Heirs & Family Must Know
It seems that one of the most popular questions we get is:
What happens with my reverse mortgage and my home after death?
The reverse mortgage is intended to be the last loan that borrowers will ever need, so this is a question many homeowners and their heirs have on their minds as many of them intend to keep the loan and the home for life.
If they do get a reverse mortgage and it does enable them to live in their homes without paying a mortgage payment for the rest of their lives
Most borrowers know that the benefit amount or eligible Principal Limit is based on the age of the youngest borrower .
Those who have done their research and know this fact, are concerned about any changes to their loan when one borrower, older or younger, passes first.
They want to know can the remaining spouse remain in the home, will there be any changes to the loan as a result, how does this affect the heirs, etc.
And in fact, all borrowers with heirs are always rightly concerned about what happens to their homes and the mortgage upon their passing. The first thing to ease everyones concern is that once the loan closes, the terms do not change.
If there are more than one borrower on the loan and one predeceases the other or must leave the home, regardless of the ages of the remaining borrower, the terms are not changed.
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