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REVERSE MORTGAGE BASICS

Reverse mortgages have been around since the late 1980’s. Almost all reverse mortgages are FHA insured and follow strict guidelines. The program was designed to keep seniors in their house as long as possible and to make the equity in the house available without selling it. There is a lot of mis-information on reverse mortgages. First, the lender does not take the house after a certain number of years. The lender may foreclose only if the borrower has moved out of the house, passed away, failed to pay taxes and insurance premiums, gone twelve consecutive months without living in the house, or has conveyed in interest in the property to another person or entity. (If there are two borrowers, both must move out of the house or pass away before a lender can foreclose).

FHA recently changed some of the guidelines for disbursing funds. Perhaps the most noticeable new rule is that the borrower may only receive sixty percent of the value of the house at closing in the first year of the reverse mortgage. After the first year, the rest of the funds may be accessed. FHA is currently proposing other changes, most notably that the borrower must be able to show an ability to pay the property taxes and insurance on the property.

A reverse mortgage closing is a little different than a forward mortgage. First, there will be two Promissory Notes and two Security Deeds. Unlike forward mortgages, lenders in a reverse mortgage must be able to make the payments or keep funds available in a line of credit for the borrower. If a lender fails and goes out of business, HUD steps in to make sure those funds will continue to be available to the borrower. The lender on the second Note and Security Deed is the Department of Housing and Urban Development because they will fulfill any of the lender’s obligations if the original lender is unable to. Second, the disclosures are much different because there are no payments being made by the borrower. Reverse mortgages may not be for everyone, but be sure to get information from credible sources prior to making a decision. The reverse mortgage might be an ideal solution for a lot of homeowners over the age of 62.

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