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A reverse mortgage is a type of home loan that allows homeowners who are 62 years of age or older to convert a portion of the equity in their home into cash. This can provide a source of income for retirees or those who are looking to supplement their existing income.

One of the key benefits of a reverse mortgage is that the borrower is not required to make monthly mortgage payments. Instead, the loan is repaid when the borrower sells the home, moves out, or passes away. This can provide a sense of financial security for those who may be living on a fixed income.

 Reverse mortgage loans typically must be repaid either when you move out of the home or when you die 

The borrower makes no payments on the loan while living in the house, but the loan balance becomes due and payable when the borrower either sells the home, no longer occupies it as their primary residence, or upon the death of the last surviving borrower 

A Reverse mortgage offers potential benefits to retirement-age households seeking to strengthen their retirement security. Most notably, reverse mortgages can allow households to smooth out their consumption over their lifetimes, so they can enjoy their wealth in retirement rather than holding a large nest egg at death. 

They allow households a chance to access housing equity without paying the high cost of selling a home 

Read our blog post How Much Will I Make Selling My House in Texas? 

You and your Spouse must:

• Be 62 years of age or older
• Own the property outright or paid-down a considerable amount (more than 50%)
• Occupy the property as your principal residence
• Not be delinquent on any federal debt
• Have financial resources to continue to make timely payments of ongoing property charges such as property taxes, insurance, and Homeowner Association fees, etc.
• Participate in a consumer information session given by a HUD-approved HECM counselor

Since there are no restrictions on how the proceeds can be used, many reverse mortgage borrowers use HECM to:

• Purchase a new home
• Pay medical bills
• Move closer to family members
• Travel
• Supplement retirement income

HECM products offer many different advantages for seniors today.

What is HECM? “HECM” stands for “home equity conversion mortgage.”  This is the most common type of reverse mortgage in Texas. 

For a home equity conversion mortgage, the following requirements apply:

• The homeowner (applicant) must be at least 62 years old, (and if married their spouse must also be 62 in Texas)
• The home must be the homeowner’s principal residence,
• The homeowner must own the home outright or have a low mortgage, and
• The balance of the mortgage can be paid off at closing with proceeds from the reverse mortgage loan

1. Get Educated: Before applying for a reverse mortgage, it's important to educate yourself about the process and the different types of loans available. This will help you make an informed decision about whether a reverse mortgage is right for you.

2.  Submit an Application: Once you have chosen a lender, you will need to submit an application for a reverse mortgage. This will typically include documentation such as proof of income, proof of residence, and a recent appraisal of the home.

3.  Complete a Property Appraisal: A property appraisal will be done to determine the value of the home. This will be used to determine the amount of equity that can be borrowed.

4.  Receive Funds: Once the closing is complete, the funds from the reverse mortgage will be disbursed to the borrower.

What will my payments be? 

A big benefit of a reverse mortgage is that the borrower is not required to have a minimum credit score or income. This can make it an option for those who may not qualify for a traditional mortgage.

Here are some other potential benefits of getting a reverse mortgage:

1. Additional Income: Reverse mortgages can provide retirees or those on a fixed income with an additional source of income. This can help to supplement existing income and provide a sense of financial security.
2. No Monthly Mortgage Payments: With a reverse mortgage, the borrower is not required to make monthly mortgage payments. Instead, the loan is repaid when the borrower sells the home, moves out, or passes away. This can be a great option for those who want to live in their home for the rest of their lives.
3. No Impact on Social Security or Medicare Benefits: The proceeds from a reverse mortgage is not considered income and will not affect Social Security or Medicare benefits.
4. Tax-free Money: The funds received from a reverse mortgage are typically tax-free, as long as the money is used for home repairs, improvements or to pay off debts.
5. Flexible Use: The funds received from a reverse mortgage can be used for any purpose, such as paying off credit card debt, medical bills, home repairs, or supplementing retirement income.
6. Maintaining Ownership: The borrower still maintains ownership of the home and can continue to live in the home and make any desired changes to the property, as long as they continue to pay the property taxes and insurance and maintain the property.
7.  Will home prices drop? 

It's important to note that a reverse mortgage does have some drawbacks. One is that it can be expensive, as the borrower may be required to pay closing costs, origination fees, and mortgage insurance. 

Additionally, the value of the loan can decrease over time as interest is added to the balance. Hopefully, your home is appreciating near the same rate!  

Reverse mortgage loan balance increases over time, and if the borrower passes away, the estate may not have enough assets to pay off the loan, and the property may be sold to pay off the debt, leaving nothing for the heirs. 

 Borrowers who fail to meet the terms of the loan, such as failing to pay property taxes or insurance, may be at risk of default. This can result in the loss of their home. 

 HOUSTON MARKET HOUSING STATISTICS

When considering a reverse mortgage, it's important to consult with a financial advisor and carefully review the terms of the loan. It's also essential to consider the long-term implications of a reverse mortgage, as it can affect the borrower's ability to leave an inheritance to their heirs.

Just as with a traditional mortgage, borrowers will typically have to pay one-time upfront costs at the beginning of the reverse mortgage loan.  

Initial MIP and Annual MIP  

• You will pay An initial Mortgage Insurance Premium (MIP) and an annual MIP.  The MIP includes two components: an initial MIP equal to 2% of the loan amount and an annual MIP equal to 0.5% of the loan balance. 

Origination Fee 

• The origination fee is the greater of $2,500 or 2 percent of the first $200,000 of the home's value, plus 1 percent of the amount over $200,000; FHA caps these fees at $6,000.  

The cap is set by law to keep closing costs reasonable for borrowers. In some cases, we may offer to waive or reduce the origination fee for certain reverse mortgage products. 

The 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.

Monthly Servicing Fee 

• Lenders assess servicing fees throughout the life of the loan, with monthly servicing fees capped at $30 to $35, depending on the type of loan.  

Third Party Charges 

•   an appraisal, 
• title search, 
• surveys, 
• inspections, 
• recording fees, 
• mortgage taxes, 
• credit checks, 
• and other fees. 

Real estate closing costs (paid to third parties). You can pay these costs in cash or by using the money from your loan. Using your loan proceeds to pay for upfront costs means 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 will be less.   

It is possible for one spouse to take out a reverse mortgage in order to satisfy financial obligations to the other spouse. Let's say you and your spouse are divorcing and you want to stay in the house you own together. The settlement agreement stipulates that you must give your spouse $100,000 so they can sell their share of the home.

Reverse mortgages are a great option if you don't have $100,000 in cash or don't want to hand over a large amount of cash or other Retirement account assets. You can read more about QDROs

It is possible to make a lump sum payment to your spouse and then use the funds to repay them. Reverse mortgage debt does not become due until the home is sold, the owner moves out, or the owner passes away.  

Selling a House During Divorce

 A reverse mortgage isn’t the same as a traditional home equity loan or home equity line of credit (HELOC). With either of those options, the home acts as security for the loan, and what you’re essentially getting is a second mortgage on the property. 

You make monthly payments to the lender, according to the terms and schedule set by the loan agreement. 

In a reverse mortgage agreement, the lender makes payments to the homeowner each month. There are no payments required on the part of the homeowner 

Generally, you don’t have to pay back the money for as long as you live in your home.

Depending on the plan, your reverse mortgage becomes due with interest when the last surviving borrower:

• Moves
• Sells the home
• Reaches the end of a pre-selected loan period
• Fails to pay taxes
• Fails to maintain insurance
• Fails to make needed repairs, or 
• Passes away. 

You, your spouse, or your estate would repay the loan. Sometimes that means selling the home to get money to repay the loan. In certain situations, a non-borrowing spouse may be able to remain in the home.

NO! Reverse mortgage payments aren't taxable. Reverse mortgage payments are loan proceeds, not income. The lender pays you, the borrower, loan proceeds while you continue to live in your home.

THE MORTGAGE PROCESS

Homeowners in their golden years looking to convert their equity into cash. A reverse mortgage is unique in that it pays the borrower for equity either in a lump sum or in monthly installments. You have options! Call today

Home equity refers to the value of the homeowner's interest in their home. In order to calculate home equity, we subtract any liens on the property from the current market value.

The amount of equity that can be pulled from a reverse mortgage depends on several factors such as the value of the home, the age of the borrower, and the current interest rates. Typically, the older the borrower is, the higher the percentage of the home's value they can access. The value of the home also plays a role in determining the amount of equity that can be pulled, as the lender will only lend up to a certain percentage of the home's value.

In general, borrowers can typically access between 40% and 65% of the home's value through a reverse mortgage. However, it's worth noting that this percentage can change depending on the lender and the specific loan product.

It's important to keep in mind that the equity that is pulled from a reverse mortgage will accrue interest over time, which can decrease the overall equity of the home. Therefore, it's essential to carefully consider the long-term implications of a reverse mortgage before making a decision.

DO NOT ORDER YOUR OWN APPRAISAL

If the loan balance is more than the home is worth, the estate or heirs may sell the property for at least 95 percent of the current appraised value and the lender will accept the net proceeds as the satisfaction of the loan.   

If the estate or heirs prefer to keep the home instead of selling it, the HECM loan balance must be paid in full 

Learn more, If you have inherited property secured by a HECM 

Yes, you keep the title to your home.

If you're interested in learning more about reverse mortgages and how they could work for you, The Gifford Group can help. We are a lender that specializes in reverse mortgages and can help you understand the process and whether it's the right choice for you. 

You can apply for a loan today at https://apply.zoomloanapp.com/home/scotty-gifford

In summary, a reverse mortgage can be a valuable tool for retirees or those on a fixed income looking to supplement their income, but it's important to weigh the pros and cons and consult with a financial advisor. 

If you're interested in learning more about reverse mortgages, the Gifford Group is here to help.

It's always recommended to consult with a financial advisor and a reverse mortgage specialist to understand how much equity you can pull from your reserve mortgage and whether it's the right choice for you.

Whether a reverse mortgage is right for you is a big question. Consider all your options. You may qualify for less expensive alternatives. You can learn more from the following organizations: 

U. S. Department of Housing and Urban Development (HUD) 

HECM Program 

1-800-CALL-FHA (1-800-225-5342) 

•  A 2016 survey funded by The MacArthur Foundation of 1,761 households also showed 83% of seniors were satisfied or highly satisfied with their reverse mortgage.  
•  A 2020 study by the Journal of Gerontology that surveyed 1,088 older adults found that seniors with reverse mortgages had higher housing and life satisfaction rates than seniors without them.  

With most reverse mortgages, you have at least three business days after closing to cancel the deal for any reason, without penalty. This is known as your right of “rescission.”

To cancel, you must notify the lender in writing. Send your letter by certified mail, and ask for a return receipt. Keep copies of your correspondence and any enclosures. After you cancel, the lender has 20 days to return any money you’ve paid for the financing.

The reverse mortgage should not be regarded as a niche product in theory. Older households are generally rich in home equity, but poor in financial assets, suggesting that accessing housing wealth could materially improve their quality of life. 

According to economic theory, households should accumulate wealth during their working years, then spend it down in retirement. A reverse mortgage is the only plausible way to access home equity without having to make regular payments while continuing to live there. Yet reverse mortgages haven't caught on yet-with less than 1% of eligible homeowners taking out a reverse mortgage. 

However, the percentage of households that would benefit from a reverse mortgage is a cause of debate: Some studies argue that just 10% of seniors would benefit, while others put this same number as high as 80%.  Read more from the Brooking Study yourself.  

Reverse mortgages can provide a supplemental stream of income for couples and divorced individuals in retirement.  

 Reverse mortgages can transform illiquid wealth into income for the many elderly households who lack financial assets but that have considerable value in the equity in their homes 

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You can reach both Scotty Gifford and Amber Gifford at The Gifford Group.net

https://thegiffordgroup.net/divorce-real-estate 

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