The reverse mortgage is a home equity loan that is designed to help home owners aged 62 or better tap into the equity in their homes. This loan is only available to homeowners who have built up considerable home equity. Proceeds of the loan may be taken in monthly payments, a lump sum, left on a line of credit, or some combination of these methods. Borrowers are not required to make monthly payments on a reverse mortgage as long as they remain in the home. Taxes, insurance, homeowners association dues, and other assessments must be kept current by the home owner, but nothing is due on the reverse mortgage until the last borrower permanently leaves the home.
There are a number of reverse mortgage programs, but the most popular and the one offered through Tidewater Home Funding, is the FHA-backed Home Equity Conversion Mortgage (HECM). The HECM is a non-recourse loan – borrowers will never owe more than the value of the property. A HECM loan may be used on a home owner’s existing home or on the purchase of a new home.
Reverse Mortgage Benefits
No FICO qualification
No debt-to-income ratios - though borrowers must demonstrate a willingness and capacity to pay basic obligations
Provides greater freedom in retirement - you aren’t restricted on how you can use the loan proceeds and it is non-taxable income
No debt is assigned to your heirs when the loan becomes due. Instead, the family is given a period of time to pay off the loan or sell the home. In addition, family members/heirs are given the opportunity to buy the property for 95% of the appraised value, even if the house is worth less than the amount owed
A reverse purchase can help a borrower retain their savings, improve their monthly cash flow, and / or finance a purchase that would normally be beyond their budget
It can help seniors relocate to a different region or to move closer to family
It can also help seniors move into a more affordable home that requires less maintenance, or better serves their physical needs by providing features like handrails, wider doors, or a single-story layout
Helps borrowers age in place
Reverse Mortgage Requirements
Borrowers must be 62 years of age or older
Borrowers must qualify to pay taxes, insurance, or HOA if applicable
You can own your home outright, or have a low balance on your mortgage that can be paid off at closing with proceeds from the reverse loan
The borrower also must have financial resources to pay ongoing property fees
Before obtaining this type of loan, all borrowers and non-borrowing spouses must receive independent counseling
Reverse Mortgage Loan Options
This type of loan is insured by the Federal Housing Administration (FHA). It is part of the Home Equity Conversion Mortgage (HECM) program. There are several types of Reverse Mortgages:
Payment of loan proceeds – The borrower receives the loan money as a line of credit, monthly installments, a combination of both, as a lump sum, or the payment retires an existing mortgage.
Interest Rate – The borrower chooses between a fixed interest rate and an adjustable interest rate. A fixed interest rate is only available with the lump sum payment option.
Purchase – It allows the borrower to purchase a principal residence. It requires less upfront investment than an all-cash purchase.
Refinance – It allows a borrower to convert one HECM loan into another HECM loan, which is usually done to lock in a lower interest rate or to borrow more cash if the home has increased in value.
*Borrower must pay required taxes, insurance, or HOA if applicable.
Fixed rate and variable rate programs are available – the fixed rate loan requires all proceeds to be accessed at inception
Closing costs may be financed, requiring limited up front fees
Amount available to the borrower is based on the age of the youngest borrower, the interest rate on the loan, and the value of the property (up to the maximum FHA lending limit)
Funds available may be limited for the first 12 months after the loan is opened per HECM rules
Property may be a single family home, two to four unit owner-occupied home, FHA-approved condo, or manufactured home