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 in your home, you may be able to qualify for a Reverse Mortgage. All current mortgages, judgments or liens must be paid off with the Reverse Mortgage proceeds and will be added to your Reverse Mortgage balance.
Only desperate senior homeowners or those with debt take out Reverse Mortgages.
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, protecting their assets, and using home equity instead of tapping their retirement portfolios. However, many homeowners describe themselves as house-rich, cash poor! Whatever your current status, 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 on your property one time.
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 increase in the Principal Limit of the loan must be equal to or more than five times the closing costs and the proceeds equal to or more than 5% of what is being refinanced. The new loan must be a benefit to the borrower.
Bankruptcy, foreclosure, and judgments prevent you from obtaining a Reverse Mortgage.
FALSE. Borrowers who are currently in chapter 13 bankruptcy 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. Judgments will have to be paid in full at closing. If there is equity in your home and enough time, you may be able to avoid foreclosure with a reverse mortgage. It is important that you consult your attorney for information.
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.
FALSE.
You always retain title and ownership to your home throughout the life of the Reverse Mortgage. The ONLY way a mortgage company can 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 period of 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 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 and no repayment is required until you refinance or no longer occupy the property as your primary residence.
My heirs will be personally responsible for my debt.
FALSE.
Since the Reverse Mortgage loan is in your name not theirs, your heirs are not personally responsible for the debt. Additionally, you are also not personally responsible for the reverse mortgage debt. The house stands for the debt as the Reverse Mortgage is a non-recourse loan (a loan secured by collateral, usually real property). The only recourse lenders have with any home, reverse/non-reverse, is a foreclosure action if all remedies have failed. As evidence that Reverse Mortgage borrowers are not personally responsible for the mortgage debt, here is the Reverse Mortgage Home Equity Conversion Note:
#11. No Deficiency Judgments. Borrower shall have no personal liability for payment of the debt secured by this Security Instrument. Lender may enforce the debt only through sale of the Property. Lender shall not be permitted to obtain a deficiency judgment against Borrower if the Security Instrument is foreclosed."
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
- “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 son and daughter-in-law were both working full time and had a little daughter. 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 day care. I was able to care for my grandchild because of the reverse mortgage on my home, and it 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 KATHIE ADLER 631-804-9044
