What is a Reverse Mortgage? Explained in Simple Terms!

July 20, 2019 By Michael G. Branson 64 comments

A reverse mortgage is a loan for homeowners age 62 and older that requires no monthly mortgage payments. The loan is repaid when the borrower passes away, leaves the home permanently or sells. Funds available are distributed as a lump sum, line of credit or structured monthly payments.

What it is:

A loan against your home’s equity
A loan with no required monthly mortgage payments
A loan designed to meet the needs of retirees on fixed incomes
Tax-free cash for virtually anything (social security income supplement, long-term care payment, house repairs or even vacations)

What it’s NOT:

Selling your home to the bank
Relinquishing title or ownership rights
Right for everyone

The most common type of reverse mortgage is the Home Equity Conversion Mortgage, or HECM, a program the Federal Housing Administration created in 1988. While a traditional home mortgage requires that you make scheduled monthly payments over a specified term — usually 30 years — reverse mortgage interest is not paid by the borrower until the loan reaches maturity.

The bank does not own your home, You do.

With a reverse mortgage, you continue to own your home just as before. Like any mortgage, you will receive a monthly statement outlining all interest charges and balance information. You will continue to pay your property taxes and homeowners insurance. The only difference will be the absence of a coupon to return your monthly payment. Why? Because no payment is necessary.

At any time, you are welcome to repay the interest charges partially or in full without penalty.

You’re in the driver’s seat.

Some believe that once you get a reverse mortgage the bank will eat all the home’s equity, leaving your heirs with nothing but a mound of debt. This is dead Wrong.

While no one can predict your home’s appreciation, you can rest assured that the loan has no recourse other than the property and therefore no matter what property values do, the only recourse the lender has is the property on which you secured the loan. In other words, the lender can look to no other asset of yours and nothing belonging to any family member for repayment of the debt and so you can leave no debt to your estate or any family members that will not be settled with the house.

You can choose to make voluntary repayments of the mortgage interest in part or full without penalty. That’s right: if you want to, you can repay your reverse mortgage loan as you go or any time you choose. You can also deduct the interest just as you would a traditional home loan (but only as paid and subject to tax laws so consult your tax professional), and you can pay off the entire loan at any time with cash, by refinancing with another loan refinancing or selling the home – and never owe a prepayment penalty.

Qualifications

With Financial Assessment, HUD began underwriting borrower credit and income to see that reverse mortgage borrowers do have the willingness and ability to pay their taxes, insurance and have enough money to live every month. HUD requires borrowers to have a small residual income available to them after all property charges are considered. Residual income is the amount of money the borrower(s) have left each month after all debts and property charges are paid.

Debts are actual obligations such as installment and revolving charges and property charges are your taxes, insurance, association dues (if any) and a .14 cents per square foot allowance that HUD uses to cover all utilities, etc. (this per square foot charge may change in the future to actual cost).

Required HUD counseling

The Federal Housing Administration wants you to fully understand the reverse mortgage and requires all applicants to receive independent third-party counseling by phone or in person. Once you’ve received the counseling, you will receive a certificate of completion which is then signed and delivered to your lender of choice.

Important Questions & Considerations

How much can you get?

2019 Update: Reverse mortgages are available to all U.S. citizens and Permanent Residents age 62 or older with substantial equity in their home. The maximum loan amount you may qualify for is based on the youngest homeowner’s age, 2019 interest rates, and home value. Because this is a loan based on life expectancy, the amount of money you may borrow starts at roughly 45% of your home value at age 62 and increases slightly for older homeowners.If your home value is $726,525 or less, the federally insured-HECM will likely meet your needs. If your home value exceeds the national 2019 lending limit of $726,525 you will generally receive a larger benefit/payout on our new Jumbo Reverse Mortgages.

Is a reverse mortgage right for you?

Anyone who has desires or needs that cannot be met with their current income levels might be right for a reverse mortgage. It is a great tool to help you stay in the home you love or to simply enhance your retirement years.

Who is it NOT for?

Because there are typical costs associated with setting up a reverse mortgage, (appraisal and origination charges), the loans are not recommended for homeowners who plan to move within a few years — such as people who might require imminent care in a nursing home or inpatient facility — as they won’t be able to fully realize the benefits of the loan.

Can I prepay the loan without Penalty?

Yes! You can choose to pay the loan in full or in part at any time though without penalty. There is never a prepayment penalty with a reverse mortgage.Unless you repay your mortgage voluntarily as you go, your loan is not due until the last surviving spouse passes away or until that borrower no longer occupies the property as their primary residence. Your heirs will have ample time (up to 12 months) to complete a sale or refinance the transaction to repay the balance of the loan.

If your heirs choose not to act (that is, they do not move to repay the loan or sell the property), the reverse mortgage lender will have no choice but to foreclose on the home. If the sale of the property does not yield enough funds to pay off the balance of the loan, the government insurance that you would have paid for as part of closing your reverse mortgage loan will ensure that there is never any recourse against any other assets owned by you, your heirs or your estate. The lender will be reimbursed for any shortfall from the mortgage insurance fund and your estate and heirs will owe nothing.

What about income taxes?

The reverse mortgage is a loan just like any other loan. Therefore, loan funds received are not typically taxable on, but you must verify this for your circumstances with your tax professional.

Will it affect Social Security or Medicare?

Even though reverse mortgages do not affect public benefits such as Social Security and Medicare, the cash proceeds can impact eligibility for those who are receiving “needs-based” state or local assistance. This is not specific to a reverse mortgage, as any excess funds can change the qualifications on these types of programs.

What are the qualifications?

In 2014, the FHA introduced “Financial Assessment” to the reverse mortgage program, which requires lenders to check a borrower’s ability to repay their ongoing obligations, such as property taxes and homeowners insurance. If within the past 24 months you have had no serious late payments on property charges or other consumer credit and make enough income to reasonably maintain your taxes and insurance, you should not have a problem qualifying for a reverse mortgage.

Summary:

A reverse mortgage is a loan against your home that requires no monthly mortgage payments.
You’ll need roughly 50% equity in your home to be eligible.
Since no monthly mortgage payments are required income and credit requirements are relaxed.
The loan can be repaid at any time voluntarily (without penalty) or by the sale of your home.
Any remaining equity belongs to your heirs but if the home is upside down there is no recourse to your family.

How can you get started?

Like any mortgage, you’ll benefit, but it pays to shopping around. Compare offers from both banks and brokers alike and don’t be fooled by the common sales pitches that, “They’re all the same” or, “We service our own loans.”

If you’re not quite ready for this step, we recommend you request your proposal package, which will include our professional presentation including your personal loan details, our expert recommendations and important pre-counseling documents. The fact of the matter is there is only one federally insured HECM. So, don’t settle for less money or higher interest charges.

We’re here to answer your questions! If you’d like to know what a reverse mortgage can do for you, call our experts Toll Free (800) 565-1722 or try ARLO – our revolutionary calculator to compare your loan options and personal recommendations.

A few more articles we think you’ll find helpful:

Post Tags: reverse mortgage explained what is a reverse mortgage

About the Author, Michael G. Branson

Michael G. Branson (CEO All Reverse Mortgage Inc. and moderator of ARLO™) has 40 years of experience in the mortgage banking industry and has devoted the past 14 years to reverse mortgages exclusively. Michael G. Branson was part of the team that introduced the first fixed-rate jumbo reverse mortgage to market, which was sold to a private investor in 2007.

64 Comments on this Article

I'm ARLO™ and I love responding to your questions and comments. Let's talk!

Catherine A
September 10th, 2019

Can I use my home for collateral if I have a reverse mortgage?
Reply to Catherine
- ARLO™
  September 10th, 2019
  
  Hello Catherine,
  
  I assume you mean use your home for collateral for another loan or lien? And the answer to that question is entirely up to the other party from whom you wish to borrow.
  Nothing in the reverse mortgage prohibits you from taking out additional mortgages however, because the balance of the loan goes up as borrowers accrue interest and do not make payments, and because the amount available grows over time on the unused portion of the line, many other lenders are hesitant to loan behind a reverse mortgage simply because they do not know how high the balance or available line of credit could grow.
  If you do have a lender who is willing to lend behind the reverse mortgage though, there is no problem with the reverse mortgage under those circumstances.
  Reply to ARLO
Debra
August 25th, 2019

I have "right of estate" in a home left to me and my siblings by my mother's trust. I am 64, currently living in that home and don't plan to leave. Of my 4 siblings, 1 is still living. My home is old and needs many repairs. How is the fact that I share ownership with living and nonliving siblings impact my ability to obtain a Reverse Mortgage? I assume I am only eligible for a portion of the home's value.
Reply to Debra
- ARLO™
  August 25th, 2019
  
  If there are other owners, they would have to also go through the required counseling and agree to the loan. They would not be borrowers though and when you no longer occupy the home as your primary residence, the loan would become due and payable. The other owners would have to refinance the loan at that time or sell the property.
  Reply to ARLO
Nancy R.
July 21st, 2019

Can I qualify for a reverse mortgage on my home that is paid for if my name is also on my daughters mortgage?
Reply to Nancy
- ARLO™
  July 21st, 2019
  
  Hello Nancy,
  
  The simple answer to this is yes, but you must qualify with the additional obligation. If you signed on the loan for another person, in this case for your daughter's mortgage, you are legally obligated to make that payment if she does not.
  Therefore, under residual income requirements, this payment amount will also be considered when determining your ability to qualify for the reverse mortgage. Even if your daughter has been making the payments, you are obligated to make them if she ever doesn't and so HUD includes them in your monthly obligations calculations.
  
  So when you ask can you qualify, yes you can. The fact that you co-signed the loan does not in and of itself disqualify you for the reverse mortgage if you are living in your property as your primary residence and meet all of HUD's other requirements. But just know that if the payment amount itself disqualifies you, that is a different issue.
  Borrowers need to know that when they sign on a loan for a family member or friend, they are promising to also make those payments if needed and that can affect their ability to obtain other credit later. If you don't qualify with the payment on that other property, perhaps your daughter can qualify for a refinance loan on her home on her own now and could refinance that loan in her name alone?
  It might even work to her benefit if the rate or terms are better now than when she purchased. If she has owned the home for more than a couple years, there is a good chance she has built up some equity and it might be worth looking into if needed.
  Reply to ARLO
Pamela L.
June 17th, 2019

My house is paid for but I have a slow pay on the mortgage from 2 years ago. Will I qualify?
Reply to Pamela
- ARLO™
  June 17th, 2019
  
  Hello Pamela,
  
  Ordinarily, any delinquencies from the past 24 months on the property obligations (mortgage, taxes, insurance, HOA if any), would require you to have a Life Expectancy Set Aside (LESA) to pay the taxes and insurance. If there was just one late and it can be well-documented that the circumstances for the late were beyond your control and your other credit is all as agreed, we can often get an exception to this requirement. If you are very close to being over 2 years for that late, I would advise waiting to apply so that it is over 2 years ago. The underwriter will still look at your credit, but it is not mandatory for the LESA for a late over 24 months ago.
  
  Also, a LESA is not the end of the world and many borrowers like them. Funds are "set aside" from your proceeds to pay for taxes and insurance but are not considered borrowed until they are sent to the taxing authority or to your insurance company. Therefore, you do not accrue interest on the funds until you use them to pay for the expense. You never have to worry about paying taxes or insurance again, so you're not caught short during those times of the year. And there is no additional cost for the lender performing these functions. So, if you do have to get a LESA, you may find that you like it!
  Reply to ARLO
Sylvia
June 3rd, 2019

I have always paid my bills on time; including my mortgage. No lates on my credit report - but I have a lot of credit and a high debt to income ratio. I have been told that this will prevent me from getting a reverse mortgage. Are there any products available to me?
Reply to Sylvia
- ARLO™
  June 3rd, 2019
  
  Hello Sylvia,
  
  Reverse mortgages do not use ratios for qualification. Instead, the underwriting uses a residual income method that subtracts all your monthly obligations from your income (including your home taxes and insurance) and you need to have minimum amounts left to live on each month in accordance with HUD requirements.
  The residual changes with family size and where you live due to the cost of living in different parts of the country and the increased cost to feed and care for a larger family. The required residual is not high and is much easier in most cases to meet than ratio guidelines.
  
  Another great feature of the residual method is that cash in the back can be dissipated to equate to income as can the reverse mortgage line itself, even if you don't plan to use a portion of the money every month because you could use it in the manner if you wanted to or needed to.
  And HUD takes it one step farther by letting folks who still don't meet the residual income requirement still qualify in many cases with a LESA (life expectancy set aside) wherein a portion of the funds are set aside to pay for the taxes and insurance on the property for life which brings your monthly obligations down since you no longer have to pay them â the lender does with funds from your reverse mortgage that are set aside for the sole purpose of paying these expenses when they come due.
  
  The bottom line is that you should not automatically assume that you will not qualify. Feel free to visit our calculator and you can see what you might expect to see in benefits from a reverse mortgage based on your age and property value with no personal information other than your month and year of age and the zip code where you live.
  After that, if you feel the numbers look good for your circumstances, we would be happy to discuss qualification with you based on your income and debts and let you know exactly what you would be looking at in advance.
  Reply to ARLO
Rodney F.
May 29th, 2019

Can short fall money be deducted from the loan amount?
Reply to Rodney
- ARLO™
  May 29th, 2019
  
  Hi Rodney,
  
  I'm not sure what you mean. Typically, shortfall on a reverse mortgage refers to the amount of money that the loan will not cover that would be needed to pay off an existing mortgage on the property.
  For example, your reverse mortgage benefit is $150,000 and you owe $175,000 on the existing loan on your property and therefore there is a shortfall on the reverse mortgage that you would have to cover by bringing the $25,000 difference (plus any costs) in to closing if you wanted to still get the loan to eliminate your monthly payment.
  Since there isn't even enough money in the reverse mortgage to pay off your existing loan, there would not be any money to deduct from the loan to achieve some goal â if I am reading your question correctly. The reverse mortgage must be in first lien position with no other loans on the property so any shortfall would have to be paid by you with other funds available to you.
  Those funds could not be borrowed; however, you could get a gift from a family member if that is a possibility for you.
  Reply to ARLO
Peggy S.
May 28th, 2019

How much income a month do I have to have in order to qualify reverse the mortgage that is my question for the day thank you dear have a good weekend. God bless!
Reply to Peggy
- ARLO™
  May 28th, 2019
  
  Hello Peggy,
  
  HUD uses a residual income method to qualify borrowers for a reverse mortgage. They will require borrowers to have different amounts depending on what part of the country in which they live and the cost of living and the size of the family living in the home. A single borrower has to have a residual income of $529.00 to $589.00 per month in order to qualify (depending on where you live and you can see the exact amounts in our article here. Residual income is the amount of money left over after paying all other debts.
  
  And before you panic if you think you don't quite make it, many times the reverse mortgage proceeds themselves or cash you have in the bank may be able to get you to the required level through a method known as asset dissipation. This is where the underwriter can assign an income value for funds you have assuming that if you had to use some each month to assist your income, you could. I would encourage you to visit our calculator to see what you might expect to receive from the loan and if the numbers look good, we would be happy to give you a no-hassle and no-obligation review of your qualification.
  Reply to ARLO
Nanette H.
May 24th, 2019

My 97 yr. old mom is moving to an assisted living facility. If her mortgage is still active for 12 months after she moves (before it's seen as permanent) can she still request payments from her available credit line to help pay for the facility? Thank you!
Reply to Nanette
- ARLO™
  May 24th, 2019
  
  Hello Nanette,
  
  Loan draws are supposed to be taken while the borrower is in the home, and not during absences. And the 12-month time period you cite is for an absence that is due to a medical necessity that is not yet known if it will be permanent.
  
  If the borrower is still out of the property after 12 months, the HUD no longer deems the absence temporary, even if the original plan was for a temporary absence (such as would be the case with a broken hip or other medical issue that required a stint in a skilled nursing facility to recuperate before the borrower could return home).
  
  However, if you know from the start that the move is permanent, it is considered a permanent move, there would not be a 12-month period where she would be considered temporary. If you moved her into a permanent assisted living arrangement now, that would be considered a permanent move and enough for the lender to call the loan immediately due and payable.
  
  If you are aware that this is a permanent situation, rather than having the loan remain open and continue to accrue interest, it would probably be to mom's benefit to sell the home now and stop accruing interest on the loan so that she will retain as much equity in the sale as possible.
  
  You can take the sale proceeds and put them in an account for her use rather than falsely attesting to her occupancy to obtain additional funds from the lender and HUD which is never a good idea.
  Reply to ARLO
Utsav A.
May 23rd, 2019

Assume an elderly person owns a $350,000 home that is free and clear of mortgage debt. A lender has agreed to a $350,000 reverse mortgage with monthly payments. The loan term is 15 years. The annual interest rate is 6%. Questions: 1. What is the interest charged in the 1st month? 2. If the elderly passes away in 5 years (60 months), what will be the loan balance? 3. How much of the loan balance at the end of 60th month represents the interest portion? 4. Suppose that there is $2,000 origination cost associated with the reverse mortgage and the elderly passes away in 5 years (60 months), what is the annual effective cost of the loan to the senior?
Reply to Utsav
- ARLO™
  May 23rd, 2019
  
  Good Afternoon Ustav,
  
  Firstly, if you own a home valued at $350,000, your loan will only be a portion of that value and that portion will depend on your age, the program you choose and the interest rates in effect at the time.
  
  Furthermore, your loan "term" is for your life, but you can choose if you want the payments to continue for as long as you live in the home and that option is called a "tenure" payment option or for a specified time period (such as the 15 years you mentioned) known as the "term payment" option. Both options could calculate differently, depending on the age of the youngest borrower.
  
  In short, I cannot give you the exact numbers based on the information you have given me, but I can go one step better. You can access our online calculator where with very little information (never a social security number or anything private), you can get the answers to all of these questions and compare the different options to see which is better for you.
  
  The information available to you includes the amount for which you are eligible based on your age(s), property value and current interest rates. You would be able to review the amortization schedule for any program you wish so you can see under both the term and the tenure options what you would owe at the end of 1, year, 5 years, 10 years and so on year by year, through the life of the loan.
  
  You would be able to see a list of closing costs for your area and a TALC which is a disclosure for reverse mortgages and stands for Total All Loan Costs that shows you what the effective cost is at various points in the loan. And as I said, there is a separate loan comparison so that you can see what the line of credit, different payment options or even the fixed rate lump sum payment would look like if you so choose.
  
  I think you will be much happier having the actual information you have requested rather than me giving you all estimates because I don't have the full information needed. If you want any further information after that, we would be happy to help you but if not, you will not be hassled or pressured. Give the calculator on our website a try, I think you will like it!
  Reply to ARLO
Celeste W.
May 23rd, 2019

I have a reverse mortgage and I added my grandson on the house as co-tenant, is that ok?
Reply to Celeste
- ARLO™
  May 23rd, 2019
  
  Hello Celeste,
  If you remain on title, you can add anyone else in addition to yourself that you desire. There is no problem with your reverse mortgage if you still occupy the property as your primary residence, pay the taxes and insurance as well as any other property charges, and you are also on title.
  Reply to ARLO
Gustavo
April 16th, 2019

Can I do a reverse mortgage on a property that l just bought cash, and do I have s time limit before I can apply?
Reply to Gustavo
- ARLO™
  April 16th, 2019
  
  Hello Gustavo,
  
  You can do a reverse mortgage at any time with no waiting period required. There is a very good possibility that the loan amount would be determined by the purchase price or the current appraised value, whichever is less, if the purchase price is considerably lower than the current appraised value though. If that is the case (the value is now much higher than the amount you paid to purchase), you are safe at just the appraised value after one year.
  Reply to ARLO
Stan
April 8th, 2019

Can you explain FHA reverse mortgage?
Reply to Stan
- ARLO™
  April 9th, 2019
  
  Hello Stan,
  
  No mystery to it. An "FHA" simply refers to one of the loan programs that is insured by the Federal Housing Administration (FHA) a division of HUD. An FHA reverse mortgage carries with it insurance that the borrower pays for that insures the lender from the risk of default and in the case of the HECM reverse mortgage, also insures the borrower and the borrowers heirs against the risk of the lender becoming insolvent or the property not being worth enough to repay the loan.
  
  There is never any recourse other than the property and heirs can pay off the loan at the lower of the amount owed or 95% of the current value after the borrower passes if the property is not worth enough to repay the outstanding balance on the FHA-insured reverse mortgage. By the borrower paying for mortgage insurance, they can usually get a higher loan to value on a forward or traditional mortgage or obtain a reverse mortgage on which they make no monthly payments which might otherwise not be available for them.
  Reply to ARLO
Jenna Hunter
December 16th, 2016

It was compelling to know that residents age 62 or older with substantial equity in their home qualify for this type of mortgage. I am nowhere near that age of 62, even though I feel like it. I will be sure to keep myself informed and updated!
Reply to Jenna
Eric Johnson
March 6th, 2016

I will be 62 1-17, my wife is 58, we are both retired at present. We own acreage (deed) under an LP where we are both partners and intend to build a home on it. We can pay outright for the home and own 100% equity in house and acreage. My thought is take a reverse mortgage to fund the next 5-10 years of living expense while delaying IRA withdraw and letting it grow and also delay SS until full benefit or wait until 70 to collect. Question if the LP acreage that house will be on is considered together to utilize LP acreage equity and is this a sensible use of the reverse mortgage?
Reply to Eric
- ARLO™
  March 14th, 2016
  
  Hello Eric,
  
  I've gone ahead and answered your question in a new article you can read here: https://reverse.mortgage/property-eligibility-acreage-zoning
  Reply to ARLO
Danny
December 25th, 2014

In one of the statements above it said that a rm is not recommended for someone who will not live in the house for a number of years, due to costs, in order to benefit properly. What generally is a reasonable amount of years minimum to benefit? My mother probably has five years left (and my father may stay in the house), and my father may have ten years. Thank you.
Reply to Danny
- ARLO™
  December 29th, 2014
  Good Morning,
  We don't recommend a reverse mortgage as a short term or bridge type of financing because all of the costs are typically front end loaded but there are many factors that depend on the individual. Even though HUD has taken steps to lower costs on some of the loans and there are many low cost options available today, we still believe that if the borrowers think that they may want to move in the next 12 - 24 months and do not have a dire need for a reverse mortgage, care should be taken with regards to the terms of the reverse mortgage they choose.
  Firstly, in direct answer to your parents situation. 5 - 10 years is more than ample time to consider a reverse mortgage. We were seeing borrowers considering reverse mortgages at a time when there were no low cost options and the loans were all very expensive and borrowers intended to stay in the properties for no more than 24 months at the longest and maybe less time. For those borrowers we habitually recommended they wait until they made the move they were planning if they could and then use the reverse mortgage on the home they planned to retire to. We had some borrowers who had no choice, it was a reverse mortgage or face loss of the home even if they thought they might move in a shorter time frame and those borrowers had to factor in the costs of the loan with the costs of selling in a bad market (2011, 2012) and many did well be waiting but that was a decision they had to make at the time and no one can tell the future.
  Now we have lower MIP payments available when borrowers are not using more than 60% of the funds available to them and typically lower lender fees available at this time when they do have to use most or all their funds. Either way,
  on many of the reverse mortgage loans closing today and therefore even though these costs are still front-loaded, many borrowers have the opportunity to use the reverse mortgage as an even greater tool today due to those decreased costs.
  Reply to ARLO
lydia G
April 20th, 2014

death do us part meaning the house and me
Reply to lydia
lydia G
April 20th, 2014

Happy Easter,
question my sister and I are heirs of 2 acres of property with a home on it the home was given to both of us but the property was split one acre for her and one for me. the home sits on my acre I will soon be 62 she will soon be 70 will I be able to receive a RM on the home she has agreed to let it be done because I live in the home and plan to stay in it until death do us part
Reply to lydia
- ARLO™
  April 22nd, 2014
  
  Hi Lydia,
  The short answer is probably yes but, I have to be honest with you in that the property and the transaction must meet HUD's guidelines. I'm not sure what you mean by "split one acre for her and one for me". Has the property gone through an official lot split so that there are two separate parcels now or is it one parcel with the two of you each owning a portion of the entire piece of land? There would be different steps involved depending on the circumstances.
  If there are two separate parcels where your parcel is completely separate with its own legal description containing only your acre of land, with just you on title and there are comparable sales in the area with similar sized lots then there should be no issues with the reverse mortgage in just your name on your parcel. The lot split could in no way adversely affect the marketability of the home (there could be no easements created that split the lot in half, the lot could not become land-locked, etc.) In this case you would be the only individual on title to your parcel though and would not require your sister's approval so I suspect this is not the case based on your comments.
  If you mean by your sister is "allowing" you to do the reverse mortgage that the lot is staying intact as the two acre parcel, then there are a couple of other concerns. Firstly, if your sister is living with you (and it doesn't sound like she is), she would also have to be on the loan and no additional title work other than for any other loan would need to be completed if you are both on title to the property now. If you are both on title now but your sister does not or will not be occupying the property, then she would have to deed her interest in the property to you. All owners of the property would have to be occupants of the home and on the loan to be eligible for the reverse mortgage. She could not remain on title and not occupy the property and still have the loan go through.
  Now I have to also give you a little more food for thought. I am not a tax attorney and I cannot tell from your email from which state you are writing, but I would also suggest that you contact an attorney who specializes in property transfers and taxation in the area before you determine how you are going to proceed. Some states allow a transfer and as long as the transfer value is marked 0 value on the Deed and that it is an interfamily transfer it will not trigger a taxable event. Some states are considering that a "gift" or secondary transfer after the inheritance and will levy a tax and possibly raise future taxes. Some states require that you verify heirship through affidavits before a transfer may occur. The time and cost of the attorney is extremely valuable considering it may save you from a very costly mistake if you don't handle the transfer correctly.
  I wish you the best.
  Reply to ARLO
steve
August 10th, 2013

I purchased my home with a via loan,so naturally the home is under my name.if I had a reverse mortgage on my home at the time I passed away,would my wife be treated as an heir and need to sell the home?
Reply to steve
- ARLO™
  August 28th, 2013
  
  Hi Steve,
  If you had a reverse mortgage with just you on title and on the loan and then you passed away, the loan would become due and payable at that time and if your wife was your heir, your wife would still own the property but she would have to secure financing in her name at that time or sell the home. This is why we do not recommend married couples leave one spouse off title to obtain a reverse mortgage. When a spouse passes, that is a difficult enough time in your life and you don't need to have to start worrying about where you are going to live as well if you do not have other plans already in place.
  Reply to ARLO
Sally Keller
July 8th, 2013

My husband abd I would like to know if we should go live with my step dad, rent free, juat pay our bills. He has a nice 2 bedroom trailer ( for us-all new) and the main house which is brick, but sadly not kept up to par-as he was taking care of my Mom for 4 years as she was sick. They have a reverse morgage of now-going up each month- of about 170,000. The property is worth about 275,000. It is 110 acres, with a new barn cost $25,000. He cant just split it and give us some of the land and the trailer or it must go all as one piece? We want to live there but it seems like we may never pay off the reverse morgage and if we do, is the property now worth it. My step dad is 70. we are 58 and 56. Is it worthwhile to live there and save money until he passes they move or try to keep the place- confused really -many, many thanks
Reply to Sally
- ARLO™
  July 11th, 2013
  
  Hi Sally,
  I can't possibly advise you on whether or not you should go live with your father, that is a call you would have to make. I can tell you that whether you go live there or not, your dad will be able to live in the home for the rest of his life and then when he permanently leave the home (either from his death or if he had to go to an assisted living facility), the loan would then become due and payable. If you are his heirs, then you would have to option of keeping the home or selling the home at that time but if you choose to keep the property, you would have to be able to pay off the existing loan with either money you have available to you or be able to qualify for a new loan in your names at that time. Otherwise, you would have to sell the property at that time. You don't have to "buy the property" from the lender if you are your dad's heir, you would already own the property.
  You just need to keep these things in mind and plan accordingly whether you choose to move there or not if you are the heir and will be the owner of the property one day. It might make a difference as to how you prepare for ownership and loan payoff.
  Reply to ARLO
dave
June 2nd, 2013

Reverse mortgages, or Home Equity Conversion Mortgages (HECM), are available to homeowners who are at least 62 years old. The loan taps your home's equity, and the bank gives you the money either as a lump sum, a line of credit, or a monthly draw.

You still pay for property taxes, insurance and the costs of maintaining the home. The lender can foreclose if you don't. Also, because interest accrues over the life of the loan, your debt can ultimately exceed the value of your home.

You don't make monthly payments, but if you sell the house or move out for more than a year, the loan is due and the income stops. If the house is sold upon your death, proceeds go to pay the loan.

Reply to dave
Pete Buongiorno
May 30th, 2013

The loan amount on my home is higher that the value of the house. I am ready to move and leave the house. What do I have to do before I move? Do I call Wells Fargo and just give them the deed and is there any fees that I should be concerned about?
Also does turning over the house, take time to do?

Thank you
Pete Buongiorno
Reply to Pete
- ARLO™
  June 14th, 2013
  
  Hi Pete,
  If you have the HUD HECM loan, the loan is a non-recourse loan and there would not be any fees to leave the home. You should contact the servicing agent and let them know that you plan to move out and that you want to work with them to make the transfer to them smooth and easy and I am sure they will work with you to do so. they would rather not take the house and would rather the house be sold, but if that can't be done, it is much easier for them to work with you on obtaining a Deed than to go through a lengthy foreclosure. I wish you the best.
  Reply to ARLO
Walter Galuska
April 24th, 2013

What does it mean when you say, Instead of the mortgage going down it will go up with a Reverse Mortgage?
Reply to Walter
- ARLO™
  April 24th, 2013
  
  Hi Walter,
  We're simply referring to the principal balance (the amount you owe) on the loan. With a reverse mortgage, the amount you owe increases over time since you make no payments and the interest accrues whereas on a typical standard or forward mortgage, you pay a monthly payment that pays the interest that accrues and usually a portion of the principal balance so that the balance goes down until the loan is paid in full within a set amortization period (30 years being the most common).
  Reply to ARLO
Jack Dubray
April 19th, 2013

In order can make an inform decision, need to know how the financial institutions fund these type of transactions. Someone have to fund them because no one will keep the paper on the books without getting pay. Even though are guarantee by Feds, from were the monies come?
Reply to Jack
- ARLO™
  April 19th, 2013
  
  Good Afternoon Jack,
  Reverse mortgages are just like most forward or traditional loans in this regard. Very few loans these days are made from a lenders' own funds to remain outstanding for the term of the loan.
  Lenders fund loans with a warehouse line of credit and then sell that loan in the secondary market, reverse mortgages included. The loans are sold in securities which in turn replaces the lenders' funds and allows them to remain liquid and to keep making loans. The securities are sold with the lender retaining the servicing rights since the investors who ultimately purchase the securities do not collect payments on forward loans, or make disbursements on reverse mortgages (in addition to all the other duties of a servicer that I won't go into here). Without having an avenue to sell the loans into the secondary market, lenders would not have a flow of cash available to continue to keep making loans.
  Reply to ARLO
Nicole
February 27th, 2013

My parents have been trying to do a home modification for the last year and a half. Are they eligible for a reverse mortgage even if they still owe on there property.
Reply to Nicole
- ARLO™
  February 27th, 2013
  
  Hi Nicole,
  
  The reverse mortgage can be done on properties with or without a current mortgage. The thing you have to remember is that all loans and liens currently on the property must be paid in full, either by the reverse mortgage or by the reverse mortgage and additional cash the borrowers have available to them if the proceeds of the reverse mortgage are not adequate to pay the current mortgage(s) in full. In any case, all current loans must be paid off so the best thing to do is to give us a call and determine the benefit amount to see if that will work with your lien situation. You can also check qualifications here at allrmc.com with our free calculator.
  Reply to ARLO
Phil Levine
January 28th, 2013

I'm 69 years old and have owned my own small business for 20 years. I have no interest in retiring. But I do not as yet own my own home. I owned a co op in NYC for 12 years and sold it a while back to move in with my girlfriend. I am planning to move out in a few months and am considering buying a condo or apartment in NJ. I understand that there are times when a reverse mortgage can be attained by someone like me - who does not yet have a home. I have excellent credit and no debt.
Reply to Phil
- ARLO™
  January 28th, 2013
  
  Hi Phil,
  The reverse mortgage for purchase program may be exactly what you need. If you can still qualify conventionally then you would not have to put as much money down, but then you would also have a monthly mortgage payment. If you do choose to go the route of the reverse mortgage, just remember that if you wish to buy a condominium, the project must be approved by HUD and many are not. In fact, many do not meet HUD's requirements and not only are not approved, but CANNOT be approved.
  Getting a project approved can take many weeks and then you may find out that it does not meet the requirements and if that is the determination, you would not be able to even place a reverse mortgage within that project. Sellers do not like to wait for 6 - 8 weeks only to find out that your financing cannot be approved and most borrowers do not have a clause in their contract that allows them to get their deposit back after waiting so long to find out that the financing cannot be approved. Therefore, it's important to know that it will work before you make the offer.
  Reply to ARLO
Mari
January 27th, 2013

I am wondering if wells fargo still continues to have reverse mortgage program if so I also have few other question (1)my father is 71 my mother is 61 she will be 62 next year my father is going to dialysis for his kidneys will this affect his medical? (2)he is retired my mother is his caregiver but both cant afford there mortgage they tried to modify there mortgage and were denied the first time they are trying once again can they still ask for reverse mortgage at this time?Also approximately how long will this take?
Reply to Mari
- ARLO™
  January 28th, 2013
  
  Hi Mari,
  You have several different issues here. The first answer is that Wells Fargo is no longer in the reverse mortgage business. Whether or not they ever have plans to return, only they can say. Secondly, all borrowers on a reverse mortgage must be a minimum of 62 years of age. Your mother cannot get a reverse mortgage until that time. Once she turns 62, the entire process can be completed in about 30 - 45 days from the date the lender receives all the signed applications back as long as your parents have completed their counseling before that time (no work can begin on the reverse mortgage until the borrowers have been counseled). There are things that can slow down this process such as clouds on title that must be resolved, appraisal or property issues, etc., but most loans are completed in a timely manner. Borrowers can speed up the process if that is their goal by having their counseling completed before their 62 birthday and be ready when the time comes (it does not pay to receive the counseling too early though as the certificate is only valid for 6 months).
  Reply to ARLO
B. Green
December 21st, 2012

My husband will be 62 in June and I am 10 years younger than he is. If he qualifies for a reverse mortgage and then proceeds me in death, am I considered an heir or does the reverse mortgage continue. (I will be part of the mortgage after a quit claim deed) Do I have to wait until I am 62?
Reply to B.
- ARLO™
  December 24th, 2012
  
  The only way that you can get a reverse mortgage at this time is if he applies for the loan on his own and that would mean you would have to quit-claim off of the title since the minimum age for all borrowers on a reverse mortgage is 62. You would still be his heir and would still inherit the property, but this is something we do not recommend lightly.
  Because the loan becomes due and payable when the last borrower on the loan permanently leaves the home or passes, you would not be on title and not on the loan, so if you are not ready to move when this event occurs and you do not have other provisions in place beforehand to provide for this, it could create extreme hardships on you at the worst possible time. Some provisions borrowers have informed us of that worked for them is an insurance policy that paid the mortgage off when the older borrower passed; a second property that the borrowers owned that the spouse intended to occupy after the passing of the older borrower anyway; and also the plans that the younger spouse fully intended to move to another state to be with family if and when the older spouse was no longer living anyway. Absent a clear alternative such as one of these, it would be very sad for you as the spouse of a reverse mortgage borrower to be uprooted from your home at the worst possible time if that was not in the plans simply because the loan was now being called due and payable with the passing of the borrower and you did not have the means to refinance the loan in your own name at that time.
  We urge you to think very hard and long and to consult with financial planning professionals before removing a spouse from title just to complete the reverse mortgage request to be certain this is the correct action for your circumstances. You could obtain a reverse mortgage in both your names as soon as both borrowers are 62 years of age. I realize that is 10 years out for the two of you so I would counsel that you either make solid plans that would protect you if anything were to happen to your spouse before considering the reverse mortgage or waiting until you can both go on the loan.
  Feel free to call me at (800) 565-1722 and please read the following post "Reverse Mortgage with Spouse Under 62 Leaves Vulnerability"
  Reply to ARLO
omar artale
October 26th, 2012

I would like to know if I could do a reverse mortgage. My property has an actual value of $225,000 and my first and only mortgage is $225,000. Can I do a reverse mortgage without any equity in my house? Me and my wife are both 68 years old.
Reply to omar
- ARLO™
  October 31st, 2012
  
  Hello Omar,
  
  Due to the fact that reverse mortgages require no payments and as the interest accrues the balance rises, the loans do require you to have equity in the property when you begin the loan. We have a calculator here that will allow you to see for how much money you would quality for. Once you know how much you can get, you can approach your current lender to see if there are any options available for you. We have had some borrowers who were successful in getting lenders to accept a payment in full for less than the full balance due and as such, were able to replace their current loan with a reverse mortgage and live monthly payment-free. I do not know if this would work for you, but it couldn't hurt to contact them.
  Reply to ARLO
Terry K.
October 14th, 2012

Thank you for this article. I have questions. My home is currently held in a LIVING REVOCABLE TRUST in which I am the trustee. I also have a will. I set up my affairs this way to avoid probate for my beneficiaries. Question #1: Can I obtain a reverse mortgage if I hold ownership of my home in this type of trust? I am retired and purchased a modest $200,000 home. I am sure it has lost some value in this down economy. I have $40,000 left to pay on my mortgage. It is my understanding that I can obtain a reverse mortgage with an existing mortgage. Question #2: Is there a general percentage of my mortgage that needs to be paid off to qualify as having "substantial equity" in my home and thus qualify for a reverse mortgage? Assuming my understanding is correct, Question #3: Can I obtain a reverse mortgage with an existing traditional mortgage on my home, or do I have to pay off my $40,000 mortgage with the funds from the reverse mortgage? Stated differently, what happens to my existing mortgage if I qualify for a reverse mortgage? Lastly, the article mentioned that my heirs/beneficiaries will have ample time ("up to 12 months") to decide how to pay back the reverse mortgage loan. I have an adult child that resides with me. He has promised to live and care for me until my death. I do not want him thrown out of the house upon my death as a result of a mortgage of any kind (traditional or reverse) without some time for him to plan how to pay back the loan. Questions #4: During the ample time referenced in the article before a foreclosure is sought by the lender, are fees, charges and/or interest accuring that are added to the reverse mortgage loan repayment amount? Sorry for all the questions. I need to get clarity before calling.
Reply to Terry
- ARLO™
  October 23rd, 2012
  
  Hi Terry,
  Yes, a trust is acceptable. The lender will review the trust to be certain that it meets HUD guidelines but most do. The things they check for are in the borrower's interests and most attorneys make certain they are included. Depending on the current value of the home, there is no problem with an existing mortgage. Your existing mortgage would have to be paid in full from the reverse mortgage proceeds.
  Terry, I'm glad you asked the question about the repayment. The lender and HUD work with families as long as they see that the family member is taking adequate steps to either pay off the mortgage or sell the home. This is very important when you have family who are still living in the property. HUD and lenders have seen circumstances in the past where remaining family members really didn't want to leave the home and therefore, made no efforts to repay the mortgage or sell the home. In these cases, the properties may not have been listed in a timely manner, listed at prices above current market or when inspected, were not in "show condition" which meant that no buyer would probably be interested in purchasing the property the way it was being represented.
  If the family members are doing everything the lender or HUD could do to sell the home, then the lender and HUD have no desire to step in, incur the costs and labor to do the exact same things already being done. If the house is being priced competitively, and marketed well, nothing is gained by taking the home through foreclosure and having it off the market or falling into decay while that happens. Remember, foreclosure itself takes many months in most states so if there is nothing to be gained, the lender and HUD do not desire this route. Communication is key and as long as your heir works with the lender, they will continue to work with him unless it got to a point where after that 12 month period they felt a price reduction was in order and your heir refused. At that, if they deemed they needed to begin foreclosure, you still have the time frame needed to complete that process and as stated, this alone can take many months.
  He should have a plan going in as to what he wants to do when the time comes. If he plans to pay the loan off, then he will need to have financing available so he would need to know he can qualify for a mortgage of his own at the time (or a reverse mortgage if he is 62 or older and there is still sufficient equity in the home). His advance planning will be his biggest advantage so that he is not left unaware at the time when he has to start making decisions.
  Reply to ARLO
Carol
September 20th, 2012

I thought a reverse mortage was when the bank gives you money for the value of your home, and you can live in your home, however when you die the bank takes your home and sells it, am I wrong?
Reply to Carol
- ARLO™
  September 20th, 2012
  
  Hi Carol,
  
  Many people mistake reverse mortgages for a "transfer" of the home from the borrower to the bank. This is not the intent or the way the loan works. You always own your home, you are responsible for the payment of the taxes and insurance and for the maintenance on the home, just like with any other mortgage or home loan. The difference is that you make no monthly payments on the mortgage so instead of your balance going down as you make payments as is the case with a traditional or forward mortgage, the balance on a reverse mortgage goes up.
  
  There are a number of ways to receive your money and for a complete explanation of the program, I would suggest calling us (800) 565-1722 or read more at our FAQ section.
  Reply to ARLO
Jimmy Dale
September 20th, 2012

Im kind of confused on the term *heirs* would that mean like your children or grandchildren or does that mean suriving spouse provided one passed before the other?
Reply to Jimmy
- ARLO™
  September 20th, 2012
  
  Heirs can be all of the above. If your surviving spouse is also on the reverse mortgage, they may be your heir for some other parts of your estate, but they are still the owner of the property. The reverse mortgage would remain intact so long as any of the original borrowers remain living in the property. For purposes of the reverse mortgage, a surviving spouse is not an "heir", they are an original borrower/owner if they were on the title and loan when it was originally done.
  Reply to ARLO
Robert S.
April 23rd, 2012

Great explanation in layman's terms of what reverse mortgages are. I found this article helpful in my research and will be in contact after my counseling session is completed. Thanks -Bob
Reply to Robert
Elizabeth
April 17th, 2012

Once the family member dies does the Reverse Mortgage keep all contents in the house or can the remaining family members left remove the furniture out of the house etc before the Reverse Mortgage company claim the property back?
Reply to Elizabeth
- ARLO™
  April 20th, 2012
  
  Hi Elizabeth,
  
  The reverse mortgage company does not "own" the house at the time the borrower passes. The loan becomes due and payable and it is up to the borrower's heirs to determine how they want to accomplish this. They can choose to sell the home and repay the loan, refinance the loan in their own name(s) or they can pay the loan off with other funds available to them. The lender does not own the property at this time and they do not own any personal property inside, it still belongs to the heirs of the borrower.
  
  Also, since the loan is a non-recourse loan, the lender can never seek repayment from any other assets to repay the loan. In other words, if the borrowers received all the funds before the prices of homes fell so dramatically in most areas of the country and lived there for many years without having to make payments, all the while accruing interest and now upon passing the property is not worth as much as is owed on the reverse mortgage, the heirs have the option to choose to either repay the obligation at 95% of the current appraised value or simply allow the lender to take the property to repay the obligation. Regardless of which option they choose, they still have the right to all the borrower's personal belongings and, as stated, the lender cannot seek repayment from any other assets other than the property itself.
  Reply to ARLO
Robin Adair Logan
April 16th, 2012

Does a reverse mortgage give you all the money your house qualifies for up front? Let's say the house appraisal is $280,000 and the qualifying amount of the reverse mortgage is $175,000; does the home owner get a check for $175,000? Or is it parceled out in monthly payments?
Reply to Robin
- ARLO™
  April 16th, 2012
  
  Hi Robin,
  That's one of the great things about a reverse mortgage, there are a number of ways you can choose to take the money. If your benefit amount is $175,000 and you have no liens on the property, then the next choice you need to make is whether you want the fixed rate or the adjustable rate option. This is one thing that would determine how you would receive the funds.
  The fixed rate loan is a "closed-ended" instrument which means that you can only take one draw and that occurs at funding. So if you absolutely want the fixed rate loan, then you would have to take all the money as just a one-time payment. However, the adjustable rate loan has several options available for you to receive your funds. You can choose the same lump sum payment, you can choose to receive monthly payments, you can leave the money in a line of credit that you can access whenever you want or you could choose to take a combination of all the above (i.e. take $50,000 at close to pay off some debts and make home repairs, put $50,000 aside in a line of credit to be used whenever you want and then have the lender use the remaining $75,000 as monthly payments for life).
  The choice is yours and the funds can be taken based on your needs and desires and which program you choose. But you do have to remember that your choice will be limited to the lump-sum distribution if you decide you want just the fixed rate option.
  Reply to ARLO

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