What is a Reverse Mortgage?
The Reverse mortgage is a fairly unique loan which was created to allow seniors 62 years of age or older to convert home equity into cash without having to sell or move. This provides seniors with access to much needed cash for unexpected expenses such as home improvements, medical bills, and in-home care. A reverse mortgage can be a great option for supplementing social security benefits. Insured by the U.S. government, the Department of Housing and Urban Development (HUD) permits eligible seniors to benefit from their current home with a loan that may be useful for their day-today needs!
This type of loan is called a reverse mortgage because instead of a borrower making payments to their lender as they would with a traditional mortgage, the lender pays the borrower. Also, unlike the forward mortgage, a reverse mortgage does not need to be repaid until the borrower no longer occupies the home as their primary residence.
At Family Home Funding, we believe it is important to educate seniors on the various aspects of the reverse mortgage. Our team of professionals have the knowledge and experience to properly guide New Jersey and Florida seniors through the various reverse mortgage requirements and processes.
- Qualifying homeowners can choose to receive tax-free payments from reverse mortgage lenders either on a monthly basis, in a lump sum, or as a line of credit.
- No repayments are required while a borrower lives in the home.
- Social Security and Medicare benefits are not affected.
- When the loan is paid in full, all equity associated with the property will be distributed to the borrower’s heirs.
Do I qualify for a Reverse Mortgage?
Each borrower listed on the title must apply for the reverse mortgage loan, attend a free HUD counseling session, and sign the loan papers. The HUD counseling can be handled either in person or over the telephone.
How is the loan amount determined?
- The age of the youngest borrower
- The appraised amount of the property
Let’s take a look at the two common types of reverse mortgages available.
Home Equity Conversion Mortgage (HECM)
The first type of reverse mortgage is the Home Equity Conversion Mortgage (HECM). A HECM is a reverse mortgage that is insured by the Federal Housing Administration (FHA), much like the FHA loan. As the only reverse mortgage insured by the Federal Government, HECMs make up the vast majority of reverse mortgages in the United States. For seniors who want relocate closer to family, or perhaps move into a home that can better accommodate their physical needs, the HECM loan can be used for the purchase of a new home.
To qualify, a HECM Borrower must:
- Be at least 62 years of age
- Own their property outright or have a low mortgage balance
- Occupy the home as their primary residence
- Not be delinquent on any federal debt
- Have the ability to pay ongoing property charges such as property taxes, insurance and Homeowner Association fees, etc.
- Participate in a reverse mortgage information session given by an HECM counselor approved by the U.S. Department of Housing and Urban Development (HUD).
A borrower’s income, expenses, and credit history will also need to be reviewed. The borrower’s property must meet all of the FHA’s property standards and flood requirements as well.
Depending on your individual needs, a number of payment plans are available with the HECM program.
Fixed Rate Mortgages:
- Single disbursement lump sum payment
Adjustable Rate Mortgages:
- Line of Credit
- Term – equal monthly payments for a set number of months
- Tenure – equal monthly payments as long as one borrower occupies the property
- Modified Tenure – line of credit and tenure combination
- Modified Term – line of credit and term combination
Proprietary Reverse Mortgage
The less common alternative to the HECM loan is the Proprietary Reverse Mortgage. Rather than being insured by the federal government, Proprietary Reverse Mortgages are insured privately by the mortgage companies that offer them. The regulations that HECM loans must adhere to do not apply to the proprietary loan, although, most lenders will follow the same standards as best practice. Proprietary Reverse Mortgages are commonly referred to as Jumbo Reverse Mortgages because they are frequently taken on high-value homes.
The reverse mortgage process can sometimes seem a bit complicated. Our goal is to educate seniors throughout the entire loan process so that they are comfortable from start to finish. Whether you are in need of a HECM or Proprietary Reverse Mortgage, our team at Family Home Funding Corp is dedicated to helping you find the right loan. Contact us today for any reverse mortgage questions you may have!
Although we are located in Kinnelon, New Jersey, we do reverse mortgages throughout the entire state of New Jersey, including surrounding areas such as Butler NJ, Wayne NJ, Paterson NJ, Haledon NJ, and Garfield NJ. We also are licensed and work in the state of Florida.