Reverse Mortgages 101: Understanding the Basics

There may be many reasons why you’re considering a reverse mortgage. If you own a home that is either paid off or has a large portion of the mortgage repaid and are over the age of 55 you might consider securing a jumbo reverse mortgage. Some retirees may need supplemental income, while others may be looking to make repairs or upgrade an existing home. So how do you know if a reverse mortgage is right for you? Here is a crash course in understanding the basics of reverse mortgages. 

Jumbo Reverse Mortgages 101: The Basics

What is a Jumbo Reverse Mortgage?

A jumbo reverse mortgage allows homeowners that are 55+ to receive income using the equity in their home. The income could be in monthly cash payments, a lump sum or a line of credit. 

How to Qualify for a Jumbo Reverse Mortgage 

Each lender will have its own requirements to qualify for a jumbo reverse mortgage. However, the basic qualifications that you must meet include:

• One of the borrowers must be aged 55 or older.
• It must be the borrower's primary residence. Vacation and rental properties are not eligible.
• The home must have enough equity to support the mortgage.
• Staying up-to-date on all HOA fees, property taxes and homeowner’s insurance. 

If you’re considering an HECM loan you will undergo a financial assessment. We typically recommend having at least 50% equity in your home to increase your odds of approval. Additionally, it proves helpful if your property and home are in good condition. Once they are, remember that the influx of cash flow from the reverse mortgage can help with property maintenance and upkeep if needed. 

What types of reverse mortgages are available?

Several types of reverse mortgages are available depending on your qualifications and needs. The two most common are a Home Equity Conversion Mortgage (HECM) insured by the Federal Housing Administration (FHA) or a jumbo reverse mortgage for higher-value homes (specifically those valued at over $750,000). 

The type of dwellings that qualify for a reverse mortgage include:

• Single-family homes
• HUD-approved condos
• FHA-approved manufactured homes
• Detached houses and townhouses
• Two-, three-, and four-unit complexes are eligible as long as the borrower lives in one of the units as their primary residence.

Contrary to popular belief, you can still qualify for a reverse mortgage if you’re moving to a new home. With an HECM for Purchase loan you can buy a new home and get a reverse mortgage at the same time. This is ideal for those homeowners and retirees looking to downsize. 

5 Reasons to Consider a Reverse Mortgage

There are many reasons older adults may consider a reverse mortgage including to:

1. Remain in their homes after they retire;
2. Delay and thereby increase social security benefits;
3. Avoid having to draw on investment portfolio;
4. Use the equity toward home improvements; and,
5. To increase financial security

Reverse Mortgages and Your Estate

It’s helpful to know HECM and jumbo reverse mortgages are non-recourse. This is beneficial to borrowers because lenders can be repaid from homes’ sales proceeds, but never exceeding the value of the loan. And if your home’s value decreases, your maximum repayment amount won’t exceed that value.

After you pass away, any heirs to your estate have some options for repaying your reverse mortgage: 

• If your spouse is on the mortgage, this person can remain in your home and the loan won’t yet come due. 
• If adult children wish to purchase the home they can refinance the loan.
• Heirs can sell the home and use the proceeds to pay the reverse mortgage’s balance.

When do you have to repay a reverse mortgage?

Repayment for a reverse mortgage isn’t required until you no longer live in the home, you sell the home or the last surviving borrower dies.

Other Reverse Mortgage FAQs

What happens if there is more than one debt owed on the property?

An HECM loan must take the first-lien position, so it’s the primary debt owed on the property. 

When will you receive the reverse mortgage funds?

You may need to use some of the proceeds to pay an existing forward mortgage first. Once that’s paid off, you must wait one year from the closing date to receive the rest of your reverse mortgage funds.

Can I still sell my home if I have a reverse mortgage?

A reverse mortgage does not prevent you from selling your home. You will need to pay it off once you close on the home, however. Thankfully, you aren’t responsible for any prepayment penalties. This also applies if you aren’t selling your home but still pay it off early.

This is a quick overview to better understand the basics of a reverse mortgage. Should you decide this option makes sense for you, don’t hesitate to contact us at Equity Access Group to secure your reverse mortgage loan.