Reverse Mortgage in Michigan | Guide for Retirees

Did you know Michigan is termed as one of the best states to retire in the United States?

It is because of their diverse retirement strategies that Michigan is a suitable place for senior citizens to live. 

There are several retirement plans available in the state, including 401(k)s, IRAs, & Pension. However, reverse mortgages in Michigan are widely considered options among senior homeowners. 

Here's a detailed guide for Michigan homeowners on how to leverage their home as a stable income after their retirement. 

What is a Reverse Mortgage?

A reverse mortgage is a financial scheme created for senior homeowners to access a sum of money after their retirement. It allows them to convert a part of their home equity into cash. They can use this cash to pay off debt or upgrade their lifestyle. 

In a reverse mortgage plan, a trusted lender provides payment to the homeowner on fixed or adjustable interest rates. In 2023, a total of 32,991 reverse mortgages were issued in the U.S., making it a trusted retirement plan. 

Reverse Mortgage in Michigan 

With the rising numbers of homeowners in Michigan, reverse mortgages have become a popular retirement plan in the state. Here is everything you need to know about how does a reverse mortgage works in MI: 

How It Works 

A reverse mortgage allows senior homeowners to turn their house equity into usable cash. In a traditional mortgage system, the homeowner makes monthly payments to the lender. But, in a reverse mortgage, the lender makes payments to the homeowner. 

If you are eligible for a reverse mortgage, you simply get a counseling session and fill out a form to apply for the loan. 

Eligibility Requirements 

The homeowner needs to fulfill all reverse mortgage requirements to be eligible for the loans. The eligibility requirements for a reverse mortgage in Michigan include: 

Age of Borrower

In Michigan, you need to be 62 years or above to be eligible for a reverse mortgage. It is the legal retirement age in Michigan when you can start collecting your social security benefits. 

Married homeowners can apply for a reverse mortgage if their partner has reached retirement age. Although, people opting for early retirement will not be eligible for this plan. 

Home Ownership

You need to have complete ownership of the home through which you will apply for a reverse mortgage. If you are renting a space, you are not eligible for this loan. 

Owners with a low mortgage can also apply for this plan. The remaining amount will be paid from the loan amount. 

Primary Residence

The owners must have that house as their primary residence. Their house address should be listed on their driver's license, voting registration, and tax return documents as their primary residence location. 

Any vacation home, rental property, or storage building is not eligible for reverse mortgage. Some commercial buildings are also eligible for reverse mortgages if the property is not used for business purposes. 

Property Condition 

The property's condition also plays a significant role in the loan's eligibility. The house must pass the FHA safety standards and meet floodproofing requirements. 

If the property needs repairs, it must be completed before applying for the loan. Bad property conditions are one of the main reasons that disqualify you from getting a reverse mortgage. 

Mandatory Counseling 

Lastly, the homeowner needs to have a mandatory counseling session with the U.S. Department of Housing and Urban Development (HUD)-approved counselor. The loan counselor will help you understand the terms and conditions of reverse mortgages before your application.  

This step is made compulsory by the state government to apply for a reverse mortgage in Michigan. 

Types of Reverse Mortgage in Michigan 

There are two types of reverse mortgages available in Michigan: Home Equity Conversion Mortgages (HECMs) and Proprietary Reverse Mortgages. 

In order to make informed decisions, senior homeowners need to understand these two types completely. It helps you apply for the right type of reverse mortgage based on your financial status and property type. 

Home Equity Conversion Mortgages 

The Home Equity Conversion Mortgages (HECM), pronounced as HEKUM, is a federally-approved reverse mortgage loan. It is one of the most common types of reverse mortgages in Michigan. 

It is eligible for smaller houses with a limit to withdrawal. Currently, you can only withdraw $1,149,825 as a loan in 2024. This limit is adjusted yearly to reflect changes in the real estate market. 

HECM provides flexible payout options, including lump sum amounts, lines of credit, or monthly payments. 

Proprietary Reverse Mortgage 

The Proprietary Reverse Mortgage is also known as Jumbo Reverse Mortgage. It is eligible for bigger houses with a higher market value. However, proprietary reverse mortgage lenders offer other borrower protection programs that are similar to the FHA security measures. 

This type of reverse mortgage has not been approved by the Federal Housing Administration (FHA). 

You can apply for a proprietary reverse mortgage through a private financial lender. The current loan limit for this loan type is $4 million in 2024. 

A proprietary reverse mortgage also provides flexible payout options, including lump sum amounts, lines of credit, or monthly payments. 

Pros of Reverse Mortgage 

Reverse mortgages have gained popularity as trusted retirement plans in Michigan. The advantages of a reverse mortgage plan include the following: 

Additional Income for Retirees 

When a senior citizen wants to get more money to support them in their retirement, they can take up a reverse mortgage as their retirement plan. It gives them money in the form of monthly installments or lump sum amounts. This can help improve the security of their finances and enable them to have a better life as they age.

Flexible Payout Options 

Borrowers can choose from multiple payout options, which are: 

• Lump Sum: The borrower can take out the entire amount at once. 
• Line of Credit: The borrower can have an arrangement with the lender to draw a certain amount repeatedly. 
• Monthly: Get an amount every month, like an allowance. 

The payout option depends on your financial requirements. It allows the homeowners to curate a plan according to their preferences and needs. 

Non-Recourse Loan 

A reverse mortgage is a non-recourse loan. It means their heirs will not have to repay the loan amount which is more than the house's worth. 

If the value of the house is less than the loan, the difference will be paid off by mortgage insurance. This policy is set to protect the borrower and their heirs. However, it is crucial for the borrower to confirm this feature with the lender. 

Retention of Home Ownership 

With a reverse mortgage, the borrower stays the owner of the house. They own the house and can live in it for as long as they want. It also provides psychological relief to the senior citizens. They continue to live in the home they have an emotional attachment to. 

However, the homeowners are required to pay for the upkeep of the house and pay property tax. They also keep the property as their primary residence. 

No Monthly Mortgage Payments

The biggest advantage of a reverse mortgage is that you do not have to pay monthly loan payments. This loan provides immediate financial relief. 

It can improve the homeowner's lifestyle and peace of mind. The loan is paid back when the homeowner dies or the house is sold. 

Non Taxable Income 

A reverse mortgage loan is non-taxable. This means the borrowers can use the money however they require without paying tax over it. 

Unlike regular income, a reverse mortgage is not considered as earning, even if you are getting the payment monthly. It is a tax-efficient way for senior citizens to supplement their retirement income.

Cons of Reverse Mortgage 

Even though the reverse mortgage is a popular retirement earning option among Michigan homeowners, it comes with its share of cons. 

If you are considering getting a reverse mortgage, there are a few drawbacks you need to know about. Two of the most prominent cons are: 

High Closing Cost 

The main drawback of reverse mortgages is their high closing cost. This cost includes origination fees, appraisal fees, mortgage insurance premiums (MIP), and other associated charges. The closing cost for reverse mortgages is significantly higher than traditional mortgages. 

This amount is usually deducted from the equity, reducing the loan amount you get. Additionally, with the interest rate on the loan amount, the debt grows significantly till the time of repayment. If you are on a tight budget, this closing cost can be a big obstacle. 

Impact on Inheritance for Heirs 

Another drawback of reverse mortgages is the impact of inheritance on their heirs. The loan is repaid by selling the house when the homeowner passes away or moves out. It deprives their offspring from having a share in that property. 

Especially if the loan's amount has increased due to interest and matches the property's value, the heirs get nothing as inheritance. It can be distressing for people who want to leave an inheritance for their family.

How to Choose the Right Reverse Mortgage Lender 

Choosing a trusted reverse mortgage lender is crucial for a smooth yet protected transaction of money. Here are some important tips to consider while selecting a lender for a reverse mortgage loan: 

• Check Their Reputation: Check online ratings and reviews of the lenders you have shortlisted. Spend time researching their reputation by reading the testimonials from their old customers. 
• Compare Charges: Review the initial costs associated with the loan, like origination fees, appraisal fees, mortgage insurance premiums, and closing costs. Also, compare their interest rate with competitors to get the best deal. 
• Verify FHA Approval: Make sure the lender is providing an FHA-approved reverse mortgage loan. If you have applied for a jumbo reverse mortgage loan, the lender should offer other protective services to the borrower. 
• Review Customer Care: Check if the lender is willing to provide customer care service after providing the loan. Their willingness to answer your questions is crucial, especially if you have no experience with such loans. 
• Read the Terms and Conditions: This goes without saying, it is crucial to read the fine print provided by the lender. Go through all the terms and conditions and discuss whatever you don't understand. Pay close attention to interest rates and repayment terms.

How To Use Reverse Mortgage Funds 

A reverse mortgage is a tax-exempt amount that a retiree can use however they can. One of the practical ways of using a reverse mortgage loan is paying off mortgage or credit card debt. Some users also use this amount to pay off medical loans. 

However, there are no strict rules on where you can spend this money. You can renovate your house, upgrade your vehicle, or even go on a vacation with the loan amount. 

Another smart way of using monthly payments through reverse mortgages is delaying your social security. Retired employees can increase social security benefits this way. 

Guide to Apply for a Reverse Mortgage in Michigan 

Securing a reverse mortgage is based on a few steps. Here's a comprehensive guide to help you navigate through the application procedure: 

Step 1: Consult a Reverse Mortgage Loan Advisor

Consult with a reverse mortgage loan advisor to understand everything about reverse mortgage age and other requirements. 

Step 2: Undergo a Counseling Session 

Having a detailed session with a reverse mortgage HUD-approved counselor is a must. You can ask the counselor about everything you need to understand about the process before applying. 

Step 3: Fill Out Your Application Form

To apply for the reverse mortgage loan, you have to fill out an application form. The form will require your social security number, Photo ID, homeowner's insurance policy, counseling certificate, property tax bill, verification of income, and more.

Step 4: Home Appraisal 

Before getting a loan, your property must be assessed by a third-party appraiser. It determines the actual cost of your property. 

Step 5: Application Under Review 

Next, the lender will review your application and verify all your documents through the concerned departments. 

Step 6: Closing Documents 

Then, you sign the closing documents. The lender also calculates the interest rates based on your property at this step. 

Step 7: Disbursement of the Loan Amount

Lastly, the loan amount is handed over to the borrower using the preferred payout method. 

Conclusion 

Michigan offers diverse retirement strategies, making it a favorable state for seniors. Among retirement plans like 401(k)s and IRAs, reverse mortgages stand out. These mortgages allow seniors to convert home equity into cash, offering financial flexibility in old age. 

Let the experts at Equity Access Group make the loan process effortless for you! Hire the best consultants for the perfect retirement plan!