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Frequently Asked Questions: Reverse Mortgages

What is a Reverse Mortgage?*

A reverse mortgage is a national program available to homeowners age 62 and older providing you access to your home’s equity without having to make monthly mortgage payments. This program is available for your primary residence. You must continue paying your property taxes and homeowners insurance.

How much can I qualify for?*

The amount of funds available through a reverse mortgage loan is based on the youngest spouses age and the appraised value of your home. Generally, the loan to value (LTV) offered on a reverse mortgage is 40-70% of your appraised value but there are other factors that affect the loan amount as well.

Does the bank take title to my home?*

No, you will retain ownership and title. A reverse mortgage is just like other loans but with the extra flexibility to defer interest charges rather than making monthly repayments. Also, you may repay the interest, refinance, or sell your home at any time with no penalties.

When does the reverse mortgage need to be paid off?*

Your reverse mortgage will need to be paid off when you sell the property or no longer occupy your home as your primary residence for a period of 12 months or more. You will also have to pay it off if you fail to maintain loan requirements such as property taxes or homeowners insurance or property maintenance.

When the last surviving borrower passes away, the reverse mortgage becomes due and payable. Generally, your heirs will have up to six months to refinance your home should they choose to keep it, or, up to 12 months to sell it.

What does the lender expect from me?*

You must pay property taxes, homeowners insurance, and any homeowners association dues you may have. You also must continue to occupy the property.

I currently hold title in a trust, can I keep it that way?*

Yes, you can. However, the lender and title company require that they review the trust for approval. If you hold title in a trust you should let your loan officer know up front so they can get a copy of the trust for review.

Do I need to own my home free and clear, or can I get a reverse mortgage if I already have a loan on my house?*

You do not need to own your home to get a reverse mortgage. The proceeds can be used for any purpose, but any existing liens on the property must be paid off at closing. If the reverse mortgage is not large enough to cover your existing loan, you can still get the reverse mortgage by bringing in the additional funds from another account and still never have to make another house payment! Wow!

Will my heirs still receive an inheritance?*

Oftentimes, yes, they will! After the balance of your reverse mortgage is paid off, all remaining equity will go to your heirs. We will provide you with an amortization schedule so you will always know the principal balance of your loan.

What are the downsides of a reverse mortgage?*

While the reverse mortgage allows you to age in place and has no recourse, you are spending what has typically become a portion of the inheritance people might have planned to leave to their heirs. People are living longer nowadays, and need an additional source of income for a comfortable and secure life during retirement.

We recommend that you involve your family or those responsible for you and your assets after you have passed.

What are the credit and income qualifications?*

There are no minimum credit score requirements to qualify for a reverse mortgage loan. However, lenders are required to complete a credit analysis focused on your last 24 month payment history. Lenders must also check that you meet minimum residual income as part of the FHA financial assessment guidelines because of the property tax and homeowners insurance requirement aspect of a reverse mortgage.

How do I determine if a reverse mortgage is right for me?*

A reverse mortgage may not be right for all borrowers. There are many things to consider and talking to a specialist at Penny Lane Financial is the best way to find out if a reverse mortgage is right for you. With the costs of the loan and the government insurance, if you only need the loan for a short period of time, a reverse mortgage may not be right for you. If you intend to occupy the property for a long period of time and never want to make another payment for life while having access to your home equity in the form of monthly payments, a line of credit, or both, then a reverse mortgage may be perfect for you. Contact us today for a free consultation, with no obligation, just a chance to learn about your options.

Is the interest added to my balance tax deductible?*

Only when a payment is actually applied to your loan, or when the balance is paid in full.

Can I make a payment back?*

Yes! A reverse mortgage does not require scheduled monthly payments, but it does permit the borrower to make voluntary partial or full payments on the loan. There is no penalty to paying down or off your loan at any time.

If the loan is a fixed rate, funds submitted for prepayment cannot be re-borrowed at any point during the life of the loan, and the revolving credit feature does not apply.

What happens if the interest accrued exceeds the value of my home?*

Since a HECM is insured by the HUD, you are guaranteed that you and your heirs will never have to pay more than the property is worth at the maturity of the loan.

What is a Counseling Certificate?*

You are required to obtain counseling in order to get a Reverse Mortgage Counseling Certificate. At Penny Lane Financial our certified reverse mortgage specialist, Jeff Pickering, will counsel you either in person, over the phone, or on Zoom and will answer any questions or concerns that you have along the way. He will make sure you fully understand a reverse mortgage and your specific program before moving forward. Once you receive your certificate, you will send it over to the lender who will then be able to proceed with your loan.

Will the proceeds affect Social Security or Medicare?*

Proceeds will not affect public benefits such as SS or Medicare, but can affect “need based” programs such as Medicaid.

What do I need to give my reverse mortgage specialist?*

  • Copy of your driver’s license or other picture ID

  • Copy of your social security card

  • Copy of your Homeowners Insurance Policy Declaration Page

  • Copy of your Mortgage Statement(s) (need all if any)

  • Copy of your Trust (if your property is in a trust)

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