Reverse Mortgage Frequently Asked Questions

FAQs

Get your questions answered about reverse mortgages so you can make an informed decision. Here are some commonly asked questions. Of course, you can always call Robb directly and ask him your questions personally.

Q. Does My Home Qualify?

The types of properties that qualify for this program are single-family residences, properties comprising 2 to 4 units, manufactured homes constructed post-June 1976, condominiums, and townhouses. Properties classified as co-ops are excluded from eligibility.

Q. Are There Special Requirements to get a Reverse Mortgage?

To qualify, you need to be a homeowner, at least 62 years old, and have substantial equity in your home. There are no health-related prerequisites.

Every applicant for a reverse mortgage must undergo a financial evaluation by the lender to verify their ability to maintain essential payments, like property taxes and homeowner's insurance, as required by the Loan Agreement.

Should the lender find that an applicant might struggle to manage payments for property taxes and homeowner's insurance, they are permitted to allocate a portion of the loan proceeds to cover these future expenses.

Q. What if I Have an Existing Mortgage?

You may be eligible for a reverse mortgage even if you currently have an outstanding mortgage. However, the reverse mortgage needs to hold the primary lien position, meaning any existing debts must be cleared. This can be achieved using the funds from the reverse mortgage, your personal savings, or with help from relatives or friends.

For instance, assume you have an existing mortgage with a balance of $100,000. If you are eligible for a reverse mortgage amount of $125,000, based on factors like your age, the value of your home, and prevailing interest rates, you can use this amount to completely pay off your existing mortgage. This would leave you with $25,000 to use as you see fit.

Q. Will it Affect My Social Security & Medicare?

Receiving a reverse mortgage does not impact your regular Social Security or Medicare benefits. However, for Medicaid or Supplemental Security Income (SSI) recipients, any funds from a reverse mortgage need to be spent immediately. Retained funds are considered assets and could affect your eligibility.

For example, if you get $4,000 for home repairs and spend it within the same month, it's acceptable. But any leftover amount in your bank account by the start of the next month will be treated as an asset. If your total liquid assets, including other bank balances and savings bonds, exceed $2,000 for an individual or $3,000 for a couple, you could lose eligibility for Medicaid. It's advisable to consult with your local Area Agency on Aging or a Medicaid specialist for guidance and guidelines are subject to change with the governmental policies.

Q. What Are My Payment Options?

You can elect to receive the money from a reverse mortgage as a partial lump sum, fixed monthly payments for a set period of time for as long as you live in the home, as a line of credit, or a combination of these.

Q. How Much Money Can I Get With a Reverse Mortgage?

The funds you can receive from a reverse mortgage are influenced by factors such as your age (or the age of the youngest spouse in a couple), your home's appraised value, prevailing interest rates, and for government programs. The FHA lending limit is currently set at $1,089,300. If your home's value exceeds this limit, the eligible fund amount will be calculated based on the $1,089,300 cap. Generally, the older you are, the more your home is worth, and the less you owe on it, the more money you can receive.



For the first 12 months post-closing, you're limited to accessing no more than 60% of the total available loan proceeds. After this period, starting from the thirteenth month, you may access the remaining funds in any amount you wish.

However, there are exceptions to the 60% rule. If you have an existing mortgage, you can use the reverse mortgage to pay it off, plus an additional 10% of the available funds, even if it totals over 60% of the available loan amount.

Q. What Costs Are Involved With a Reverse mortgage?

The expenses associated with a reverse mortgage are determined by various factors. These include an origination fee payable to the broker or lender, a Mortgage Insurance Premium (MIP) for the FHA's Home Equity Conversion Mortgage (HECM), along with fees for appraisal, flood certification, document preparation, and title, settlement, and escrow services.

All these costs are transparently detailed in the Good Faith Estimate (GFE). Additionally, there may be monthly servicing fees.

Q. What Are FHA Mortgage Insurance Premium (MIP) Costs?

The FHA mandates the collection of a Mortgage Insurance Premium (MIP) both at the time of closing and throughout the duration of the loan, with these premiums added to the borrower's loan balance. The initial MIP, charged at closing, is based on the lesser of your home's appraised value or $1,089,300, which is the national HECM limit cap for 2023. The continuing FHA insurance premiums are determined monthly, based on the outstanding loan balance at that time.

Q. What Are The Upfront Fees to the Reverse Mortgage Lender Throughout the Loan's Lifetime?

A reverse mortgage is designed to minimize the fees borrowers need to pay over the loan's duration. The primary initial expenses are for the property appraisal and counseling from a HUD-approved reverse mortgage advisor (though some agencies may choose to waive the counseling fees).

Additionally, reverse mortgages might include a monthly servicing fee, which is financed and added to the total loan balance. For detailed information about the service set-aside, it's advisable to consult with your Mortgage Loan Originator.

Q. Why Do I Have to Receive Counseling Before I Get a Reverse Mortgage?

As a means to protect senior consumers, HUD requires counseling with an independent third party HUD-approved counselor. This is a safeguard in place to ensure the borrower does not receive inaccurate information about reverse mortgages. Before the lender can close on the loan, they must have a counseling certificate to prove you received the required counseling. You may find a counselor by contacting your local HUD office or by asking your loan officer.

Q. Do I Have to Pay Taxes on the Money I Get From a Reverse Mortgage?

The proceeds of a reverse mortgage are typically not subject to income taxes, however, it is recommended that you speak with a tax advisor to discuss your individual situation.