FAQ: Reverse Mortgage Planning & Qualifying

Some things to consider before deferring a reverse mortgage include:

• Safeguarding against future restrictions – Getting a reverse mortgage before the program becomes more restrictive. Historically, the program has become more restrictive.
• Maximizing your line of credit – Your adjustable reverse mortgage credit line grows as your home appreciates and even though you might now require/use those funds, they’re available just in case.

A Life-Expectancy Set Aside (LESA) account is a pool of funds withheld from your total available reverse mortgage proceeds to pay for property and insurance charges throughout the estimated life of the loan.

Essentially it is an escrow account for a reverse mortgage and based on the individual borrower’s creditworthiness. Not every borrower will require a LESA account.

The minimum age of the borrower is 62; the age of the youngest borrower is always used.

Yes! If you are married, both individuals need to be accounted for in the underwriting decision of a reverse mortgage.

This offers the protection that if you are 62 or older and your spouse is not of qualifying age when the reverse mortgage is taken out, the mortgage cannot be called “due” in the event of the borrower’s death. Your eligible non-borrowing spouse and non-borrowing occupant can remain on title!

• Submit a credit report and income verification – All borrower(s) are subject to a credit and income underwriting decision. The purpose of reviewing your credit report and verifying income is to minimize property tax and insurance defaults and help to ensure the desired loan is a positive benefit for the borrower.
• Get an Appraisal – The current market value of your primary residence will be used to determine your principal loan amount
• Submit a loan application – Similar to a standard loan application (1003), all reverse mortgage applications must be submitted to qualify for a loan
• Sufficient equity in your home – You do not need to own your home free and clear, but you do need significant equity (i.e. minimum 40-60%)
• Complete required orientation – Borrowers must participate in a consumer information session given by a HUD-approved HECM counselor. Your reverse-mortgage professional can help provide a list of approved counselors

The interest rate is typically comparable to market rates at time of application. More specifically, your interest rate is calculated by FHA/HUD based on:

• Age of the youngest borrower or eligible non-borrowing spouse
• Current interest rate
• Lesser of:
  • The appraised value of the subject property
  • The HECM FHA mortgage limit ($1,089,300 in CY 2023)
  • The sales price (only applicable to HECM for Purchase)

Getting a quick pre-approval will give you an estimate of your interest rate. Then when you apply, your initial rate (adjustable-rate loan) or fixed rate can calculated and locked.

The maximum amount you can borrow is called the principal limit. Getting a quick pre-approval will give you an estimate of the amount you can borrow. When you apply, an appraisal will be scheduled to finalize your maximum loan amount.

The principal limit is calculated by FHA/HUD and considers three inputs:

• Maximum Claim Amount – The lesser of the appraised value, sales price, or the maximum claim limit ($1,089,300 for 2023).
• Prevailing interest rates
• Age of the youngest borrower or non-borrowing spouse

Fees are higher than a conventional loan mainly because of the MIP (Mortgage Insurance Protection) which goes to FHA. FHA insures your loan and your protections and there is a cost associated with this protection.

The other charges are normal in nature. Origination fee, Title, Escrow, Appraisal, counseling, etc. round it out. Your reverse mortgage professional can provide you a full cost breakdown to help you determine if you think this is “worth it.”

Typically, these closing costs/charges are rolled into the loan and your only upfront fee is the appraisal.

One of the greatest benefits of the FHA HECM program is the insurance which allows you/your estate to:

• Not owe more than your home is worth once a loan becomes due
• Keep your home – the bank does not own your home
• Purchase your home at 95% of market value should the balance on your home exceed market value at the time the loan is due payable.
• Alternatively, if the home is worth less than the the market value and you/your estate no longer has any ownership interest in the property, you can transfer ownership to the bank (deed in lieu)

Your mortgage insurance premium (MIP) is collected at closing. A additional monthly mortgage insurance payment is added to your loan balance and collected when the loan balance comes due.

Most loans can be finalized in 30–45 days. Much of this timeline is dependent upon the borrower. Borrowers can expedite this process by completing the following steps:

• Scheduling the counseling\
• Completing the loan application and reviewing disclosures
• Getting all the required documents submitted

You can access your loan proceeds through a number of different options: cash at close, monthly payment schedule or as needed by accessing your line of credit.

Most common is some cash out at closing and then leaving the remaining proceeds on a line of credit to access when needed. These options are flexible, can be combined and changed at a later date.

Adjustable-rate reverse mortgages are a better option for borrowers than fixed-rate HECM reverse mortgages for a few reasons:

• You have greater control over how you use your HECM because you can withdraw, repay or choose not to repay until the loan becomes due at your discretion
• The line of credit on your adjustable-rate mortgage grows over time keeping regardless of dips in market values
• In some scenarios, withdrawals from your reverse-mortgage line of credit may help minimize your taxes from other retirement streams because withdrawals from your HECM are not considered income

You are required to pay the balance of your reverse mortgage when you no longer qualify for the loan. Specifically, the loan balance becomes due when the borrower(s):

• No longer occupy the residence – (death, move out)
• Fail to maintain property Taxes / Hazard Insurance
• Fail to Reside in subject property for 12 months
• Convey Title to someone else
• Fail to perform general maintenance on the property
• Sell the home

When the loan becomes due/matures, the estate/surviving borrowers can:

• Sell the home – satisfy the reverse mortgage –retain remaining equity. If you decide to sell your home in the future and there is equity, you keep it. There is no equity sharing with the lender.
• Purchase the home at 95% of the market value at loan maturity (Great option if the home is “upside down”)
• Transfer the property via Deed In Lieu – Servicer takes responsibility (Great option if the family has no interest in the property)

No, this is a non-recourse loan and the estate will never owe more than the value of the home.

Your reverse mortgage debt won’t be passed on to your heirs, estate or even yourself should you desire to leave. This is a very important protection feature as a “non-recourse loan” and is designed to protect you and your family.

No. As of 2015 all spouses must be accounted for in the underwriting of a reverse mortgage and are protected under the terms of the mortgage.

Yes, you can own up to three pieces of real-estate property and still qualify for a HECM reverse mortgage. In fact, you can you use a HECM reverse mortgage on a 2-4 unit multi-family property provide you reside in one of the units

No. Provided you meet the eligibility requirements, you can use funds from a reverse mortgage at your discretion

While having no equity left can happen, in most instances, it does not.

Your reverse mortgage professional can show you an amortization schedule to help you and your family better understand what the family’s equity in the home will potentially look like all the way out to your 100th birthday.

Most borrowers are pleasantly surprised to see that equity can be maintained.

Technically, the loan balance/maturity becomes due immediate. However, servicers typically grant 3 months initially and extensions as needed depending upon the circumstances.

If there is no response from your family or estate, they can and will foreclose to recoup their loan proceeds. Loan servicer just wants to communicate with the family on intent (buying the house, selling it, etc.).

We only offer reverse mortgages through the Federal Housing Association (FHA) Home Equity Conversion Mortgage (HECM) program. There are two versions of this program; fixed and adjustable-rate HECMs.