Who Owns The Home In A Reverse Mortgage
One of the most common misconceptions about getting a reverse mortgage is that the borrower will be handing his or her ownership over to the lender. This is simply not true.
In a Home Equity Conversion Mortgage , a type of reverse mortgage that is backed by the Federal Housing Administration and regulated by the U.S. Department of Housing and Urban Development , there is no transference from the homeowner to the lender.
Can You Sell Your House If You Have A Reverse Mortgage
Selling your house when you have a reverse mortgage can be tricky, but it can be done. If you successfully sell your home, keep in mind that the balance of your reverse mortgage becomes due. Youll likely have to use your home sale proceeds to pay off the balance, unless you have another source of funds. If your home value has appreciated and sells for more than your reverse mortgage balance, then you get to pocket the difference. However, if your home value depreciates relative to your loan, then youll be forced to make up the difference.
Is There Any Way For A Surviving Eligible Non
Yes. When the surviving spouse is 62 or older, they may be able to refinance the reverse mortgage. They would need to be able to pay off the existing loan with the proceeds from the refinance or another source. Refinancing may not be possible, however. It will depend on how high the reverse mortgage balance is, what the home is worth, current interest rates, and the surviving spouses age.
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Before You Find An Alternative You May Lose Your Home To Foreclosure
You should know that if you cant keep up with the monthly mortgage payments, you could lose your home to opens in a new windowforeclosure. If youre worried about this happening, talk to your lender about your options. You may be able to get a different type of loan or modify your current loan so that its more affordable.
If youre having trouble making payments, contact your lender immediately. They may be able to work with you to find a solution that works for both of you.
How Much Do You Have To Put Down For Reverse Mortgages
The amount you need to put down for reverse mortgages depends on your loan type.
A HECM for Purchase loan typically requires paying about 50 percent of the homes purchase price in cash. For example, if you want to buy a home for $200,000, youll need to pay $100,000 out of pocket.
A HECM for Purchase does not require a down payment. The equity in the home determines the loan amount for a traditional reverse mortgage. There is no equity in a reverse purchase because the property has not been purchased, but there should be equity to cover interest accrued.
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What Happens If There Is No Heir
If there is no heir, the home will go through foreclosure and be sold to repay the debt.
Its important to note that if the home is sold for less than what is owed on the loan, the lender may seek a deficiency judgment against the estate.
A deficiency judgment is when the lender sues the estate for the difference between what was owed on the loan and the amount the home sold for at foreclosure.
Contact Your Reverse Mortgage Lender
As with any home sale, your first step is to contact your lender to get a loan payoff amount. This estimate will tell you how much youll owe to your reverse mortgage lender at the closing table, plus any fees. Your loan payoff includes the principal borrowed, any interest owed and any unpaid additional charges, prorated to your closing date.
Follow these steps:
- Notify the lender within 30 days of a maturity event. The lender will verify your maturity event.
- The lender then sends a due and payable letter to the homeowner or heir.
- Respond to the lender within 30 days of receiving the letter that you plan to sell the home.
- Expect an appraiser, hired by the lender, to appraise the property.
- You will owe the total debt of the reverse mortgage upon selling or 95% of the appraised value if the debt exceeds the value. The extra 5% is covered by insurance.
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What A Reverse Mortgage Costs
The cost of the loan depends on:
- how much you borrow
- how you take the amount you borrow
- the interest rate and fees
- how long you have the loan
Over time, your debt will grow and your equity will decrease .
See how much a reverse mortgage would cost over different time periods, such as 10 or 20 years.
Your lender or broker must go through reverse mortgage 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 there’s anything you’re not sure about.
What Are The Costs Of A Reverse Mortgage
HUD adjusted insurance premiums for reverse mortgages in October 2017. Since lenders cant ask homeowners or their heirs to pay up if the loan balance grows larger than the homes value, the insurance premiums provide a pool of funds that lenders can draw on so that they dont lose money when this happens.
One change was an increase in the up-front premium, from 0.5% to 2.0%, for three out of four borrowers and a decrease in the up-front premium, from 2.5% to 2.0%, for the other one out of four borrowers. The up-front premium used to be tied to how much borrowers took out in the first year, with homeowners who took out the mostbecause they needed to pay off an existing mortgagepaying the higher rate. Now, all borrowers pay the same 2.0% rate. The up-front premium is calculated based on the homes value, so for every $100,000 in appraised value, you pay $2,000. Thats $6,000 on a $300,000 house, for example. In fact, the fee is capped at $6,000, even if your home is worth more.
All borrowers must also pay annual MIPs of 0.5% of the amount borrowed. This change saves borrowers $750 a year for every $100,000 borrowed and helps offset the higher up-front premium. It also means that the borrowers debt grows more slowly, preserving more of the homeowners equity over time, providing a source of funds later in life, and increasing the possibility of being able to pass down the home to heirs.
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How Reverse Mortgages Affect Spouses
When the borrowing spouse dies or moves out for longer than 12 consecutive monthsthink of moving into residential care, such as a nursing home or assisted livingthe reverse mortgage enters a deferral period. For an eligible non-borrowing spouse, deferral means the lender doesnt say, Hey, your loan is due. Time to repay it or give us the house. Instead, the lender will say, Hey, you cant have any more money, but you can still live in the house until you die or move out. There are more conditions, which well discuss below, but thats the gist of it.
A spouse can be an eligible non-borrowing spouse when the loan closes but later become ineligible through divorce and lose the right to the deferral period. The period also doesnt apply to a new spouse whom a borrower marries after taking out the loan. The newlyweds would need to refinance the reverse mortgage to get the new spouse on the loan and make them a co-borrower or an eligible non-borrowing spouse.
Be Sure To Explore All Options Before Obtaining A Reverse Mortgage
If youre thinking about getting a reverse mortgage, be sure to explore all of your options first. There are a few different kinds of reverse mortgages, and each one has its pros and cons.
You should also talk to a counselor who is approved by HUD and your lender to find out more about what you can do. So you can decide if a reverse mortgage is right for you based on accurate information.
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Alternatives To A Reverse Mortgage
If youre not sold on taking out a reverse mortgage, you have options. In fact, if youre not yet 62 , a home equity loan or HELOC is likely a better option.
Both of these loans allow you to borrow against the equity in your home, although lenders limit the amount to 80 percent to 85 percent of your homes value, and with a home equity loan, youll have to make monthly payments. With a HELOC, payments are required once the draw period on the line of credit expires.
The closing costs and interest rates for home equity loans and HELOCs also tend to be significantly lower than what youll find with a reverse mortgage.
Aside from a home equity loan, you could also consider:
What If The Heirs Want To Keep The Home
Lets say the heirs of the above example DO want to keep the home.
HUD offers an option for these situations where the heirs can get around the debt.
For houses underwater, HUD will allow heirs to cancel the debt by paying 95% of HUDs appraisal of the house regardless of what is remaining on the debt.
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How And When To Repay A Reverse Mortgage
Most people who take out reverse mortgages do not intend to ever repay them in full. In fact, if you think you may plan to repay your loan in full, then you may be better off avoiding reverse mortgages altogether.
However, generally speaking, reverse mortgages must be repaid when the borrower dies, moves, or sells their home. At that time, the borrowers can either repay the loan and keep the property or sell the home and use the proceeds to repay the loan, with the sellers keeping any proceeds that remain after the loan is repaid.
You may need to repay a mortgage either with cash or by selling the home if:
- You have to move into an assisted living facility or have to move in with a family member to help take care of you
- You have family who lives with you who want to keep your property, and you have the money to pay back the loan
Heirs Responsibilities Under Reverse Mortgages
If you have a reverse mortgage, its important to understand your heirs responsibilities. If you die, they might need to repay the loan or lose the home. Be sure to have a conversation with them about this, so they are prepared in the event of your death.
You should also speak with a HUD-approved counselor and lender to get more information on your options and what your heirs should do in the event of your death.
Reverse mortgage Databases are used by reverse mortgage lenders to keep track of death certificates. When the lender hears that the borrower has died, they send a Due and Payable notice to the borrowers estate within 30 days. The notice tells heirs what they need to do next:
- Pay off the rest of the HECM loan balance.
- Sell the house for at least 95% of what it was valued at.
- Give a Deed-in-Lieu of Foreclosure to the lender.
Along with this information about the reverse loan, the lender will send you a list of the requirements to be eligible for a deferment period.
After getting the Due and Payable notice, the heirs have 60 days to get an appraisal of the home. They must also notify the lender of their intent to keep the home within this period.
If the heirs decide to keep the home, they have a few options available to them. They can do the following:
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Am I Eligible For A Reverse Mortgage
In order to be eligible for a reverse mortgage, typically you must:
- Be at least 60 years of age
- Live in your home for more than half of the year
- Have a single-family home, a 1- to 4-unit building or a federally-approved condominium or planned unit development
- Have no liens on your home or qualify for a large enough cash advance from the reverse mortgage to pay off any existing liens
- If your home needs physical repairs to qualify for a reverse mortgage, qualify for a large enough cash advance from the reverse mortgage to pay for the cost of repairs
What Are The Differences Between A 280 280
In New York, there are two types of reverse mortgage loans available to senior borrowers. The first, referred to as a HECM reverse mortgage , is a mortgage loan that is made in accordance with the requirements of the Home Equity Conversion Mortgage program operated by the Federal Housing Administration. HECMs are the only reverse mortgages insured by the Federal Government. The second, referred to as a proprietary reverse mortgage, is a mortgage loan that is made in accordance with the requirements of New Yorks Real Property Law Section 280, or 280-a. Part 79 applies to both proprietary and HECM reverse mortgage loans.
The most important distinction between a HECM and proprietary reverse mortgage concerns the maximum loan amount available under each type of loan. Under the HECM program, the maximum loan amount is capped. Proprietary reverse mortgages, on the other hand, do not have a cap. It is for this reason that they are often referred to as jumbo reverse mortgages.
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How Borrowers Deaths Affect Their Heirs
When a non-borrowing spouse who was eligible for a reverse mortgage loan dies, the loan is due and must be paid back. After getting the due and payable notice from the lender, your heirs have 30 days to buy the home, sell the home, or give the home to the lender to pay off the debt.
If your heirs want to keep the house, theyll have to pay back the loan in full. If they cant pay it back, they might be able to work out a plan with the lender.
Its important to remember that if your heirs decide to sell the house, they will have to pay off the loan in full with the money from the sale. The lender may take the property back if they cant do this.
Who A Reverse Mortgage Is Right For
Reverse mortgages arent good for everyone. Only certain borrowers qualify, but their structure also only makes them appropriate for certain borrowers. A reverse mortgage may make sense for:
- Seniors who are encountering significant costs late in life
- People who have depleted most of their savings and have considerable equity in their primary residences
- People who dont have heirs who care to inherit their home
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I Currently Have A Mortgage On My Home Can I Still Get A Reverse Mortgage
Yes, although any reverse mortgage lender will require that the proceeds from a reverse mortgage will first go to pay off the balance of your existing mortgage. As such, an existing mortgage will limit the amount of the net loan proceeds you will receive under a reverse mortgage. When considering whether a reverse mortgage is right for you, it is important to discuss with a housing counselor whether the net loan proceeds will be enough to enable you to live in your house. A list of New York non-profit housing counseling agencies is available.
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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What A Borrower’s Death Means For Heirs
When a person with a reverse mortgage dies, the heirs can inherit the house. But they won’t receive title to the property free and clear because the property is subject to the reverse mortgage. So, say the homeowner dies after receiving $150,000 of reverse mortgage funds. The heirs inherit the home subject to the $150,000 debt, plus any fees and interest that have accrued and will continue to accrue until the debt is paid off.
If A Reverse Mortgage Is Right For Me How Do I Get Started
If youre thinking about getting a reverse mortgage, research around. Determine which sort of reverse mortgage is best for you. Additionally, that depends on what you want to do with the money. Compare the alternatives, terms, and fees offered by different lenders. Remember, before speaking with a counselor or lender, learn everything you can about reverse mortgages. And ask lots of questions to ensure that how reverse mortgages are right for you and that youre receiving the right kind.
Here are some things to consider:
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