The qualifications to be eligible for a Reverse Mortgage are only a few simple things:
For our traditional Home Equity Conversion Mortgage, at least one borrower must be 62 years old and our Proprietary product allows for 55 and older. This must be your primary residence and have enough equity available to extinguish any outstanding mortgages.
-The home must be a single-family home or 4-unit maximum multiple family home, with one unit occupied by the borrower.
-Manufactured homes are permitted as long as it complies with FHA requirements.
-Condominiums are allowed if they are HUD-approved.
-Your property must remain in good condition, which means staying current with regular maintenance and completing any necessary repairs.
-You must continue to pay property taxes after the Reverse Mortgage loan has closed. You may use part of your Reverse Mortgage funds, or you may set-aside a certain amount to ensure this obligation is met.
-You must pay all homeowners’ insurance to cover any possible hazards like fire, natural disasters, theft, and vandalism.
-If there are any Homeowners Association dues or other fees related to the property, they must also be paid.
What is a Reverse Mortgage?
“A Reverse Mortgage, also known as a HECM (Home Equity Conversion Mortgage) is a loan
secured against your primary residence that enables the borrower to access a portion of the
property’s equity. The borrower can utilize a Reverse Mortgage to pay off a traditional
mortgage, receive funds as a lump sum, fixed monthly payment, or line of credit.
A Reverse Mortgage allows the borrower to:
1. Pay off your current mortgage and continue to live in the home you love without ever having
to make a monthly mortgage payment.
2. Use any remaining tax-free money for ANYTHING.
3. Allow you to afford and continue to own your own home.
4. Pay your monthly bills and live more comfortably in your home.
The Reverse Mortgage Process
With a Reverse Mortgage your current loan (if you have one) will be paid off with your new Reverse Mortgage. This will eliminate any current mortgage payment you have! If there are remaining funds after your mortgage is paid off, you’ll have access to those as well. If your home is paid off, you can use a Reverse Mortgage to access the equity that you have worked so hard to build. The Alliance Reverse Mortgage process is easy and only 5 steps:
1. Speak with one of our Reverse Mortgage Specialists. When you connect with your Alliance Reverse Mortgage Specialist, they will educate you about the Reverse Mortgage loan program so you can determine which product best fits your needs. An application will be sent out and we will answer any questions along the way. We will review the different options available to you on how you receive the proceeds. Your Alliance Reverse Mortgage Specialist will provide you with exceptional service throughout the entire process and is always available for your questions.
2. Complete your application and attend counseling – The U.S. Department of Housing and Urban Development (HUD) requires that all applicants receive third-party counseling to explain the available options. Alliance Reverse Mortgage will provide a list of counselors for your to choose from and counseling sessions can be completed in person or over the phone.
Upon completion of counseling, the loan is submitted to underwriting for approval.
Alliance Reverse Mortgage encourages you to include your loved ones in the process.
Making the decision if a Reverse Mortgage loan is right for you is something you do not have to do alone. The process includes a third-party counseling session that helps to ensure borrowers can make an informed decision about borrowing against their home equity with a Reverse Mortgage. Alliance Reverse Mortgage also encourages you to speak with your family about the decision of a Reverse Mortgage. At your request we can include loved ones on phone calls so that they can hear how the Reverse Mortgage works, ask questions, to have a better understanding of how the process will work.
If you are looking to include loved ones in on the process here are some helpful tips:
● Educate yourself about the Reverse Mortgage. How will it benefit you, the process and the basics of the program.
● Have educational materials ready to share with loved ones. Have the Alliance Reverse Mortgage website ready to share with your loved ones. You can also request a personal Reverse Mortgage packet from Alliance Reverse Mortgage.
● Be open and honest when speaking about your finances with your loved ones and how the Reverse Mortgage could be beneficial to you.
● Invite your loved ones to take part in phone calls with your Alliance Reverse Mortgage Specialist. Our specialists can answer any questions they may have and help them understand all the benefits of the program.
● Make sure your loved ones know the facts. There are a lot of misconceptions about the Reverse Mortgage program so be prepared to share all of the important need-to-know information.
3. Appraisal – After obtaining the counseling certificate your home will be appraised. The appraisal is completed by an independent FHA-approved appraiser and arranged through an Appraisal Management Company. The appraisal is almost as quick as the
counseling session. After the appraisal, the loan moves into the underwriting process where all the documents are reviewed, finalized, and prepared for the closing.
4. Closing and Disbursement – The loan can be closed in the comfort of your own home.
After closing, there are three days during which you can choose to cancel the transaction. Federal law requires us to wait until we’re sure your decision is final before we disburse your funds. After you receive the money, it can be used according to the program restrictions.
5. Repayment – As long as the property remains your primary residence you’re not required to make a monthly mortgage payment to your lender. You simply remain responsible for the payment of taxes, insurance and maintenance. Your Reverse Mortgage balance becomes due when the borrower(s) no longer occupy the home or passes away. Your heirs do not assume the debt but have the option to keep the home through purchase or refinance if they choose.
Reverse Mortgage Myths
MYTH – Your lender takes the title of your home.
FACT – Title on a Reverse Mortgage is no different than any other mortgage you have ever had – you are still on the title. When the house is sold or becomes vacant, the loan must be repaid, but the title is never negotiable.
MYTH – I can’t get a Reverse Mortgage if I already have a mortgage on my home.
FACT – If your home has enough equity, a Reverse Mortgage can pay off your current mortgage, eliminating your monthly mortgage payment. Remember, you are still responsible to remain current on taxes, insurance, and maintenance on the home.
MYTH – Reverse Mortgage borrowers owe more than their home is worth.
FACT – All of our Reverse Mortgages are non-recourse loans, which means the borrower can never be personally liable for more than the home’s value.
For example, someone takes out a Reverse Mortgage and owes $50,000 after five years. The homeowner passes away and the estate sells the house for $250,000. The lender gets $50,000 and the estate inherits $200,000.
A Reverse Mortgage is a ‘non-recourse’ loan, this means the borrower (or his or her estate) will never owe more than the loan balance or value of the property, whichever is less. Additionally, no assets other than the home must be used to repay the debt. Non-recourse simply means that if the borrower (or estate) does not pay the balance when due, the mortgage’s remedy is limited to foreclosure and the borrower will not be personally liable for any deficiency resulting from the foreclosure.
MYTH – A Reverse Mortgage is similar to a home equity loan.
FACT – A Reverse Mortgage and a home equity loan both use the home’s equity as collateral; however, there are also some differences. For example:
● There is no monthly payment requirement with a Reverse Mortgage.
● The line of credit associated with the Reverse Mortgage has a growth feature.
● The line of credit availability is guaranteed regardless of decreases of property value.
● A Reverse Mortgage provides flexibility as to how funds can be received, as a line of credit, regular monthly payments, a lump sum, or any combination of these choices.
● A home equity loan that charges no closing costs may have a higher interest rate over the life of the loan. A Reverse mortgage charges upfront closing costs but generally has lower interest over the course of the loan.
MYTH – There are limits on how you can spend the money from your Reverse Mortgage.
FACT – It’s your home, it’s your money! You can spend your tax-free money from your Reverse Mortgage any way you’d like. Many borrowers use it to travel, pay off debt, help their children, make a luxury purchase, or to allow investments to recover.
MYTH – The homeowner could get forced out of the home.
FACT – Today’s Reverse Mortgage are created specifically to allow seniors to live in their homes for the rest of their lives. The homeowner will not be evicted or foreclosed on as long as the borrower meets the obligations of the loan. For example, the borrower must live in the home as their primary residence, continue to pay required property taxes, homeowners’ insurance and HOA dues if any, and maintain the home in good conditions. Failure to meet these requirements can result in a loan default that may result in foreclosure.
MYTH – Social Security and Medicare will be affected.
FACT – Government entitlement programs such as Social Security and Medicare are usually not affected by a Reverse Mortgage. It can affect Medicaid, Supplemental Security Income Aid for Dependent Children (AFDC) and food stamps. We recommend that you consult your financial advisor or your local Area Agency on Aging or the local offices for these programs to determine how HECM payments may affect your situation.
MYTH – There are large out-of-pocket expenses.
FACT – Typically the majority of lender closing costs and fees can be financed into the Reverse Mortgage loan.
MYTH – Once loan proceeds are received, the borrower pays taxes on them.
FACT – It is a non-taxable transaction.
MYTH – If I outlive my life expectancy, the lender may foreclose on my home.
FACT- Reverse Mortgage lenders put no time limit on how long you can stay in your home. You still own your home and can’t be foreclosed upon. The requirements are simple, you must live in your home as your primary residence and continue to maintain the home while paying taxes and insurance.
MYTH – Heirs will not inherit the home.
FACT – The estate inherits the home as usual, but there will be a lien on the title for the amount of the Reverse Mortgage loan balance payoff.
MYTH – My children will be responsible for the repayment of the loan.
FACT – Reverse Mortgage are non-recourse loans. That means if the family or heirs wish to keep the home and the balance is more than the home’s value they would only have to pay 95% of the appraised value to keep the home. If they owe LESS than the value of the home, they would pay the full balance.
MYTH – The homeowner pays taxes on Reverse Mortgage proceeds received.
FACT – The proceeds from a Reverse Mortgage are not taxed as income or otherwise as they are funds borrowed against your home. (You must continue to pay required property taxes)
MYTH – Reverse Mortgage is prohibitively expensive.
FACT – While a Reverse Mortgage may be more expensive than a traditional ‘forward’ mortgage or home loan, there are several reasons for this – primarily, Mortgage Insurance Premium (MIP), which is guaranteed repayment insurance and the safeguard that ensures you will not owe more than the value of the home upon sale for loan repayment. Further, all fees are disclosed upfront and nothing is hidden in the interest rate.
MYTH – Only low-income seniors obtain Reverse Mortgages.
FACT – Seniors from all different income levels utilize Reverse Mortgage as a retirement tool.
For some seniors it is a way to eliminate their monthly mortgage payment and have more financial freedom. For others it is a way to have a financial cushion for those unexpected bills.
Some seniors are able to live their retirement more comfortably, and with little worry about how they make ends meet. A Reverse Mortgage is not designed for one particular person.; it’s for any senior looking to make the most out of their retirement.
MYTH – Reverse Mortgage Brokers take advantage of seniors.
FACT – As a longtime Trusted Partner to California Credit unions, Alliance Reverse Mortgage has a proven track record and commitment to provide some of the lowest rates, fees, and margins available. We are members of the National Reverse Mortgage Lenders Association (NRMLA) which has a code of conduct that we must abide by. Our goal is to help you make the most out of your retirement. We will provide you with the necessary tools so you can decide which Reverse Mortgage program will work best for your situation. We want you to be knowledgeable about the process and able to make the most of the Reverse Mortgage program.
MYTH – The Reverse Mortgage lender gets part of the home’s future appreciation.
FACT – Reverse Mortgage loans do not participate in the home’s future appreciation.
Frequently Asked Questions
It is a loan secured against your primary residence that enables the borrower to access a portion of the property’s equity.
There is no monthly payment required with a Reverse Mortgage. You will need to continue paying property taxes, insurance and HOA dues if any.
You will still own your home and you can stay in it for as long as you wish. You must continue to occupy your home as your primary residence, pay your property taxes and insurance, and maintain the home according to FHA Requirements to avoid early repayment of the entire loan amount.
Any homeowner can apply for a home equity loan. A Homeowner must be at least 55 to be eligible for a Reverse Mortgage.*
A home equity loan typically must be repaid in monthly payments over five or 10 years. A Reverse Mortgage is typically not paid back until the homeowner permanently departs the property.
A home equity loan that charges no closing costs may have a higher interest rate over the life of the loan. A Reverse mortgage charges upfront closing costs but generally has lower interest over the course of the loan.
We offer traditional FHA insured Home Equity Conversion Mortgages (HECM), commonly known as a Reverse Mortgage where at least one of the borrowers must be 62 or better. In addition, we offer proprietary Reverse Mortgage loans, commonly known as Jumbo Reverse Mortgage loans where the borrower can be as young as 55.
Most of the costs can be financed as part of your new Reverse Mortgage, including origination fees, closing costs, and charges incurred by the title and escrow companies. The only out of pocket costs for the borrower will be the HUD counseling fee and possibly the appraisal.
Yes! Any existing mortgages will be paid off at the closing of your Reverse Mortgage. Then you’re free to enjoy the financial freedom that comes along with eliminating your mortgage payment. You are still responsible for maintaining the property, paying property taxes, homeowners insurance and HOA dues if any.
You can use the money received from your Reverse Mortgage any way you would like, everything from medical bills, to credit card debt to remodeling your home. There are NO limits to how you can use your proceeds.
Most single-family homes, two-to-four unit owner-occupied dwellings and approved condominiums and manufactured homes are eligible for a Reverse Mortgage. The home must meet FHA minimum property standards.
Vacation homes or other secondary residences, and rental properties of more than four units do not qualify.
The amount of money you can borrow is determined by the age of the youngest borrower, expected interest rates, appraised value or the maximum lending limit. It will be specific to your situation. Alliance Reverse Mortgage offers a no-obligation assessment.
The loan amount will vary based on several factors including which Reverse Mortgage loan product you choose. The amount you can receive depends on the age of the youngest borrower, current interest rates, and the lesser of the appraised value of your home, the sale price or the maximum lending limit.
The most common way to receive your funds is in a line of credit. This will give you access to your funds to use at your discretion. You may also choose to receive a single lump sum, regular monthly installments, or any combination of these.
Interest rates may be fixed or adjustable. Nearly all adjustable rates are based on the CMT (Constant Maturity Treasury) Index. Interest rates are determined based on the type of Reverse Mortgage one chooses.
You are required to pay your property taxes, keep current with the property insurance, maintain the home and notify the lender if you will be away from the property for an extended period.
Generally, money received is not considered income and should be tax free, though you must continue to pay required property taxes. Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.
Currently the IRS treats money received from a Reverse Mortgage to be loan advances and not taxable income. We recommend a tax advisor for specific questions.
Interest is not deductible until you pay the Reverse Mortgage. You should consult a tax advisor for detailed tax advice.
The proceeds from a Reverse Mortgage generally do not affect these benefits. It can affect Medicaid, Supplemental Security Income Aid for Dependent Children (AFDC) and food stamps.
We recommend that you consult your financial advisor or your local Area Agency on Aging or the local offices for these programs to determine how Reverse Mortgage proceeds or payments may affect your situation.
Absolutely! We encourage family members to be involved in their loved one’s decision. It’s helpful for the borrower if everyone involved understands the program and the process. We can include family members on phone calls and send them a personally detailed Reverse Mortgage Analysis.
If you are looking to include loved ones in the process here are some helpful tips:
1. Educate yourself about Reverse Mortgages. Think about how it will it benefit you, the process and the basics of the loan program.
2. Be open and honest when speaking about your finances with your loved ones and how the Reverse Mortgage could be beneficial to you.
3. Invite your loved ones to take part in phone calls with your Alliance Reverse Mortgage Specialist. Our specialists can answer any questions they may have and help them understand all the benefits of the program.
4. Make sure your loved ones know all the facts. There are a lot of misconceptions about the Reverse Mortgage loan program.
The borrower will pay back the cash advances they have received plus accumulated interest and any upfront costs that were financed initially that were added to the loan balance.
The loan is due and payable when the last remaining borrower sells the property, permanently leaves the home, or passes away. Until these events take place, you live in the home and make no payments to the lender. The loan will never exceed the value of your home. If the home is sold and the sales proceeds exceed the amount owed on the Reverse Mortgage, the excess money goes to you or your estate. Remember, you are still responsible for maintaining the property, paying property taxes and insurance.
No, you can pay back the loan at any time without the worry of being penalized.
No, repayment can be accomplished by paying off the current Reverse Mortgage or refinancing the existing Reverse Mortgage to a conventional mortgage loan. If the heirs sell the property and the proceeds exceed the amount of the home, they can keep the difference. For cases where the proceeds are not enough to pay off the loan, then the lender absorbs the difference.
You can still leave your home to your family, or anyone you choose. When the loan becomes due, you or your heirs have the option of paying off the full balance of the loan and keeping the home.
When the Reverse Mortgage loan becomes due, the borrower’s heirs and/or estate may choose to repay the Reverse Mortgage loan and keep the home. Or, they can put the home up for sale to repay the loan. If the home sells for more than the balance of the Reverse Mortgage loan, the remaining home equity passes to the heirs.
If the home sells for less than the owed balance, the estate is not required to pay more than the value of the home at the time the loan is repaid.
A Reverse Mortgage loan is a ‘non-recourse’, this means that if you sell the home to repay the loan, you or your heirs will never owe more than the loan balance or the value of the property, whichever is less; and no assets other than the home are required to repay the debt.
A homeowner who has put the home in a Trust can usually take out a Reverse Mortgage, subject to review of the Trust documents.
All Reverse Mortgages are ‘non-recourse’ loans which means that the original borrower(s) will never owe more than the home is worth, regardless of the loan balance. Once the last owner passes away or moves out of the home permanently, the heirs can sell the property and pay off the existing mortgage balance or they can refinance the property. If the heirs choose to keep the property, they will have to refinance the entire amount of the existing mortgage balance regardless of the home’s appraised value. Heirs can buy the property for 95% of the current appraised value of the home.
You should first contact the loan servicing company to notify them that the borrower(s) have passed away. You can typically find the servicer’s contact information on the monthly statement. Once the loan service has been notified, they will help the heirs with the next steps.
A Reverse Mortgage can help people in a variety of situations. Some people experience unexpected changes to their financial situation, others are looking to delay drawing from their Social Security in order to receive a higher benefit. Below are some examples of how a Reverse Mortgage made a difference:
Planning for Now – John and Sandy need to update many features of their home and make it more suitable for their needs. A Reverse Mortgage was a great option for them. The loan first paid off their existing mortgage, giving them more money to live on each month while continuing to pay their property taxes and homeowners insurance. With the remaining proceeds from their Reverse Mortgage, they were able to purchase a new furnace and add some new safety features to their home. They even had some money left over to pay some medical bills and save for a rainy day.
Planning for the future – Tim is 62 and planning to retire within the next year. His home is paid off and he has some investments that are doing well. While he feels like he has saved enough for retirement, he would like another option to help him feel more financially secure about retirement. A Reverse Mortgage line of credit is a great option. Tim uses the proceeds from a line of credit from his Reverse Mortgage to help delay in taking Social Security. This strategic move will give him access to a larger monthly payment when he finally does begin to withdraw from social security. The Reverse Mortgage proceeds are there for him if he needs, and while remaining in the line of credit, the unused proceeds continue to grow in value.