REVERSE MORTGAGES

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REVERSE MORTGAGE QUESTIONS & ANSWERS

What is a reverse mortgage?

A reverse mortgage is an FHA-insured loan on the equity in your home, but you never pay it back as long as you live in your home.

Who qualifies?

Anyone at least 62 years of age who owns a home may qualify.

Does the home need to be paid off already?

No. Many people purchase a reverse mortgage to pay off their current mortgage.

How much money will I receive?

An appraiser will come out and determine the market value of your home. Most clients receive between 40% - 80% of the appraised value of your home. The older you are, the higher percentage you will receive. Also, this will be tax-free money.

How long does it take to receive the money?

Normally, it takes 6-8 weeks to complete a reverse mortgage.

Do I receive the money from the reverse mortgage in a lump sum, or in monthly payments?

You can receive the money any way you wish: in a lump sum; in monthly payments for as long as you live in your home; you can take out a partial lump sum, with the rest to be paid monthly; or, you can take out a line of credit and take out the money as you choose.

Do we pay closing costs?

You pay nothing, at any time, out of your pocket. The closing costs are rolled into the loan, so they are paid out of your home’s equity, but you don’t bring any money to closing.

How is the reverse mortgage paid back?

After you pass away, the home is left to your heirs (your children, or grandchildren, etc.). They can either sell the home, which will pay off the reverse mortgage, and they will receive the remaining money; or, if they want to live in the home, or rent it out, they can simply take out a refinance mortgage, or they can pay off the reverse mortgage.

Will any money be left in the home for my heirs when I pass away?

There should be quite a bit of money left for them. The reason the reverse mortgage only pays you from 40% - 80% of the home’s value is because the program is set up so there should be plenty of equity left in the home for your heirs when you pass away. The interest rates on reverse mortgages are usually significantly lower than you could acquire in a forward mortgage, and they are set up that way so, in many cases, the value in your home should increase more each year than the loan increases, due to the low interest.

So, does the equity grow in my home after I take out a reverse mortgage?

Yes, in many cases. Since the interest on the reverse mortgage is usually quite low, your home’s equity may increase yearly. Nationally, home prices increase about 4% a year on average. In the metroplex, homes have been increasing 8.5% during the past 10 years. If your home value increases only 4% (the national average) the equity in your home may double in 16 years, even with a reverse mortgage loan. So, your children, or heirs, may inherit plenty of money after they sell the home and the mortgage is paid off.

Will that still apply if interest rates become quite high?

If interest rates increase dramatically, inflation usually also increases; therefore, your home’s value may be greatly increasing, as well. So, your home’s equity may continue to grow, whether interest rates are low, or high.

If my home loses value, and is worth less than the reverse mortgage when I pass away, will my heirs have to pay the balance?

No. The FHA insurance paid out of closing costs insures that the home will never go upside-down on your heirs. The bank can only get the sale price of the home in this case.

If I pass away first, does my spouse have to sell the home?

No, as long as either of you are living in the home, the reverse mortgage doesn’t need to be paid.

How does the bank make their money?

They make their money on the interest, which gradually accumulates on the loan. Therefore, they have to wait until you pass away before they receive any money.

Do my heirs have to sell the home immediately after I pass away?

The bank gives them 6 months to sell the home. If the home is still not sold, the bank will continue to provide your heirs with 3-month extensions until the home is sold.

How can I be sure that the bank won’t try to take away my home from me?

The reverse mortgage is a government-run program, so it is insured by FHA to make sure that the mortgage never changes, and that neither you, nor your heirs, will ever get stuck paying a bill. Also, the longer you live in your home, the more money the bank will eventually make on the reverse mortgage, so they want you living there for many years.

Can I get a reverse mortgage on my rental home?

No, a reverse mortgage can only be taken out on your homestead property.

Will I continue to pay for my homeowner’s insurance, and taxes?

Yes, those will be your responsibilities.

Can I ever sell my home?

Yes, you can sell at any time. You would simply sell your home for the market price, this will pay off your reverse mortgage, and you will receive the remaining money. So, in essence, it would be as if you are receiving some of the money out of your home now by taking out a reverse mortgage, and you will receive the remaining home equity when you sell the home.

My home needs repairs. Will I need to fix my home before I can get a reverse mortgage?

No. The appraiser will determine if any repairs will be needed in your home. Cosmetic repairs are not of any concern to the appraiser. If a repair is needed, you will simply have to provide an estimate to us, and the work can be usually done after you receive your money. The bank will put aside some money for the repairs, out of your proceeds, so they can pay the repairman after he finishes his job. This helps so you won’t have to pay any money out of pocket for repairs.

How can I be sure I will receive a good appraisal for my home?

We use independent appraisers, so we are not bound to any single appraiser. We will ask the appraiser for a realistic appraisal price, and if he doesn’t feel he can get that price, we go to another appraiser. We are fair, but we also strive to get you the top dollar price possible for your home. This will insure you will receive as much money from the reverse mortgage as possible.

Can another company, or bank, give me a better deal?

Since the reverse mortgage is run through the government, the interest rate is the same for everyone, and the fees paid by the bank are also the same for everyone.

How much money do you receive as the broker?

We receive the national standard of $2,000, or 2% of the home’s value if it is appraised for over $100,000. Since this is an FHA mortgage, my company has to pay the underwriting fees, processing fees, and courier fees. The commission also pays me, our management, our secretary, as well as paying our rent and office expenses, so it is chopped up into many pieces.

Do I pay this money to you?

You do not pay us directly, so you bring nothing to the closing table. This fee is paid by the bank out of the closing costs. It is paid out of the equity in your home, but it is not paid out of your pocket.

How long have reverse mortgage been in existence?

The first reverse mortgage occurred in 1961. Reverse mortgages became a government-run program in 1987. Texas was the last state to permit them, with the first reverse mortgage in Texas closing in 2001.

Which bank will provide my reverse mortgage?

Financial Freedom Senior Funding Corporation in Atlanta, Georgia. They were opened in 1989 just to do reverse mortgages. Today, that is still all they do, as they have become the experts in this field. They handle about 55% of the reverse mortgages in the country.

Can I receive more money from an equity loan?

Possibly, if you qualify; however, you will have a monthly mortgage payment. Also, many senior citizens don’t qualify for an equity loan, at least not a large equity loan, because of their fixed incomes. Anyone at least 62 years of age, who is considering an equity loan, should really take out a reverse mortgage, which is an equity loan you don’t pay back.

So, I receive between 40% - 80% of my home’s appraised value; I never pay any fees out of my pocket; I can live in my home for the rest of my life; I make no house payments; I pay no income tax for the reverse mortgage; and my children inherit my home? This sounds too good to be true. Are there any drawbacks to the reverse mortgage?

The only drawback is that your heirs will not receive the total value of your home when you pass away. However, as mentioned previously, there should still be plenty of equity left in your home when you pass away, so they will receive a handsome check after selling your home. Other than that, there is no real drawback to a reverse mortgage.

For more information feel free to contact the following:

Laurie Gallegos
Fairway Ind. Mortgage - Denver CO
(303) 531-8043

Richard Parker
Fairway Ind. Mortgage - Arlington TX
(817) 459-2900

John Brodey
Fairway Ind. Mortgage - Sherman Oaks CA
(818) 981-3329

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Please note: This information is not intended to be an indication of loan qualification, loan approval, or a commitment to lend. It is also not to be quote of guaranteed interest rates or closing costs. Interest rates can change daily until your rate is locked in. Other limitations may apply.