Understanding Reverse Mortgages
Article by | Debbie Bloyd, NMLS# 200790
Why do people have so many misunderstandings when it comes to Reverse Mortgages? There are a lot of rules and regulations with an FHA mortgage and since they often change – there is often misinformation passed on. In the beginning before HUD and FHA were involved in the program, some private reverse mortgage mortgages had fraud problems that hurt some retirees. The program is much better now, regulated by FHA and it is much easier to understand then years ago when they were first in the market, but these stories continue to circulate.
A reverse mortgage is available to individuals that are 62 years or age or above, own their own home ( either paid off or at least 50% equity in it). Credit scores do not play a role in these types of loans. Income and debt limits are looked at in relation to the square footage of the home with a formula put out by FHA.
Here are some common myths –
Myth #1 I could lose my home and be forced to move. No; FHA guarantees that you can stay in your home for as long as you wish as long as taxes and insurance are always paid.
Myth #2 Your home will be taken away and the bank will own it when you die. Because your house is in your name, you and your heirs will have to sell it upon your death and pay off the mortgage balance. They can then decide to sell it or buy it. Heirs can purchase the home at 95% of the value if they choose.
Myth #3 Your house must be debt free to do a reverse mortgage? You can use a reverse mortgage to pay off the existing home loan.
Myth #4 I won’t own my home anymore. The deed always stays in your name just like any other loan. You can sell, remodel it, and keep any equity that is left when you move.
Myth #5 Reverse mortgages are too expensive. They are the same price as any FHA loan. The FHA fees are mandated by law…. They are set numbers per the program.
Myth #6 My children will get stuck with a lot of debt. Your children are not liable for any debt that the house has. The home is insured by FHA and therefore FHA pays any shortage with this loan.
Myth #7 Only people that are in financial trouble need to do a reverse mortgage. There is now a line of credit with most reverse mortgages that actually PAY YOU INTEREST. So yes – they can pay off your current note, they can give you cash out or they can actually make money for you.
Myth #8 Once you get a reverse mortgage you CAN NOT sell your home. You can sell your home or even refinance it at any time. You simply pay off that lien and keep the equity.
Myth #9 The money that I receive out of a reverse mortgage is taxed. The money has already been paid taxes on so there are no taxes on the equity that you receive out of your home.
Myth #10 If I owe more in the note than the house is worth – my heirs have to pay it. Your heirs do not have to pay nor does your estate have to pay if when you pass away there is more owed on your home than it is worth. FHA is guaranteeing that payment for you – not your heirs.
A reverse mortgage is a great financial tool that can provide extra money for anything – long term care costs, vacations, setting up investment accounts for your heirs, and unexpected expenses.
A reverse mortgage is not the sale of your house and you are still in title – just like any other loan.
My clients are seeing this now as a way to use the equity in their homes ( that is not making them any money) as a way to take out less of their investment accounts and Certificates of Deposit and start saving more money for medical or other expenses later in life.
You can even purchase a home with a reverse mortgage. Depending on the price of the new home and your age, many seniors are getting a huge savings with this type of loan.
For more information contact : Debbie Bloyd – DLB Mortgage services 979-220-3018