At EquityWise, our goal is to provide our clients and their families with a comprehensive education on this flexible FHA insured loan program. We know people have questions due to the many misconception and misinformation about this great loan product. We find that once our clients have all the information, they can better make an informed and educated decision about improving their future.
Will the lender own my home?
No, the lender will not own your home. Just like any other mortgage, with a home equity conversion mortgage, your name remains on the title and you still earn any appreciation on your property. You still own your home.*
Do I need to have good credit for a home equity conversion mortgage?
There is no credit score requirement. Throughout the loan process, we will look at credit history as part of the financial assessment to ensure you have the ability to pay your property taxes and homeowners insurance.
How does a Reverse Mortgage work?
The word “reverse” confuses a lot of people. Think of this as just a typical cash-out mortgage refinance loan with comparable interest rates, but with one more payment option, the “no-payment” option. With a Reverse Mortgage, there are no required monthly payments from you, unless you choose to make some. You can make interest only payment, fully amortized payments, or none at all completely at your discretion. You don’t even need to call or otherwise inform your lender! When the time comes someday for the loan to be repaid, the value of the home when sold or refinanced is able to re-pay the loan, and you or your heirs keep all remaining equity and appreciation. Meanwhile, you (and your co-borrower) are able to live in the home for as long as you like without making any payments. You can use the funds any way you wish, or keep them in your bank for the unexpected. Your equity is the biggest chunk of cash you may have, and a Reverse Mortgage allows you to use that cash and lower your monthly payment obligations.
What if my home sells for less than what I owe on the loan?
A home equity conversion mortgage is a non-recourse loan. That means you or your heirs will never owe more than your home is worth. If your home sells for less than what is owed on the loan, FHA insurance pays the difference. Your heirs will never pay more than 95% of the then-current market value of your home, even if you owe a lot more due to a market downturn. You and they are protected!
Can I get a reverse mortgage if I already have a mortgage?
Yes you can! In fact, many people use their reverse mortgage to pay off their existing mortgage. While you are still responsible for paying your property taxes and homeowners insurance, you can use your new loan to eliminate your current monthly mortgage payment, and the new loan requires no monthly payment either.
Are there limits on how I can spend the money from my home equity conversion mortgage?
If you have a mortgage, that will have to be paid off first. Any remaining money is yours to use however you wish! If you do not have a mortgage, there are no restrictions on how the money can be used.
Will my children have to pay for the loan if I pass away?
Your heirs have a few options. They can sell the home to pay off the loan and keep any remaining money from the sale. They can keep the home. If they decide to keep the home, they can pay 95% of the appraised value of the home or the loan balance – whichever is less. The last option is to turn the loan over to the servicer take over to sell the property. This typically happens when an heir is not interested in keeping the home and the balance is higher than what the home is worth. With retirement lasting 10-20-30 years, that is a lot of additional appreciation that may be earned on the property.
Is this kind of loan typically used as a “last resort” for seniors?
Absolutely not! The reverse mortgage program was created for seniors regardless of their situation or income level. Retirement may last decades and predicting what will happen in the future is hard. The time to make important financial decisions is not when the unexpected happens, but to prepare for them in advance. Some may use the loan proceeds to pay off debts while others use it to live a more comfortable retirement without a required monthly mortgage payment.* Someone in a good financial position may actually benefit the most from a reverse mortgage. The operative word here is flexibility!
Who is Eligible for a Home Equity Conversion Mortgage?
Homeowners age 62 and older with enough equity in their homes to qualify.
Can my family be involved in my decision and the process?
Absolutely! We encourage family members to be involved in their loved one’s decision. It’s helpful for the client if everyone involved understands the program benefits and features. We can include family members on phone calls and send them educational materials.
My heirs are worried I am using up their inheritance. Is this true?
This question depends on you. Did you buy your home to give to your heirs, or did you buy it as part of your investment strategy to improve and help fund your retirement? Most children want what is best for their parents in their golden years and not themselves, so we suggest bringing the family in to this conversation early so they can learn more too.
Can I lose my home because I live longer than expected?
No, you cannot lose your home for living longer than expected. As long as you maintain your home, stay current on your property taxes and homeowners insurance, and continue to live in your home, you cannot lose your home.
Can I use this loan to buy a new home?
Many people use this loan to downsize. Using the HECM purchase option, they will sell their current home and use a Reverse Mortgage to buy a new primary residence, often in the place they dreamed of retiring. This way they can bank their remaining equity and downsize to something more manageable. Others may stay in their home, but use the available funds to buy that dream hunting cabin, beach condo, or golf condo, often with no payments going forward on either property depending on the price and available equity.
Can I use a Reverse Mortgage to open a business?
If you believe you have what it takes to run a business, this is an amazing option. It would allow you to use your equity to start a business, but without the pressure of high monthly payments a business loan would require. It also allows you to turn a small chunk of equity into a much larger amount of ongoing returns on your new business if it’s successful. We’ve had clients buy franchises, rental property, start a second career, all without the requirement of making payments on the loan. This provides you with a competitive advantage in business. All investments have risk, so seek the appropriate financial and legal advice.
Why are you checking my credit history?
Any mortgage requires a credit review. A benefit with the home equity conversion mortgage is that there is no credit score required. We review your credit to determine if you are willing and able to meet your financial obligations such as paying property taxes, homeowners insurance, and home maintenance costs. This helps protect you from foreclosure for the reason of failure to uphold your ongoing financial obligations.
What is Financial Assessment?
Financial assessment was put in place by the federal government to add more protection for seniors. The financial assessment process includes analyzing information such as the cost of the property taxes and homeowners insurance, the clients’ credit history, assets, expenses, and income. Going through this process helps borrowers understand their current financial situation and helps lenders determine if the borrower is willing and able to manage their financial obligations. If the borrower does not meet the criteria set forth by HUD in the Financial Assessment guidelines, the lender is required to withhold a Life Expectancy Set-Aside (LESA) from the loan proceeds to be used for payment of property taxes and homeowners insurance.
* Homeowner is responsible for property taxes, homeowners insurance and maintenance of the property.
These advertisements and materials are not provided nor approved by the U.S. Department of Housing and Urban Development (HUD) or the Federal Housing Administration (FHA)