Use Your Home Equity With a Clear Understanding
A reverse mortgage allows an eligible homeowner to borrow against part of the equity in a primary residence while keeping title to the home.
The most common type is the FHA-insured Home Equity Conversion Mortgage, or HECM, generally available to eligible homeowners age 62 and older. Mortgage Pros Funding can help you understand how the program works, what it may cost, and how it could affect your home equity and long-term plans.
A reverse mortgage is a loan secured by your home. It is not a sale of the property, and the homeowner continues to hold title while the applicable loan requirements are met.
How a Reverse Mortgage May Work
Depending on the loan program, interest-rate structure, available proceeds, and borrower eligibility, reverse mortgage funds may be available through one or more disbursement methods.
Possible options may include:
- A lump-sum disbursement
- Scheduled monthly advances
- A line of credit
- A combination of available disbursement methods
- Payment of an existing eligible mortgage balance
Not every disbursement method is available with every loan structure. The amount and availability of proceeds depend on borrower, property, interest-rate, loan-balance, and program factors.
Monthly Payments, Loan Balance, and Equity
Monthly principal-and-interest payments are generally not required while the borrower continues to satisfy the loan’s occupancy and property obligations.
Interest, mortgage insurance, and financed fees are generally added to the loan balance. As a result, the amount owed usually increases over time, and the homeowner’s remaining equity may decrease.
The borrower continues to own the home and remains responsible for property taxes, homeowners insurance, maintenance, and applicable property charges.
General HECM Eligibility
Eligibility depends on the selected program, borrower circumstances, the property, and applicable lender requirements.
For an FHA-insured HECM, borrowers generally must:
- Be at least 62 years old
- Own the home outright or have sufficient available equity
- Occupy the property as their principal residence
- Complete counseling with a HUD-approved HECM counselor
- Meet the lender’s financial-assessment requirements
- Continue paying property taxes, homeowners insurance, and applicable property charges
- Maintain the property according to program requirements
The available loan amount depends on factors such as borrower age, property value, existing mortgage obligations, current interest rates, and applicable program limits.
Eligible Properties and Occupancy
A reverse mortgage is generally secured by an eligible primary residence. Property eligibility may depend on the property type, occupancy, appraised value, condition, title status, existing liens, and current FHA and lender requirements.
The property must generally remain the principal residence of an eligible borrower. A loan may become due if the borrower permanently leaves the home or if required occupancy or property obligations are not satisfied.
HUD-Approved Counseling
Before applying for an FHA-insured HECM, the borrower must generally complete counseling with an independent HUD-approved housing counselor.
The counseling session is designed to review:
- How the reverse mortgage works
- Estimated costs and available payment options
- Borrower responsibilities and repayment conditions
- Possible alternatives to a reverse mortgage
- The potential effect on the household, estate, and heirs
- Considerations involving an eligible or non-borrowing spouse
Counseling does not replace legal, tax, or financial advice. Borrowers may also wish to consult qualified independent advisers before proceeding.
What to Consider Before You Apply
A reverse mortgage may provide financial flexibility, but it also changes the loan balance and the amount of equity that may remain in the home.
Important considerations include:
- Interest and financed costs are added to the loan balance
- The amount owed generally increases over time
- Remaining home equity may decrease
- Property taxes and homeowners insurance remain the homeowner’s responsibility
- The property must be maintained according to program requirements
- The home must generally remain the borrower’s principal residence
- The loan may become due when occupancy or property obligations are no longer met
- A non-borrowing spouse may have different rights and protections
- Repayment may affect the borrower’s estate and heirs
- Other financing, housing, or equity-access alternatives should also be reviewed
When the Loan Becomes Due
The reverse mortgage generally becomes due when the last eligible borrower sells the home, permanently leaves it as a principal residence, or dies.
Subject to applicable requirements, heirs may be able to repay the balance, obtain financing to retain the property, sell the home, or pursue another available resolution. The available options and deadlines depend on the loan, property, estate, and program circumstances.
Preparing Your Reverse Mortgage Documentation
The lender will request documents needed to evaluate the borrower, property, title, existing mortgage obligations, and financial capacity to maintain required property charges.
Requested documentation may include:
- Government-issued identification and age verification
- Current mortgage statements and payoff information
- Property-tax and homeowners-insurance records
- Income, asset, debt, and expense documentation
- Property title and ownership information
- Homeowners-association information when applicable
- Trust, power-of-attorney, divorce, or estate documents when applicable
- The HUD-approved counseling certificate
Your loan professional will provide a transaction-specific document checklist. Additional documentation may be required based on the borrower, property, title, and selected program.
What to Expect During the Process
The reverse mortgage process generally includes:
- Reviewing your age, property, equity, existing mortgage, financial needs, and long-term plans
- Discussing available reverse mortgage options and possible alternatives
- Completing independent HUD-approved counseling
- Submitting the mortgage application and requested documentation
- Completing the lender’s financial assessment
- Ordering the property appraisal and completing any required property review
- Reviewing title, liens, insurance, taxes, and existing mortgage obligations
- Undergoing underwriting and satisfying approval conditions
- Reviewing final terms, costs, proceeds, and repayment conditions
- Completing closing and continuing to meet the loan’s occupancy and property requirements
Guidance From Initial Review to Closing
Mortgage Pros Funding will help you understand reverse mortgage requirements, review general program features, prepare the necessary documentation, and navigate each stage of the lending process.
Our team can also help you identify questions to discuss with your independent HUD-approved counselor, financial adviser, tax professional, or attorney before you make a final decision.