What is a Reverse Mortgage?
A reverse mortgage is a loan, in the sense that it allows an eligible homeowner to borrow money but it doesn’t work the same way as a home purchase loan. A homeowner who is 62 or older and has considerable home equity can borrow against the value of their home and receive funds as a lump sum, fixed monthly payment, or line of credit. Reverse mortgages don’t require the homeowner to make any loan payments during their lifetime. Instead, the entire loan balance, up to a limit, becomes due and payable when the borrower dies, moves out permanently, or sells the home. Federal regulations require lenders to structure the transaction so that the loan amount won’t exceed the home’s value.
What are the upfront closing costs for a Reverse Mortgage?
Like with a traditional mortgage, borrowers will typically have to pay one-time upfront costs at the beginning of the reverse mortgage loan. These costs include:
- Origination fees (which cannot exceed $6,000 and are paid to the lender)
- Real estate closing costs (paid to third parties) that can include an appraisal, title search, surveys, inspections, recording fees, mortgage taxes, credit checks and other fees
- An initial mortgage insurance premium: There is an initial and annual mortgage insurance premium charged by your lender and paid to the Federal Housing Administration. Mortgage insurance guarantees that you will receive your expected loan advances. This insurance is different and in addition to what you have to pay for homeowners’ insurance.
You can pay these costs in cash or by using the money from your loan. If you use your loan proceeds to pay for upfront costs, you won’t have to bring any money to the closing, but the total amount of money you’ll have available from the reverse mortgage loan proceeds will be less.
What are restrictions that must be observed in a reverse mortgage?
- You must meet the age requirement.
- You need to have a good chuck of home equity.
- You must live in the home.
- You can’t be delinquent on federal debt.
- You must prove you can pay ongoing housing costs.
How long do you have to pay off a reverse mortgage after death?
Upon the death of the borrower and Eligible Non-Borrowing Spouse, the loan becomes due and payable. Your heirs have 30 days from receiving the due and payable notice from the lender to buy the home, sell the home, or turn the home over to the lender to satisfy the debt.
If I take out a reverse mortgage loan, does the lender own my house?
No, when you take out a reverse mortgage loan, the title to your home remains with you.