"I've always worked very, very hard, and the harder I worked, the luckier I got." Alan Bond

New American Mortgage is a top provider of reverse mortgages in the US.  I thought today may be a good time to outline more about reverse mortgages.  Reverse mortgages are gaining popularity for Seniors buying homes as well; reverse mortgages are just like a FHA purchase when writing a contract.

What is a reverse mortgage

A reverse mortgage is a loan for senior homeowners that use a portion of the home's equity as collateral.  In exchange they can either get cash and/or payoff their mortgage and will have no future Principle and Interest payment.

The loan does not have to be repaid until the last surviving homeowner permanently moves out of the property or passes away. At that time, the estate has 6-12 months to repay the balance of the reverse mortgage or sell the home to pay off the balance. All remaining equity is inherited by the estate. The estate is not personally liable if the home sells for less than the balance of the reverse mortgage.

Eligibility for a reverse mortgage (HECM)

To be eligible for a HECM reverse mortgage, the Federal Housing Administration (FHA) requires that all homeowners be at least age 62. The home can be owned free and clear or be such the reverse mortgage will pay off the existing mortgages on the home (there must be significant equity). If there is a mortgage balance, it can be paid off completely with the proceeds of the reverse mortgage loan at the closing.

New reverse mortgage regulations are being introduced to make sure the borrower will be able to make the insurance and tax payments on their home.  Additionally; new rules are being put in place to make sure the reverse mortgage recipient will be able to keep maintenance on the home as well.  Credit scores will be evaluated and income documentation will be required moving forward.

Eligible home types

Almost all home types are eligible. Condos must be FHA approved in order to be eligible.

Difference between a reverse mortgage and a home equity loan

Generally a home equity loan, a second mortgage, or a home equity line of credit (HELOC) has strict requirements for income and creditworthiness. Also, with other traditional loans the homeowner must still make monthly payments to repay the loans.

Typically a reverse mortgage has no income or credit score requirements and instead of making monthly payments to the lender, the homeowner receives from the lender.

With a reverse mortgage the amount that can be borrowed is determined by an FHA formula that considers age, the current interest rate, and the appraised value of the home. The more valuable the home (up to a certain point), the higher the loan amount will be, depending on lending limits.

As stated previously, with traditional loans the homeowner is still required to make monthly payments, but with a reverse mortgage the loan is typically not due as long as the homeowner lives in the home. With a reverse mortgage no monthly payments are due; however the homeowner is still responsible for real estate taxes, insurance, and maintenance.

Outliving the reverse mortgage

A reverse mortgage cannot be outlived. As long as at least one homeowner lives in the home as their primary residence and maintains the home in accordance with FHA requirements (keeping taxes and insurance current) the loan does will not become due.

Estate inheritance

In the event of death or in the event that the home ceases to be the primary residence for more than 12 months, the homeowner's estate can choose to repay the reverse mortgage or put the home up for sale.

If the equity in the home is higher than the balance of the loan, the remaining equity belongs to the estate.

If the sale of the home is not enough to pay off the reverse mortgage, the lender takes over the house in a "non-recourse" event.  All other assets in the estate are kept separate from the house and any shortage to repay the loan is the mortgage holder's responsibility.  If the estate has $100,000 in IRA funds left over and the mortgage is short $20,000 the estate would ignore the negative $20,000 and get to keep the $100,000. 

Loan limit (the max loan now is $625,000 as of 11/31/2011)

The amount that is available generally depends on four factors: age (older is better), current interest rate, appraised value of the home and government imposed lending limits. We can help determine your qualifying amount.  The actual appraisal will determine the final amount.

We can run scenarios for anyone interested. 

Have a fantastic week and remember we are here for you.

The Valeo-Croy Team - Call today

Todd Croy - NMLS #91428 NC, SC (704) 488-7763
Deanna Valeo - NMLS #91421 NC, SC, VA (704)488-7763

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The Valeo-Croy Team and New American Mortgage Bankers are Equal Housing Lenders.This information is for illustration only. It does not constitute an application for a loan or an offer or commitment for New American Mortgage to make a loan on these terms. Interest rates are subject to change until an application is completed and you lock in your interest rate. The figures noted are estimates and may vary depending on discount points, taxes and insurance. Programs, terms and conditions are subject to change without notice. Mortgage loans are subject to credit qualifications. Normal credit standards apply.   Date: 10/31/2011