Reverse Mortgage Myths
Understanding reverse mortgages and the difference between what is true and what is not ~
Your home must be debt-free to qualify.
FALSE. If you have an outstanding mortgage or equity loan balance, and as long as there is enough equity, you may be able to pay off your mortgage and qualify for a Reverse Mortgage. All current mortgages, judgments or liens must be paid from the Reverse Mortgage proceeds and are then added to your Reverse Mortgage balance. A Reverse Mortgage specialist will advise you of the amount you qualify to receive and if your current mortgage balances cause a shortfall. Even if there is a shortfall and you owe money at closing in order to pay off your current mortgage, you are permitted to do so.
Only senior homeowners who are low on cash can benefit from a Reverse Mortgage.
FALSE. Seniors from all walks of life are taking advantage of Reverse Mortgages. Even though some borrowers may have greater needs than others, a Reverse Mortgage can be an excellent financial or estate planning tool for anyone. Homeowners with high-value homes are using Reverse Mortgages in a variety of ways. Protecting their estate from some of the estate tax after their passing can be accomplished with a reverse mortgage since a reverse mortgage places a lien on the property, and that lien is not subject to estate tax. (Consult with your tax advisor.)
Only those borrowers with excellent credit and income can qualify for a Reverse Mortgage.
FALSE. Although there will be a Financial Assessment to determine whether a reverse mortgage borrower can pay the taxes and homeowner's insurance (and other fees) on their home, you can still obtain a Reverse Mortgage once approved. Your credit does not have to be perfect, and a certain credit score is not required. But there are certain parameters required by HUD and lenders in order to pass the financial assessment.
Bankruptcy, foreclosure, and judgments prevent you from obtaining a Reverse Mortgage.
FALSE. Borrowers who are currently in bankruptcy or foreclosure may be able to secure a Reverse Mortgage. Your bankruptcy trustee may give you permission for the Reverse Mortgage to go forward. But you must show you've been on time with your bankruptcy payments for 12 months. You will have to obtain approval from the court to go forward with the reverse mortgage. And depending on how you have paid your real estate taxes and your credit profile show on your credit report, you may be required to have a LESA, Life Expectancy Set Aside so your lender will be able to pay your real estate taxes and homeowner's insurance for the life of the loan (your life expectancy). (Consult with your attorney and the courts for more information).
I will have to make monthly payments if I have a Reverse Mortgage.
FALSE. With a Reverse Mortgage, you never make any monthly mortgage payments. However, if your desire is to preserve the equity in your home for your heirs, you can choose to make mortgage payments of any amount at any time throughout the year.
Myths Continued: Reverse Mortgage Facts=Peace of Mind
Once you know the truth, the decision is easier.
The lender will take title to my home and own my home if I take out a Reverse Mortgage.
INCORRECT.
You always retain title and ownership to your home throughout the life of the Reverse Mortgage. The ONLY way a mortgage company can ever take your home from you is through a foreclosure action, whether forward or reverse.
If I choose a term loan for my reverse mortgage, I will not be able to remain in my home once the term is over.
FALSE. If you decide you need more monthly proceeds than the typical HECM and choose a term loan, say for 10 or 15 years, once the term ends, you do NOT have to vacate your home. Even though you will no longer receive monthly proceeds and your line of credit will end, you can remain in your home.
My heirs will be personally responsible for my debt.
FALSE.
Since the Reverse Mortgage is a non-recourse loan (a loan secured by collateral, usually real property), and since the loan is in your name, your heirs are not personally responsible for the loan. Also, the lender can only look to the sale of the property for repayment of the debt. Your heirs, however, may wish to keep the remaining equity by selling the home or they might decide to keep the home by obtaining their own mortgage. (In the case of keeping the home, the full balance of the Reverse Mortgage will be due. If selling the home, 95% of the value of the home will be due or the appraised value, whichever is lower).
ALWAYS REMEMBER: THE HOUSE STANDS FOR THE DEBT. YOU ARE NOT PERSONALLY RESPONSIBLE FOR THE REVERSE MORTGAGE DEBT. YOUR HOME IS!
If I am using Medicaid for my in-home care, I will not qualify. FALSE. Medicaid is a government program for persons of all ages whose income and resources are insufficient to pay for health care and other services. While reverse mortgage proceeds are not considered income as the funds come directly from your home's equity, there are eligibility requirements for Medicaid regarding the flow of monies. Medicaid can be affected by a reverse mortgage if you show substantial cash flows. If you receive a lump sum from your reverse mortgage and deposit monies into your checking or savings account, it could be counted as assets and disqualify you from the Medicaid program. Be sure to contact your attorney and your state’s Medicaid administrator so you can check on Medicaid's eligibility requirements.
Reverse Mortgages Can Help
REVERSE MORTGAGE TESTIMONIAL
- “I was retired for quite a while and facing the reality that I would have to return to the business world sooner than expected due to financial uncertainty. My grandchild was born to my son and daughter-in-law who both had to continue to work full-time. My grandmother cared for me in early childhood, so I knew the importance of a grandparent caring for a child rather than placement in daycare early on. I was able to care for my grandchild only because of a reverse mortgage on my home enabling me to continue temporary retirement for several years longer. This vehicle enabled me to build a strong bond with my grandchild that will last a lifetime. I am thankful for this vehicle as a senior citizen.”
– P. Murray, Lake Worth, FL