Questions and Answers

Reverse mortgages continue to be one of the few growth areas in the mortgage industry. The U.S. Department of Housing and Urban Development (HUD) created one of the first reverse mortgage products, which is a federally insured private loan. A reverse mortgage is a safe plan that can give older Americans greater financial security. Homeowners can choose to use the funds received in any manner they choose, many use the money to supplement social security, meet unexpected medical expenses, make home improvements or travel.

Since your home is probably your largest single investment, it is smart to know more about reverse mortgages to decide if one is right for you. We have compiled a list of frequently asked questions to give homeowners more information.

  1. Question: What is a reverse mortgage?

    Answer: A reverse mortgage is a special type of home loan that allows a homeowner to convert a portion of the equity in his or her home into cash. The equity built up over the years of making mortgage payments can be paid out to you instead. But, unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. Because the reverse mortgage is federally insured, HUD can provide these benefits.

  2. Question: Can I qualify for a HUD reverse mortgage?

    Answer: To be eligible for a HUD reverse mortgage, HUD’s Federal Housing Administration (FHA), requires that the borrower is a homeowner aged 62 or older. The homeowner must have some equity in their home, but does not have to own the home outright in order to qualify for some benefit. Every borrower is required to participate in HUD-approved counseling to receive independent information about a reverse mortgage before completing the loan. You can contact the Housing Counseling Clearinghouse on 1-800-569-4287 to obtain the name and telephone number of a HUD approved counseling agency and a list of HUD approved reverse mortgage lenders in your area.

  3. Question: Can I apply if I did not buy my present house using FHA mortgage insurance?

    Answer: Yes. It does not matter how you purchased your home or who you may have a current mortgage through. The new HUD reverse mortgage will be an FHA insured loan.

  4. Question: What types of homes are eligible?

    Answer: Several types of homes are eligible. Single family dwellings, two to four unit properties, townhouses, detached homes, and condominiums (must be FHA approved) that you occupy as your primary residence are qualified. Manufactured homes also may be eligible if the home was built in 1976 or after and the land the home sits on must be owned by the homeowner, not rented.

  5. Question: What is the difference between a reverse mortgage and a home equity loan from a bank?

    Answer: With a traditional second mortgage or line of credit, borrowers must have sufficient income versus debt to qualify for the loan and the homeowner is required to make monthly mortgage payments. The reverse mortgage is different in that it pays you and is available regardless of income or credit! The amount you can borrow depends on your age, the current interest rate, the appraised value of the home, and the current FHA lending limit. Generally, the more valuable the home, the older you are, and the lower the interest rate, the more a person can receive. Payments are not made on a monthly basis because the loan is not due as long as you occupy the home as your principal residence. However, like all other homeowners, you are required to pay real estate taxes, homeowners insurance and other conventional payments like utilities, but CANNOT be forced to vacate the property due to missed payments.

  6. Question: Can my lender take my home if I outlive the loan?

    Answer: No! You do not need to repay the loan, nor are you asked to leave the home as long as one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home’s value!

  7. Question: Will I still have an estate that I can leave to my heirs?

    Answer: When you sell your home or no longer use it for your primary residence, you or your estate will repay the mortgage balance you received from the reverse mortgage to the lender. The remaining equity in your home, if any, belongs to you or to your heirs. None of your other assets will be affected by HUD’s reverse mortgage loan and the debt will never be passed along to the estate or the heirs.

  8. Question: How much money can I get from my home?

    Answer: The amount you can borrow depends on your age, the current interest rate, the appraised value of the home, and the current FHA lending limit. In general, the more valuable the home is, the older you are, the more you can borrow.

  9. Question: Should I use an estate planning service to find a reverse mortgage?

    Answer: HUD does NOT allow using an estate planning service, or any service that charges a fee for referring a borrower to a lender! HUD provides this information, without cost, by calling 1-800-569-4287.

  10. Question: How can I receive payments?

    Answer: There are six options to receive payments:
    • Cash Out- all the cash available can be taken out at the time of the loan closing.
    • Tenure- equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
    • Term- equal monthly payments for a fixed period of months selected.
    • Line of Credit- all or part of the money can be placed in the line of credit, that grows each month, which the borrower can draw funds from at any time, until the money is exhausted.
    • Modified Tenure- combination of the line of credit with monthly payments for as long as the borrower remains in the home.
    • Modified Term- combination of the line of credit with monthly payments for a fixed period of months selected by the borrower.
  11. Question: What if I only one homeowner is 62 or older?

    Answer: If at least one homeowner living in the house is old enough, the loan can be done in the name of that owner.

  12. Question: What if I want to move?

    Answer: If a reverse mortgage borrower decides to move out permanently (or vacates the property for over one year), even if they do not sell the house, the loan will become due. If you want to move, you would sell your home as if you had any other mortgage on the home and it would be paid off at the time of closing.

  13. Question: What if I need more money?

    Answer: There are several answers here. If the borrower has tenure or term payment set up but need more money, they can request a change of payment plan and the lender and borrower will work out another situation in which the homeowner will be able to receive more money. If the borrower has only a line of credit, they can request a change of payment plan to start receiving monthly payments. In the event that the borrower has no more money to pull from, they can contact the lender and ask about doing a refinance to tap any additional equity.

  14. Question: What if I still owe money on my current loan?

    Answer: A homeowner does not necessarily have to own their home outright in order to qualify for a reverse mortgage, but there does need to be some equity available. You would need to speak with a reverse mortgage specialist to find out if how much you owe is too much to qualify.

  15. Question: What if I sell my house for less than the balance of my reverse mortgage?

    Answer: If the borrower sells their home for less than the balance of the reverse mortgage loan, the lender must accept whatever that amount is, as long as it is reasonable. The rule of reverse mortgages is “You can never owe more than your home sells for.”

  16. Question: What if I want to get out of the loan?

    Answer: While the borrower is in the loan process they can cancel at any time, after the documents are signed the borrower will have three days to cancel the loan before it becomes final. After the borrower has the reverse mortgage if they wish to get rid of it, it would need to be paid off (typically through a refinance) just like any other loan.

  17. Question: What if I marry someone who also has a reverse mortgage on another property?

    Answer: The borrowers have two choices: one spouse can give up their loan by paying it off through the sale of the home, or each borrower can pay off their own loan and enter into a new reverse mortgage together on one property.

  18. Question: What if a couple has a reverse mortgage and gets divorced?

    Answer: If one person stays in the house, then the loan stays in effect. If both parties move out, then the loan will need to be paid off with the money from the sale of the home.

  19. Question: What if the surviving resident is a domestic partner, not a spouse?

    Answer: As long as the domestic partner is of the proper age and listed as a borrower, the loan will still be valid. Loans can also be done between siblings or even friends that own a property together as long as they meet the requirements

Reverse Mortgages (slide show)

Authorized Broker