New England Properties

What Is A Reverse Mortgage? (Part 12)
A 12 Part Series 

Part 12 - Application Process for a Reverse Mortgage

The application process for a reverse mortgage takes about 30-45 days from start to finish, and includes a five step process: 

Step 1. Initial Application

The initial reverse mortgage application begins the process. However, the lender can not incur any costs on your behalf until the applicants have completed counseling (Step 2). The application is non-binding, and can be canceled at any time during the process. The initial application will specify the reverse mortgage loan amount, interest rate, and fees and closing costs.

Step 2. Reverse Mortgage Counseling

The applicants must attend counseling and obtain a signed Home Equity Conversion Mortgage (HECM) Counseling Certificate. This is proof that the applicant has completed the mandatory counseling session with a HUD-approved counseling agency. The counseling can be completed before or after the initial application in most states.

Step 3. Appraisal

Once the initial application is started and the applicants have completed counseling, the lender can order the appraisal. The appraisal establishes the current market value of the applicant's property. The reverse mortgage appraisal must be conducted by an FHA-approved appraiser, and it must follow a specific FHA format.

Step 4. Underwriting

Once the appraisal is done, the reverse mortgage application will be submitted to underwriting for review and approval. The lender will also confirm the applicant's legal ownership of the property by conducting a title search and purchasing title insurance. They will also work with the applicant to clear up any issues with trusts, unpaid liens against the title, bankruptcies, etc. Once the lender has finished underwriting and all outstanding issues (if any) have been resolved, a settlement date will be set.

Step 5. Closing or Settlement

The lender and the applicant set a closing date when a notary or attorney meets with the applicants to sign the final closing documents. This is the applicant's opportunity to review the closing documents to make sure that the interest rate, fees, and loan amounts are the expected amounts. Once signed, the application goes into a three-day "right of rescission" period. This means that even though the closing has taken place, the applicant can still cancel the application with no penalty anytime for up to 3 business days after settlement.

If the applicant does not cancel the application, the title company or attorney will issue a check to the homeowner (typically by overnight mail). If the applicant was using a reverse mortgage to pay off an existing mortgage, the title company will also send the mortgage payoff amount to the bank.

Part 1 - Definition of a Reverse Mortgage
Part 2 - Reverse Mortgage Eligibility Requirements
Part 3 - Myths and Frequently Asked Questions of Reverse Mortgages
Part 4 - Pros and Cons of a Reverse Mortgage
Part 5 - Reverse Mortgages, Income and Taxes
Part 6 - Outliving the Reverse Mortgage
Part 7 - Loan Limits and Distribution of Money of Reverse Mortgages
Part 8 - Using Reverse Mortgage to Purchase a Home
Part 9 - Reverse Mortgage Counseling
Part 10 - Fees for a Reverse Mortgage
Part 11 - Reverse Mortgage Interest Rates

If you're 62 or older and are looking for money to finance a home improvement, pay off your current mortgage, supplement your retirement income, to pay for healthcare expenses, or even to buy your retirement home, then consider getting a reverse mortgage. Find out how a reverse mortgage can use the equity in your home to pay you.

What Is A Reverse Mortgage? (Part 11)
A 12 Part Series 

Part 11 - Reverse Mortgage Interest Rates

Adjustable Rate Reverse Mortgage

Adjustable rate reverse mortgages have interest rates that increase or decrease as a market interest rate index changes. The two indexes that are used to determine the variable interest rates on reverse mortgages are the LIBOR (London Inter-bank Offering Rate) and CMT (Constant Maturity Treasury).

• CMT - CMT stands for "Constant Maturity Treasury". This is more commonly known as a the "Treasury Bill" or "T-Bill" yield curve rates.
  
  
• LIBOR - LIBOR stands for "London Inter-Bank Offered Rate". The LIBOR is a popular alternative to the CMT for lenders because it is an international index rate instead of being a US-focused index. The LIBOR is the most commonly used benchmark of interest rate indexes to make adjustments to adjustable rate mortgages.

Interest Rate Calculation

The total interest rate for an adjustable rate reverse mortgage is calculated by adding the interest rate index and a margin that is set by the lender. For example, a HECM CMT 300 refers to the Home Equity Conversion Mortgage (reverse mortgage) program that uses the CMT index and a margin of 300. If the CMT index is 2.10%, then the total rate is 2.10% plus the 3.00% margin set by the lender which equals an interest rate of 5.10%.

Fixed Rate Reverse Mortgage

The fixed rate programs are specific to each lender and are not indexed to published interest rates or indices. To get the currently available fixed rate, a reverse mortgage lender must prepare a good faith estimate.

Next: Part 12 - Application Process for a Reverse Mortgage
 

Part 1 - Definition of a Reverse Mortgage
Part 2 - Reverse Mortgage Eligibility Requirements
Part 3 - Myths and Frequently Asked Questions of Reverse Mortgages
Part 4 - Pros and Cons of a Reverse Mortgage
Part 5 - Reverse Mortgages, Income and Taxes
Part 6 - Outliving the Reverse Mortgage
Part 7 - Loan Limits and Distribution of Money of Reverse Mortgages
Part 8 - Using Reverse Mortgage to Purchase a Home
Part 9 - Reverse Mortgage Counseling
Part 10 - Fees for a Reverse Mortgage

If you're 62 or older and are looking for money to finance a home improvement, pay off your current mortgage, supplement your retirement income, to pay for healthcare expenses, or even to buy your retirement home, then consider getting a reverse mortgage. Find out how a reverse mortgage can use the equity in your home to pay you.

What Is A Reverse Mortgage? (Part 10)
A 12 Part Series 

Part 10 - Fees for a Reverse Mortgage

Closing Costs

The three largest closing costs in a reverse mortgage are the FHA upfront mortgage insurance premium, the origination fee, and title insurance. The two costs that are typically paid out of pocket are the appraisal and counseling.

FHA Mortgage Insurance

The upfront mortgage insurance premium is 2% of the maximum mortgage amount up to the HUD limit in the county the home is located in. The FHA insurance provides three guarantees:

• The homeowner can not "outlive" the reverse mortgage
• The homeowner and heirs will not be liable for the balance of the loan if the remaining balance exceeds the value of the home (a reverse mortgage can not become "upside-down")
• The FHA will take over the loan if the lender becomes financial troubled or if the loan balance exceeds 97.75% of the value of the property

Origination Fee

The origination fee is what the reverse mortgage lender earns on the loan. The FHA uses a formula to determine what the lender can charge. The formula is:

• 2% of the first $200,000 of property value and 1% of the second $200,000 of property value
• A minimum of $2,500
• An maximum of $6,000

Title Fees

Title insurance guarantees the homeowner's legal ownership of the property, and is required for all mortgages whether reverse or conventional. The largest part of title fees is title insurance. Title fees are usually broken down into:

• Title insurance (varies by state and with property value)
• Title search/exam
• Title settlement
• Notary fee
• Document preparation fee
• Recording of new mortgage
• Payoff (if a mortgage is being paid off)
• Delivery/courier fee

Appraisal

The appraisal establishes the current market value of the home. A reverse mortgage appraisal is conducted by an FHA-approved appraiser, and follows specific FHA guidelines that require more documentation than a typical appraisal. A typical FHA appraisal could cost as much as $475-$550 depending on the state. Remote locations and properties with unique circumstances (such as having extensive damage) tend to cost more.

Other Closing Costs

• HECM (Home Equity Conversion Mortgage or Reverse Mortgage) Counseling
• Wire Transfer Fee
• Flood Certification Fee
• Credit Report Fee

Interest

A reverse mortgage accrues interest -just like a traditional mortgage. However, with a reverse mortgage, the homeowner does not make monthly mortgage payments to reduce the loan balance. As a result, the loan balance grows until such time the mortgage is paid off when the property is sold or refinanced.

About two-thirds of reverse mortgage holders have adjustable rate reverse mortgages because the rate is usually lower than a fixed rate. And because the homeowners do not make monthly mortgage payments, they are not usually as concerned about possible future changes in the interest rate.

Interest Rate and Mortgage Insurance

Over the last few years, the interest rate on a reverse mortgage has fluctuated between 3% and 5%. The real interest rate is one half of a percentage point above the quoted rate, because the total rate includes the FHA's ongoing mortgage insurance premium. For example, if the quoted rate is 4.1%, the rate with the mortgage insurance premium is 4.6%.

Next: Part 11 - Reverse Mortgage Interest Rates
 

Part 1 - Definition of a Reverse Mortgage
Part 2 - Reverse Mortgage Eligibility Requirements
Part 3 - Myths and Frequently Asked Questions of Reverse Mortgages
Part 4 - Pros and Cons of a Reverse Mortgage
Part 5 - Reverse Mortgages, Income and Taxes
Part 6 - Outliving the Reverse Mortgage
Part 7 - Loan Limits and Distribution of Money of Reverse Mortgages
Part 8 - Using Reverse Mortgage to Purchase a Home
Part 9 - Reverse Mortgage Counseling

If you're 62 or older and are looking for money to finance a home improvement, pay off your current mortgage, supplement your retirement income, to pay for healthcare expenses, or even to buy your retirement home, then consider getting a reverse mortgage. Find out how a reverse mortgage can use the equity in your home to pay you.

What Is A Reverse Mortgage? (Part 9)
A 12 Part Series 

Part 9 - Reverse Mortgage Counseling

Your home is probably the largest single investment you've made in your lifetime. Thus, it's smart to know more about reverse mortgages and decide if one is right for you!

Housing counselors around the country are HUD certified to give homeowners impartial education about reverse mortgages. Reverse mortgage counseling is a mandatory part of the reverse mortgage application process, and is typically completed just before or after completing an application for a reverse mortgage.

Reverse mortgage counseling can be done over the phone with one of the national counseling agencies, or it can be done face-to-face with a regional agency. After the counseling session, the counselor will mail a signed copy of the HECM Counseling Certificate to the homeowner. This certificate must be presented at the time of application for a reverse mortgage. Lenders can not take your application for a reverse mortgage without the HECM Counseling Certificate.

The cost of the counseling is $125. Lenders are not permitted to pay this fee for applicants. Homeowners can also contact the counseling agency to request a "hardship" approval to pay a reduced fee. The fee can be reimbursed to the applicant at settlement.

Next: Part 10 - Reverse Mortgage Fees

Part 1 - Definition of a Reverse Mortgage
Part 2 - Reverse Mortgage Eligibility Requirements
Part 3 - Myths and Frequently Asked Questions of Reverse Mortgages
Part 4 - Pros and Cons of a Reverse Mortgage
Part 5 - Reverse Mortgages, Income and Taxes
Part 6 - Outliving the Reverse Mortgage
Part 7 - Loan Limits and Distribution of Money of Reverse Mortgages
Part 8 - Using Reverse Mortgage to Purchase a Home 

If you're 62 or older and are looking for money to finance a home improvement, pay off your current mortgage, supplement your retirement income, to pay for healthcare expenses, or even to buy your retirement home, then consider getting a reverse mortgage. Find out how a reverse mortgage can use the equity in your home to pay you.

What Is A Reverse Mortgage? (Part 8)
A 12 Part Series

Part 8 - Using Reverse Mortgage to Purchase a Home 

Reverse mortgages are now available to Seniors who would like to buy a new home. Under HUD's "HECM for Purchase Program," Seniors can use a reverse mortgage to buy a home if:

• The youngest homeowner is age 62 or older
• The purchased home will be their primary residence
• The purchased home will be occupied within 60 days of closing
• No mortgage loan other than the reverse mortgage can be used to buy the purchased home
• The difference between the purchase price of the home and the reverse mortgage proceeds must be paid in cash or from the sale of an existing home

Definition 

HUD's formal definition of the program, from the HUD Mortgagee Letter on October 10, 2008, is:

"The HECM for Purchase is a real estate purchase where title to the property is transferred to the HECM mortgagor, which the mortgagor will occupy as a principal residence, and, at the time of closing, the HECM first and second liens will be the only liens against the property. HECM mortgagors must occupy the property within 60 days from the date of closing. Lenders are required to ensure all outstanding or unpaid obligations incurred by the prospective mortgagor, in connection with the HECM transaction, are satisfied at closing."

Example A (Selling an Existing Home) 

• Bob Jones is 62 years of age and currently lives in a Chicago, IL, in a home that he has lived in for 10 years. The home was recently sold for $250,000. He still owes $50,000 on his 30-year mortgage, so he has $200,000 in home equity.
• Bob wants to move to Tampa, FL, and has found a home that is for sale for $300,000.
• If Bob applies the $200,000 from the proceeds of the sale of his home in Chicago to buy the $300,000 Tampa property, he will be short $100,000. So he decides to use a "HECM for Purchase Mortgage" (reverse mortgage) to make up the $100,000 difference.
• At age 62, Bob is eligible to borrow approximately $165,000 on the $300,000 Tampa property with the HECM 250 program.
• Bob buys the Tampa property using $200,000 from the sale of his Chicago home and by borrowing $100,000 from the HECM for Purchase Program  (reverse mortgage), and keeps $65,000 left over in the reverse mortgage credit line.
• Bob now owns his $300,000 home and has no mortgage payments.

Example B (Paying Cash)

• Mary Smith is 70 and lives in St. Paul, MN. She is currently renting but wants to buy a new home. She has saved up $100,000 towards buying her new home.
• The house Mary wants to buy is on the market for $250,000, so Mary is short $150,000.
• Mary decides to take out a HECM for Purchase mortgage (reverse mortgage). At her age, she can borrow approximately $150,000 on a $250,000 home.
• Taking the full $150,000 from the HECM for Purchase program and $100,000 from her savings, Mary is able to buy the home.
• Mary now owns her $250,000 home and has no mortgage payments.

Qualifications

Special restrictions:

If the homeowner is using cash (instead of using the proceeds from the sale of an existing home) to make up the difference, that cash must be "seasoned" ("in the bank") for at least 60 days.

• Cash from a gift is not acceptable.
• To prove that the homeowner has "eligible funds" for the closing, any of the following documents can be provided:
  • Letter of Verification of Deposit from the bank
  • Proof of liquidation of retirement assets
  • Deed of sale
  • HUD1 statement from the sale of the previous home

The property being financed with a reverse mortgage must be the primary residence, and may be a:

• Single family residence, or may be a 2-, 3-, or 4-Unit home,
• Townhouse, or a
• Condominium

The home must be fully completed (with certificate of occupancy or equivalent). Land contracts are acceptable.

The following types of properties are ineligible for a reverse mortgage:

• Cooperatives
• Homes without a Certificate of Occupancy or its equivalent
• Boarding houses
• Bed and breakfast establishments
• Existing manufactured homes built before June 15, 1976
• Existing manufactured homes built after June 15, 1976 that fail to conform to the manufactured home construction safety standards or lack a permanent foundation

What if the home needs repairs? Most repairs aren't critical, but major ones have to be taken care of before the transaction can close:

• Critical health and safety and structural integrity issues must be repaired
• Repairs must be completed by the seller prior to closing
• The buyer can not pay for any repairs before they own the home
• The repairs must be included in the purchase agreement

Costs

With a HECM for Purchase, all of the normal costs associated with selling and buying homes are applicable as well as the normal reverse mortgage fees.

Next: Part 9 - Reverse Mortgage Counseling 
 

Part 1 - Definition of a Reverse Mortgage
Part 2 - Reverse Mortgage Eligibility Requirements
Part 3 - Myths and Frequently Asked Questions of Reverse Mortgages
Part 4 - Pros and Cons of a Reverse Mortgage
Part 5 - Reverse Mortgages, Income and Taxes
Part 6 - Outliving the Reverse Mortgage
Part 7 - Loan Limits and Distribution of Money of Reverse Mortgages 

If you're 62 or older and are looking for money to finance a home improvement, pay off your current mortgage, supplement your retirement income, to pay for healthcare expenses, or even to buy your retirement home, then consider getting a reverse mortgage. Find out how a reverse mortgage can use the equity in your home to pay you.

What Is A Reverse Mortgage? (Part 7)
A 12 Part Series

Part 7 - Loan Limits and Distribution of Money of Reverse Mortgages

The maximum loan amount that is available through a reverse mortgage depends on five factors: 

• the age(s) of the homeowner(s) - the older, the better;
• the current interest rate - the lower, the better;
• the appraised value of the home - the higher, the better;
• the remaining mortgage balance (if any) - the lower, the better; and
• location - which you can't do anything about.

Distribution of Money from a Reverse Mortgage

There are several ways to homeowners can receive the proceeds of a reverse mortgage. Homeowners can mix and match as needed.

You have five options:

• Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
• Term - equal monthly payments for a fixed period of months selected.
• Line of Credit - unscheduled payments or installments at times and in amounts of your choosing until the line of credit is exhausted.
• Modified Tenure - combination of line of credit with monthly payments for as long as you remain in the home.
• Modified Term - combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.

Next - Part 8 - Using a Reverse Mortgage to Purchase a Home

Part 1 - Definition of a Reverse Mortgage
Part 2 - Reverse Mortgage Eligibility Requirements
Part 3 - Myths and Frequently Asked Questions of Reverse Mortgages
Part 4 - Pros and Cons of a Reverse Mortgage
Part 5 - Reverse Mortgages, Income and Taxes
Part 6 - Outliving the Reverse Mortgage

If you're 62 or older and are looking for money to finance a home improvement, pay off your current mortgage, supplement your retirement income, to pay for healthcare expenses, or even to buy your retirement home, then consider getting a reverse mortgage. Find out how a reverse mortgage can use the equity in your home to pay you.

What Is A Reverse Mortgage? (Part 6)
A 12 Part Series

Part 6 - Outliving the Reverse Mortgage

A reverse mortgage can not be outlived. As long as at least one homeowner lives in the home and keeps property taxes and homeowner's insurance current, the loan does not need to be repaid. In addition, because of the FHA insurance, no one will ever owe more than the home's value. A reverse mortgage can not become "upside down".

Reverse Mortgages and Heir Inheritance

A common concern for homeowners considering a reverse mortgage is making sure that their heirs not be saddled with debt and will inherit the home. 

In the event of death of the homeowner or in the event that the home ceases to be the primary residence, the homeowner's estate can choose to convert the reverse mortgage into a traditional mortgage to keep the house. Otherwise, the estate can sell the home, pay the balance due of the reverse mortgage, and keep the remainder of the home's value.

If the equity in the home is worth more than the balance of the loan, the remaining equity belongs to the heirs. No other assets are affected by a reverse mortgage. For example, investments, second homes, cars, and other valuable possessions cannot be taken from the estate to pay off the reverse mortgage.

If the sale of the home is not enough to pay off the reverse mortgage, the lender must take a loss and request reimbursement from the FHA.

The estate has six months to arrange the sale or refinance of the home. An extension to one year can also be requested.

For example:

A $200,000 home is inherited by the estate with a $125,000 reverse mortgage balance.

• The heirs decide not to keep the home - The heirs sell the home for $200,000, pay the lender $125,000, and keep $75,000.
  
  
• When the balance of the reverse mortgage is more than the home is worth - The estate has no obligation. The home can be turned over to the lender who will sell the home to repay as much of the balance as possible. Or, the heirs can refinance the reverse mortgage into a traditional mortgage and keep the home.

Next: Part 7 - Loan Limits and Distribution of Money of Reverse Mortgages
 

Part 1 - Definition of a Reverse Mortgage
Part 2 - Reverse Mortgage Eligibility Requirements
Part 3 - Myths and Frequently Asked Questions of Reverse Mortgages
Part 4 - Pros and Cons of a Reverse Mortgage
Part 5 - Reverse Mortgages, Income and Taxes 

If you're 62 or older and are looking for money to finance a home improvement, pay off your current mortgage, supplement your retirement income, to pay for healthcare expenses, or even to buy your retirement home, then consider getting a reverse mortgage. Find out how a reverse mortgage can use the equity in your home to pay you.

What Is A Reverse Mortgage? (Part 5)
A 12 Part Series

Part 5 - Reverse Mortgages, Income and Taxes

Effects on Income

A reverse mortgage is a loan against your home, not income. Therefore, the funds received are not subject to income tax and do not affect Social Security benefits. The IRS does not consider the proceeds from a reverse mortgage to be taxable income. In addition, reverse mortgages have no income restrictions.

Tax Deductions

The interest paid on a reverse mortgage is tax deductible. However, the tax deduction can only be claimed in the year in which the interest is repaid. As a result, the size of the potential tax deduction builds up until the year when the reverse mortgage is repaid by the homeowner or their estate.

Payment of Property Taxes

A reverse mortgage does not affect on the homeowner's obligations to stay current on property taxes, homeowner's insurance, etc. Consequently, the homeowner must continue to pay these costs separately.

Next: Part 6 - Outliving the Reverse Mortgage 

Part 1 - Definition of a Reverse Mortgage
Part 2 - Reverse Mortgage Eligibility Requirements
Part 3 - Myths and Frequently Asked Questions of Reverse Mortgages
Part 4 - Pros and Cons of a Reverse Mortgage 

If you're 62 or older and are looking for money to finance a home improvement, pay off your current mortgage, supplement your retirement income, to pay for healthcare expenses, or even to buy your retirement home, then consider getting a reverse mortgage. Find out how a reverse mortgage can use the equity in your home to pay you.

What Is A Reverse Mortgage? (Part 4)
A 12 Part Series

Part 4 - Pros and Cons of a Reverse Mortgage

Why Should You Consider a Reverse Mortgage

• Allows the homeowners to stay in their home permanently.
• Pays off existing mortgages on the home.
• Simple to qualify for because credit scores and income are not considered.
• No monthly payments are due for as long as the homeowner lives in the home.
• The homeowner receives payments on flexible terms:
  • Credit line for emergencies
  • Monthly income
  • Lump sum distribution
  • Any combination of the above
• A reverse mortgage can not get "upside down" so the heirs will never owe more than the home is worth.
• Heirs inherit the home and keep the remaining equity after the balance of the reverse mortgage is paid off.
• Proceeds are not taxable.
• The interest rate is lower than traditional mortgages and home equity loans.  

Reasons Why You Shouldn't Do a Reverse Mortgage

The fees on a reverse mortgage are the same as a traditional FHA mortgage. But, the fees are higher than a conventional mortgage because of the insurance premium. The largest costs are:

• Upfront FHA Mortgage Insurance Premium of 2% of the maximum loan amount
• Origination fee - 2% of the first $200,000, then 1% of the remaining maximum mortgage amount, with a minimum of $2,500 but not to exceed $6,000
• Although Social Security and Medicare are not affected, Medicaid and other needs-based government assistance can be affected if too much funds are withdrawn (and not spent) in one month.
• Counseling. The program is not well understood by most individuals, and all borrowers must get counseling on reverse mortgages. However, independent reverse mortgage counseling is readily available.

Next: Part 5 - Reverse Mortgages, Income and Taxes
  

Part 1 - Definition of a Reverse Mortgage
Part 2 - Reverse Mortgage Eligibility Requirements
Part 3 - Myths and Frequently Asked Questions of Reverse Mortgages
 

If you're 62 or older and are looking for money to finance a home improvement, pay off your current mortgage, supplement your retirement income, to pay for healthcare expenses, or even to buy your retirement home, then consider getting a reverse mortgage. Find out how a reverse mortgage can use the equity in your home to pay you.

What Is A Reverse Mortgage? (Part 3)
A 12 Part Series

• A reverse mortgage sells the home to the bank
  
  False. With a reverse mortgage, the homeowners keep the home in their names. The lender adds a mortgage lien against the property for the amount that is borrowed so that the lender will eventually get paid back when the property is sold. 
  
  
• Heirs will not inherit the home
  
  False. The estate inherits the home upon your death. There will be a lien on the title for the balance due of the reverse mortgage. The balance owed is whatever proceeds were distributed through the reverse mortgage plus interest.
  
  A reverse mortgage is a "non-recourse" loan which means the only asset guaranteeing the loan is the property itself. The repayment amount cannot exceed the value of the borrower's home at the time the loan is repaid. If the property value is less than the balance of the reverse mortgage, the lender can not request other assets from the estate for the balance owed. Instead, the lender makes an insurance claim to the FHA for the balance due.
  
  For example, let's assume someone takes out a reverse mortgage and owes $50,000 after 5 years. The homeowner then passes away, and the estate sells the house for $250,000. The lender gets $50,000 and the estate inherits $200,000.
  
  
• The homeowner could be forced out of the home
  
  False. Borrowers who take out a reverse mortgage will still own and continue to live in their own home. The FHA reverse mortgage was created to allow seniors to keep and live in their own homes for the remainder of their lives. Because the homeowner receives payments from a reverse mortgage instead of making payments to a lender, the homeowner can never be foreclosed on or evicted for non-payment.
  
  
• Someone can outlive a reverse mortgage
  
  False. The reverse mortgage becomes due when all homeowners have permanently moved out of the property or passed away. There is no time limit.
  
  
• Social Security and Medicare will be affected 
  
  False. Because a reverse mortgage is not considered income, government entitlement programs such as Social Security and Medicare are not affected. However, need-based programs such as Medicaid can be affected.
  
  Payments from a reverse mortgage may be counted as income for purposes of Medicaid whether or not they are spent within the month they are received. This shouldn't be treated as income because a reverse mortgage simply withdraws equity from your home. But the state may view it differently because the funds come in a regular monthly check. To remain eligible for Medicaid, the homeowner needs to manage how much is withdrawn from the reverse mortgage each month to ensure they do not exceed the Medicaid limits.
  
  You should consult with an elder lawyer in your state if you have any concern about how a reverse mortgage will affect your eligibility for federal benefits.
  
  
• The homeowner pays taxes on a reverse mortgage
  
  False. The proceeds from a reverse mortgage are paid from the equity in your home. It is not considered income and, therefore, is not taxable. Furthermore, the interest on reverse mortgage is tax deductible when it is repaid.
  
  
• There are large out-of-pocket expenses
  
  False. Typically, the only out-of-pocket expenses are the cost of the counseling and the appraisal. If requested, many lenders will allow you to finance these costs into the loan, but you will still be required to pay them upfront.
  
  
• A reverse mortgage is similar to a home equity loan
  
  False. The only similarity between a reverse mortgage and a home equity loan is that both use the home's equity as collateral. The differences are as follows:
  
  
  • Any homeowner can apply for a home equity loan. All homeowners on title must be at least 62 years of age to apply for a reverse mortgage.
  • A home equity loan must be repaid in monthly payments over a period of time. A reverse mortgage is not paid back until the homeowner moves out of the property or passes away
  • A home equity loan requires stable income and a solid credit score. A reverse mortgage does not consider income or credit.
  • A home equity loan charges no closing costs but has a higher interest rate over the life of the loan. A reverse mortgage charges upfront closing costs but has lower interest over the course of the loan.

 
Frequently Asked Questions about Reverse Mortgages: 

• Q. If a homeowner is not 62, but they are on permanent disability. Can they qualify?
  
  A. No. The FHA only looks at the person's age to determine eligibility for a reverse mortgage. There are no exceptions for disability or Social Security status.
  
  
• Q. Can someone qualify if they have a mortgage?
  
  A. Yes. More than half of people who take out a reverse mortgage use it to pay off their existing mortgage so they can stop making monthly payments.
  
  
• Q. Do all 62-year olds who own their home qualify?
  
  A. No. About one-third of homeowners who want to get a reverse mortgage are not eligible because they don't have enough equity built up in their home. The younger the homeowner is, the more equity they need to have to qualify.
  
  
• Q. Can I apply if I didn't buy my present house with FHA mortgage insurance?
  
  A. Yes. It doesn't matter what type of mortgage you currently have. It will be paid off with the refinance. Your new mortgage will be an FHA-insured Home Equity Conversion Mortgage (HECM) - also known as a reverse mortgage.
  
  
• Q. What happens if there isn't enough home equity to qualify?
  
  A. This is called a "shortfall." This means that the reverse mortgage would not provide enough money to pay off the existing mortgage on the home - it is coming up "short." In this situation, some homeowners chose to make up the difference by paying down the balance on their mortgage by the amount of the shortfall so that they can qualify for the reverse mortgage. However, most people who want a reverse mortgage and have a shortfall don't have enough money to do this.
  
  
• Q. Can the lender take my home away if I outlive the loan?
  
  A. No. You do not need to repay the loan as long as you and/or any of the borrowers continue to live in the house and keep the taxes and insurance current. You can never owe more than the value of your home at the time you or your heirs sell the home. 

Next: Part 4 - Pros and Cons of a Reverse Mortgage
 

Part 1 - Definition of a Reverse Mortgage
Part 2 - Reverse Mortgage Eligibility Requirements

If you're 62 or older and are looking for money to finance a home improvement, pay off your current mortgage, supplement your retirement income, to pay for healthcare expenses, or even to buy your retirement home, then consider getting a reverse mortgage. Find out how a reverse mortgage can use the equity in your home to pay you.