Reverse Mortgage Loan Guide
Loan Type: Reverse Mortgage Home Loan
Specific Uses: Retirement, Pay Monthly Bills, Lower Interest rates, No heirs to pass home to, Estate Planning.
What is a Reverse Mortgage?
A Reverse Mortgage is a federally insured home loan. It is a loan that is insured by the government to the bank or lender in case of a default by the Homeowner(s). This is a great loan option for homeowners looking to retire and live in their primary residence during their retirement. Once you have established equity in the property you may consider doing a Reverse Mortgage.
Consider all options before you decide to do a Reverse Mortgage. If lowering your monthly expenses is your primary goal, maybe a traditional refinance would be more beneficial. The bank owns the property after a Reverse Mortgage couple passes away. This could make it difficult for heirs to obtain if you plan on leaving the property with the family.
Reverse Mortgage Home Loan Summary:
With a Reverse Mortgage you will borrow against your equity in the home. Instead of making a monthly Principal and Interest payment to the bank, the bank will make this payment to you. You are still required to pay the Real Estate taxes and Homeowners Insurance on the property, as well as maintain it. These are not the only reasons why Reverse Mortgage loans are appealing. This refinance option can be a great way to retire. This type of loan is also known as a HECM (Home Equity Conversion Mortgage). You should speak with a HECM Counselor before deciding to do a Reverse Mortgage.
*The Consumer Finance Protection Bureau (CFPB) is an excellent resource for this information as well:
*To find a qualified Reverse Mortgage Counselor visit this website or call the number below:
Visit HUD’s website: http://go.usa.gov/v2H
Reverse Mortgage Home Loan Guidelines:
- DTI: (Debt-to-Income) Ratio Not Calculated
- Must be 62 Years or Older
- Must be Primary Residence
- Must be Single Family or FHA-Approved Condo
- Max Loan Amount: This depends on the county and its Loan Limits
- Income: 2 Years full tax returns required
- Min Credit Score: 640 (depending on Lender)
- Escrows: Required (Must include Real Estate Taxes, Home Insurance and Mortgage Insurance)
- Collections: Any Collections must be paid or have made payment arrangements prior to closing.
- Down Payment: Property need to have roughly 40% equity to have favorable terms in a Reverse Mortgage.
Reverse Mortgage Home Loan Facts:
- Do not consider a Reverse Mortgage if you plan on leaving your estate to your heirs.
- Take out a Reverse Mortgage in both spouses names. In case one spouse passes away, the surviving spouse will not be liable for reverse mortgage buy back.
- If you are located in a Community Property State, the lender is required to pull credit on a spouse that is not on the mortgage.
- Upfront Mortgage Insurance Premium = 0.5%% if LTV is 60% or less OR 2.5% if the LTV is 60% or higher. LTV = Loan-to-Value Ratio.
- Annual Mortgage Insurance Premium = 1.5% MIP (depending on equity)
There is still much more information about Reverse Mortgage Home loans. Reach out to your bank or lender for more specifics on what you can qualify for.
As we like to say here at HC: Ask. Learn. Save.
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