Reverse Mortgage Myths
Understanding reverse mortgages and the differences 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, 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 desperate and low on cash take out 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 planning tool. Homeowners with significant income and high-value homes are using Reverse Mortgages in a variety of ways such as delaying Social Security and protecting their assets while using home equity. A reverse mortgage can be a great addition to an already solid financial plan for retirement.
Only those borrowers with excellent credit scores 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 on their home, you can still obtain a Reverse Mortgage. Your credit score does not have to be perfect, and a minimum credit score is not required. But there are certain parameters required in order to pass the financial assessment.
You can only do a reverse mortgage one time on your property.
FALSE. As long as there is equity in your home, you can do a reverse mortgage again and again, but you must wait 12 months between the refinances. There is a 5-5 rule that applies to HECM refinances. The new loan must also be a benefit to the borrower. The increase in the Principal Limit of the loan must be equal to or more than five times the closing costs and proceeds equal to or more than 5% of what is being refinanced.
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.
Myths Continued: Facts vs Fiction
Once you know the facts, 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 my husband goes into a nursing home, the Reverse Mortgage will become due.
FALSE. As long as one borrower resides in the property as their primary residence and both homeowners are not absent from the home for a consecutive 12 months, the Reverse Mortgage remains in force.
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 for your HECM, for example for 10 or 15 years, once the term ends, you do NOT have to vacate the premises. 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.
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. 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 account, it can be counted as assets and could disqualify you from the Medicaid program. Contact your attorney and your state Medicaid administrator about eligibility requirements.
For underage or non-borrowing spouses, click below for info.
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 my early childhood, so I knew the importance of a grandparent caring for a child rather than placing them in daycare. I was able to care for my grandchild only because of a reverse mortgage on my home which enabled 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.”
– Patricia-Lake Worth, FL
Contact Advisors Mortgage: 888-843-9797 or 631-804-9044
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