A reverse mortgage loan is a Federal Housing Administration (FHA) insured loan for home owners ages 62 years and older that uses a portion of their home’s equity as collateral. The home must be free from any liens and any existing mortgages must be paid off with the funds received from the reverse mortgage loan at closing. The home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. Housing and Urban Development (HUD)-approved condominiums and manufactured homes that meet FHA requirements are also eligible. There are generally no credit or income requirements necessary to be approved for a reverse mortgage loan. Learn more about reverse mortgage pros and cons.
How Can Reverse Mortgage Loan Funds Be Used?
You can use your reverse mortgage funds however you’d like. Many borrowers use loan funds to remodel or make updates to their home. Some take the vacation they have always dreamed of. Others use the funds to pay for medical bills. As long as any existing mortgages on your home are paid off, you are free to spend the money at your will.
Reverse Mortgage Loan Limits
The amount that can be borrowed generally depends on three things: age, current interest rate, and the appraised value of the home. Use the Reverse Mortgage Calculator to estimate what you may be eligible to receive. Your reverse mortgage lender will be able to assist you in better understanding the limits of the loan type you are applying for.
What Happens to My Estate?
You cannot outlive your reverse mortgage loan. As long as at least one homeowner lives in the home as their primary residence and the home is maintained to FHA requirements such as paying taxes and insurance, the loan will not become due. If the homeowners no longer live in the home, the loan becomes due. After the loan is repaid, all remaining equity in the home is inherited by the estate. The estate is not personally liable if the home sells for less than the balance of the reverse mortgage. Your heirs and estate will never be responsible for paying the balance of the loan out of their own funds.
In the event of death or in the event that the home ceases to be the primary residence for more than twelve months, the homeowner’s estate can choose to repay the reverse mortgage or put the home up for sale.
How Will I Receive My Reverse Mortgage Funds?
There are several ways to receive the proceeds from a reverse mortgage loan:
- Lump sum – a lump sum of cash at closing.
- Tenure – equal monthly payments as long as the homeowner lives in the home.
- Term – equal monthly payments for a fixed number of years.
- Line of Credit – draw any amount at any time until the line of credit is exhausted.
- A combination of the options above.
When Does the Loan Become Due?
Your loan will become due when under any of the following circumstances:
- The borrowers have passed away
- The property is in disrepair and is unable to make or has refused to make repairs
- The borrowers have sold the home
- The property is no longer the principal residence of at least one borrower
- The borrower does not live in the property as their primary residence
- The borrower fails to pay required property taxes and/or insurance