Frequently Asked Reverse Mortgage Questions: Florida

It can be challenging to gather the information you need to make informed decisions regarding reverse mortgages.

Here you can find some of the most frequently asked questions and answers about reverse mortgages.

Misunderstanding # 1 Reverse mortgages are only for desperate seniors, or for those who are "rich with home, poor with no money".

Do I qualify for a reverse mortgage?

do-you-qualify-for-a-reverse-mortgage To qualify for a reverse mortgage:
  • You must be a homeowner greater than 62 years of age.
  • Your home needs to be your primary residence.
  • You must complete a counseling session with a HUD-approved counseling agency.
  • You must be deemed financially capable of paying property taxes, home maintenance, insurance, and HOA fees (if applicable).
  • Your home must be a single family unit, or part of a maximum 4-unit home in which one of the units is your primary residence.
  • Your home must meet FHA requirements and flood requirements.
  • Your home can be a condominium if it is HUD-approved.
  • You have no delinquent federal debts.
In order to qualify for the reverse mortgage, co-owners under the age of 62 must not be in the property title.

Misunderstanding # 2
Your property have to be fully settled to qualify for a reverse mortgage.
INCORRECT.

Even retirees who still owe money on their primary mortgage, or other debt in their home, may qualify for a reverse mortgage. The funds obtained through the reverse mortgage must be used to pay off the previous mortgage.

Cost and Payment Options Of A reverse mortgage:

How much money can I get?

That depends on several factors, including your age, the value of your property, and the amount of principal and interest at the time the loan originates. Other factors include the type of reverse mortgage and the method of payment you choose. A calculator that will help you estimate how much you may receive under various options can be found on our website by clicking here.

 

What are my payment options?

If you decide how to receive the money generated by the reverse mortgage, your payment options are:

  • The full amount in one payment.
  • Line of credit: you can use it at any time.
  • Fixed monthly fees during the time you remain on your property (or shorter term as predetermined by you), or if you prefer.
  • A combination of monthly payments and credit line.

How much does it cost to get a reverse mortgage? What are the initial and closing costs required for this mortgage?

cost-of-a-reverse-mortgage

Many of the costs associated with a regular mortgage apply to reverse mortgages. You will be charged an original fee, the mortgage insurance premium (for the FHA Home Equity Conversion Mortgage), the property appraisal fee, and other standard housing closing costs. In many cases, these fees and costs have a cap and can be financed as part of the reverse mortgage, so that the expenses incurred are minimal.

Do I need to get my property appraisal to get a reverse mortgage?

Yes. Since the value of your property is an important factor in determining how much money you can get with a reverse mortgage, appraisal is required. Normally, the lender orders the appraisal, which is paid by the creditor at the time of the request.

Are the proceeds from my reverse mortgage taxable income?

The Internal Revenue Service considers your reverse mortgage loan proceeds advances and not taxable income.

Do I need to consult an attorney to apply for a reverse mortgage?

No legal advice is required. However, Stockton Turner recommends that you seek the legal advice of a tax professional or financial adviser during the process of obtaining a reverse mortgage.

Consumer Precautions.

  • Before getting a reverse mortgage, it is required to speak to an independent counselor whose job is to review the transaction, answer any questions you may have about reverse mortgages, and suggest alternative options.
  • There are limits on the interest rate and initial fees in association with a reverse mortgage.
  • Limit on the amount of payment can never exceed the value of your home.
  • Information in advance regarding the expenses incurred when getting a reverse mortgage.

What happens if my house is in a living trust?

Houses in living trust status will qualify for reverse mortgages. Living trust documents will be reviewed by a real estate attorney before being approved.

Misunderstanding #3:
There is no difference between a home equity line of credit and a reverse mortgage.
Incorrect.

difference-between-a-reverse-mortgage-and-a-home-equity-line-of-credit

What is the difference between a home equity line of credit and a reverse mortgage?

The main difference between a home equity line of credit and a reverse mortgage is that a home equity line of credit, like forward mortgages, will need to be paid back monthly. A reverse mortgage, on the other hand, does not have to be repaid until you sell your home or no longer occupy the residence. Additionally, a home equity line of credit will release equity in your home in the form of cash to be spent as you like.

Misunderstanding #4:
I need to pay off my housing repair grants.
Incorrect.

What happens to the liens I have against the property?

Housing repair grants and other miscellaneous grants usually do not have to be paid off. Any mortgages or federal liens must be paid off prior to or at the closing of your reverse mortgage. This includes, but is not limited to mortgages, a home equity line of credit, and property tax liens.

How much is due when I repay the loan?

The original loan amount, plus accrued interest, will be paid once you sell or no longer occupy the residence.

What if I owe more than my home is worth?

Reverse mortgages are considered non-recourse loans meaning you cannot owe more than the value of your home. Your assets and your heirs' assets are never taken into account when it comes to lending a reverse mortgage. Your home serves as the only collateral.

Will I have an estate that I can leave to my heirs?

Once you no longer occupy the residence, your estate will repay the loan balance with proceeds from the sale of the property or by refinancing the transaction. In the first case, the estate will retain any additional proceeds from the sale. If your estate decides to refinance, they will retain the home and any additional equity.

Are the proceeds from my reverse mortgage taxable income?

The Internal Revenue Service considers your reverse mortgage proceeds loan advances and not taxable income.

proceeds-from-reverse-mortgage-taxable-income

How do I know how much my home is worth?

It never hurts to check with a local real estate agent or appraiser to give you an estimate on the value for little to no charge. To play it safe, you can check the taxable value online in many counties. The tax assessment is a good starting point, but it may not accurately reflect current market conditions. A full interior/exterior appraisal will be ordered after application to nail down a specific amount.

What if my home is in a "living trust"?

Homes placed in a "living trust" may qualify for a reverse mortgage. The "living trust" documents will be reviewed by a real estate attorney for approval.

I am the Power of Attorney for my mother who would like a reverse mortgage. Can I handle the transaction on her behalf?

As Power of Attorney, you will be able to be the main contact person, but the homeowner listed on the title must attend counseling and sign the application documents. The Department of Housing and Urban Development requires the homeowner to act on their own behalf unless they have a doctor's note citing mental incompetency based for a specific condition.

Who pays my real estate taxes and homeowner's insurance?

The homeowner will be responsible for paying his/her own taxes and insurance premiums. In the case the homeowner does not have an insurance policy on the house, we will help with setting one up prior to closing.

How long does it take to close my reverse mortgage?

The typical amount of time from application to closing for a reverse mortgage is 30 to 45 days.

How are rates determined and how often do they adjust?

Rates are determined weekly based on the information found below. There are three main reverse mortgage products, each with different rate characteristics:

  1. Home Equity Conversion Mortgage (Monthly Adjustable)
    • 1-year treasury bill + margin (1.50)
    • No monthly/annual cap
    • Lifetime cap = 10% above initial rate
  2. Home Equity Conversion Mortgage (Annually Adjustable)
    • 1-year treasury bill + margin (3.10)
    • 2% annual cap increase
    • Lifetime cap = 5% above initial rate
  3. Fannie Mae Homekeeper Reverse Mortgage
    • 1-month CD index + margin (3.40)
    • No monthly/annual cap
    • Lifetime cap = 12% above initial rate.

What is a reverse mortgage?

A reverse mortgage is a type of a home loan for homeowners ages 62 and up. With a reverse mortgage, homeowners are able to convert parts of their home equity into cash with no monthly payments. Designed to help retirees, this home loan helps supplement limited incomes using the accumulation of wealth within the retiree’s homes, helping to pay monthly living expenses. Typically, the borrower makes payments to the lender. However, in the case of the reverse mortgage, the lender makes payments to the borrower.

How do you get a reverse mortgage?

how-to-get-a-reverse-mortgage

To receive the most common type of reverse mortgage, the Home Equity Conversion Mortgage (HECM), you must be granted approval by the Federal Housing Administration, also known as the FHA. As a result, you will want to select an FHA-approved lender. To find an FHA-approved lender, use the United States Department of Housing and Urban Development website.

What is an HECM Loan?

An HECM loan is a loan for retirees over the age of 62 years of age who want to use the equity of their homes as a source of income to spend on anything they choose. With an HECM loan, retirees are able to add an additional revenue source without having to make monthly mortgage payments. For more information on HECM loans, visit our website here.

How long does it take to get the money from a reverse mortgage?

Typically, the process takes approximately 30-60 days. However, depending on a variety of factors, such as the speed in which both the lender and borrower complete the necessary paperwork and requirements, this number may vary.

Can you stop a reverse mortgage?

how-to-stop-a-reverse-mortgage

Fortunately, the answer is “yes.” With most mortgage loans, there is a period called the “right of rescission” in which you are allowed to change their mind and back out after signing the reverse mortgage paperwork, with no fees or penalties. To change the reverse mortgage, all you have to do is alert the lender to let them know you changed your mind about the reverse mortgage. At that time, the lender is required to cancel all loan documents, returning all fees, closing costs, and unused funds back to you within 20 business days.

If the 3 day rescission period has passed, you can still get out of the reverse mortgage, although it will be much more complicated. The three ways to do this in ascending order of best to worst options are:

  1. Repay the loan balance in full.
  2. Sell your home and use the money gained to pay off the reverse mortgage.
  3. Refinance the loan into a conventional mortgage.

Reverse mortgage pros and cons

As with any purchasing decisions, there will be pros and cons so it is important you gather all the information you need to ensure a reverse mortgage is the best decision for your current situation. Listed in the chart below are the pros and cons to consider before deciding to get a reverse mortgage on your home.

Pros Cons
Increases income Outliving home equity
Allows for a more comfortable retirement Unless loans are repaid, heirs will not be able to keep the house
Provides flexible disbursement options Expensive application fees
Will not owe more than the home is worth Many reverse mortgages are adjustable rate products
Proceeds are tax-free If a decision to move out is made, loans are due
No monthly mortgage payments Medicaid may be affected
Don’t impact social security or Medicare payments

Other facts regarding reverse mortgages:

You cannot get evicted

Because payment for a reverse mortgage is only due once your home is no longer your primary residence, you cannot be forced out of your home.

You are still the owner of your home.

With a reverse mortgage, the lender does not become the owner of your home, and you will still remain owner of your property. The reverse mortgage is simply a lien against your home.

Your loan can never become greater than your home’s worth.

The reverse mortgage loan can never exceed the value of your home. As a result, you do not need to worry about whether or not you will have a large bill when you decide to leave your home.

Where can I get a reverse mortgage with Strock & Tanner Mortgage Corporation?

At this time, we are able to offer reverse mortgages in Florida.

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