Frequently Asked Questions
I have been helping seniors in Colorado enjoy all the benefits of a reverse mortgage loan since 1998. I am completely hands on through out the entire process. I meet personally with every customer, and I help with the processing of the loans, and after lender approval, I personally close the reverse mortgage in the customers home. I have often heard the same concerns and questions raised, and I thought it would be helpful to answer a few of those questions here.
Q. How Do I know If I Can Qualify for a Reverse Mortgage?
A. To be eligible for a Home Equity Reverse Mortgage (HECM), HUD requires that the borrower is a homeowner, 62 years of age or older, and have their home paid for free and clear, OR, have a mortgage balance that can be paid off with the proceeds from the reverse mortgage. You are also required to receive HUD-approved counseling prior to obtaining a reverse mortgage.
Q. How Do I Get the Money?
A. You tell me how you wish to receive your funds. You can choose to receive a monthly payment, a lump sum or leave your funds in a line of credit, that you can draw from whenever you wish. You may also choose receive your money using all three of the above ways. You control how your funds are disbursed.
Q. Are There Restriction On How I Can Use My Money?
A. You can use your funds anyway you would like. You can supplement your current income, pay off bills, make home improvements, travel, what ever you wish.
Q. How Much Money Can I Get?
A. The amount you will receive from your reverse mortgage depends on the age of the youngest borrower on title (must be at least 62), the value of your home as determined by an FHA/HUD approved appraiser, and the current interest rates.
Q. Are the Funds I Receive Taxable?
A. No. Reverse mortgages are loans, and not considered income.
Q. What Happens if My Spouse Or I Need to Go to a Nursing Home?
A. As long as one borrower lives in the property, the reverse mortgage does not become due. If the last borrower needs to go to a nursing home but intends to return, the reverse mortgage doesn’t need to be repaid until that homeowner has been gone for 12 consecutive months.
Q. Can We Sell the Home if We Decide to Move?
A. Yes, you simply repay the reverse mortgage loan balance from the proceeds of the sale, just like you would any other mortgage. You keep any remaining funds available to you.
Q. What Happens When We Pass Away?
A. The reverse mortgage becomes due, ONLY when all parties to the reverse mortgage are no longer there. In other words, if your spouse dies, and you still live in the home, then nothing changes within the reverse mortgage. However, suppose you are the last borrower in the home. If you pass away the outstanding reverse mortgage balance must be repaid once your estate is settled. Your heirs may sell the home, pay off the outstanding loan balance and keep the remaining cash, or refinance the outstanding loan balance and keep the home. A reverse mortgage is a non recourse loan, which means that no matter how much you owe at the time the loan is paid off, you or your heirs can never owe more than the value of the home. If there are proceeds left when the home is sold, the money goes to either you or your heirs.
Q. How Long Does My Family Have To Sell the Property?
A. Your heirs are generally given up to a year to resolve the estate and repay the reverse mortgage. Remember that interest will continue to accumulate on the amount of funds you have used.
Q. How Do I Get Started?
A. Call, Virginia Berry, CSA today and set up an appointment to meet with you and your family to go over all the details that are involved with a reverse mortgage. Virginia will then give you a list of counselors in your area, or telephone counselors for you to speak with.
Q. What is HECM for Purchase?
A. HECM for Purchase allows seniors, age 62 or older, to purchase a new principal residence using loan proceeds from the reverse mortgage.
Q. What is the purpose of the program?
A. The program was designed to allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction by eliminating the need for a second closing. The program was also designed to enable senior homeowners to relocate to other geographical areas to be closer to family members or downsize to homes that meet their physical needs, i.e., handrails, one level properties, ramps, wider doorways, etc.
Q. What property types are eligible?
A. Existing one-to-four unit properties where construction has been completed and the property is habitable. See ML 2007-06.
Q. What property types are ineligible?
A. Cooperative units; Newly constructed residence where a Certificate of Occupancy or its equivalent has not been issued by the appropriate local authority; Boarding houses; Bed and breakfast establishments; Existing manufactured homes built before June 15, 1976; and Existing manufactured homes built after June 15, 1976 that fail to conform to the Manufactured Home Construction Safety Standards, as evidenced by affixed certification labels (e.g., data plate and HUD certification label) and/or lack a permanent foundation as required in HUD's Permanent Foundations for Manufactured Housing Guide.
Q. Can a HECM for purchase be used to satisfy outstanding payment obligations associated with a land contract?
A. Yes, if the property will be used as collateral for the HECM and the mortgage will be held in fee simple, or on a leasehold under a lease for not less than 99 years which is renewable, or under a lease having the remaining period of not less than 50 years beyond the date of the 100th birthday of the youngest mortgagor.
Q. Can a lender take application on a property that is under construction and not habitable?
A. No. The lender may only take application once the Certificate of Occupancy or its equivalent has been issued.
Q. Are set asides for property charges (i.e., tax and insurance) allowed?
Q. Are gifts an acceptable source of funding?
A. No. Prospective mortgagors may only use their own money or money obtained from the sale of assets. FHA prohibits the use of loan discount points, interest rate buy downs, closing cost assistance, builder incentives, gifts or personal property given by the seller or any other party.
Q. What would be an allowable FHA funding source for gap financing of the equity portion?
A. A withdrawal from the mortgagor's savings or retirement account would be an acceptable funding source.
Q. Can prospective mortgagors apply credit card cash advances towards the required monetary investment or closing costs?
A. No. This would be a violation of 24 Code of Federal Regulations 206.32(a), which requires all outstanding obligations connected to the HECM transaction, purchase or otherwise, to be satisfied prior to or on the date of closing.
Q. Are seller concessions allowed?
A. No. Seller concessions are applicable to forward mortgages only.
Q. Is seller financing permitted?
Q. Is the Real Estate Certification required?
Q. When purchasing a new principal residence, if the HECM proceeds do not cover the sales price, can part or all of the property's indebtedness be subordinated behind the first and second HECM liens if the existing lien holder is willing to execute a subordinate agreement?
A. No. All existing liens must be satisfied at the HECM closing.
Q. Can prospective mortgagors obtain a secured or non-secured loan from another asset (i.e., car, home equity line of credit, or investment property or second home) to satisfy the monetary investment or closing costs?
A. No. Consistent with existing policy, bridge loans and other interim financing methods associated with HECM transactions are prohibited, unless the unpaid or outstanding obligation can be satisfied prior to or on the day of closing.
Q. Under what conditions may a senior cancel the purchase transaction?
A. The senior may decide to cancel the purchase transaction at any time prior to the date of closing. If the senior decides to cancel the transaction, he/she must notify all parties in writing. Where earnest money has been provided, the senior should review the sales contract to determine if the earnest money is refundable. The Federal Reserve Board of Governors should be contacted for right of rescission and Truth in Lending Act guidance.
Q. Can the HECM mortgage participate in a rent back/leaseback agreement with the seller?
A. No. When purchasing a new principal residence, the HECM mortgagor has 60 days to occupy the home. Unlike a forward mortgage, there is an increased risk to FHA when the home is not occupied by the HECM mortgagor. Prior to closing, the HECM mortgagor and seller should agree to a date for physical occupancy of the property and the lender should confirm occupancy prior to their submission of the case binder to the local HOC for endorsement.
Q. Are the mortgage proceeds paid to the seller through escrow?
A. The title company (settlement agent) is responsible for disbursing funds in accordance with State law.
Q. Are there special procedures for foreclosure homes that will serve as collateral for a purchase transaction?
A. No. FHA has sufficient valuation guidelines related to comparable sales and declining markets to address the resale of foreclosed properties. HUD has imposed a standard of accountability to which lenders, sponsor lenders, and loan correspondents will be held is the same as the standard used to impose civil money penalties for program violations, and that standard is one of knowing (actual knowledge) or had reason to know.
Q. Does FHA have special eligibility requirements for first-time homebuyers?
A. No. FHA encourages all first-time homebuyers to meet with a reverse mortgage counselor that offers pre-purchase counseling to educate themselves on the responsibilities of becoming a homeowner. Prior to signing a sales contract, FHA encourages a home inspection of all properties that will serve as collateral for HECM for purchase transactions. The inspection serves two purposes, to determine the magnitude, if any, of repairs and/or rehabilitation the home as well as helps the buyer to negotiate the purchase price in situation where a home requires repair or rehabilitation.
For Your Private In Home Consultation, Call Virginia Berry Today at 719-520-3326
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**These materials are not from HUD or FHA and were not approved by HUD or a government agency.
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