Bruce Parris
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What is a reverse mortgage?
Reverse mortgages are FHA-Insured loans on the equity in your home, but you never pay it back as long as you live in your home, so no monthly payments.
Who qualifies?
Anyone 62 years of age who owns a home may qualify.
Does the home have to be paid off already?
No. Many people use a reverse mortgage to pay off an existing mortgage.
How much money will I receive?
An appraiser will come to your home to determine the market value of your home. Most clients will receive 40% to 75% of the appraised value of their home or the lending limit, (currently $625,500) set by the FHA, whichever is less.
Is there a tax advantage?
Yes. When you take out a reverse mortgage the proceeds are non taxable income. No income tax is due. If you take money out of your retirement funds that money is taxable. So a reverse mortgage provides a life style change with no effect on your income taxes.
How long does it take to receive the money?
Normally it takes 4 to 6 weeks to complete a reverse mortgage.
How do I receive the money from the reverse mortgage?
You can receive the money in several ways. In a lump sum or in monthly payments for as long as you live in your home. You can take out part of the money with the rest in monthly payments. Or you can leave it in a line of credit to use as needed.
What is a line of credit?
A line of credit allows you to withdraw money from the bank whenever you wish, in whatever amounts you wish, with a minimum withdrawal of $500. The money you can access in the account grows, similar to a savings account. When you pass away, whatever is left in the account is not required to be paid back. Only the amount you withdraw is part of the reverse mortgage.
What about closing cost?
There are closing costs, which have been drastically reduced this year. These costs can be rolled in to the mortgage so you do not pay them out of pocket.
How is a reverse mortgage paid back?
After you pass away, the home is left to your heirs. They can either sell the home, which pays off the reverse mortgage with any remaining money returned to the estate. Or, if they want to keep the home, they can pay off or refinance the amount owed.
Will any money be left in the home for my heirs when I pass away?
There should be money left for them. The reason the reverse mortgage only pays you from 40% to 75% of the home value is because the program is set up to so there will be plenty of equity left in the home for your heirs when you pass away.
So does the equity grow in my home after I take out a reverse mortgage?
Yes. In most cases the interest on the reverse mortgage will be less than the increase in your homes appraised value over a period of years.
If my home loses value, and is worth less than the reverse mortgage when I pass away, will my heirs have to pay the balance?
No. The FHA insurance insures that the home will never be upside down to your heirs. The bank can only get the sale price of the home or what they are actually owed whichever is less.
If I pass away first, does my spouse have to sell the home?
No. Not as long as both of you signed as borrowers and they are still living in the home.
How does the bank make their money?
They make their money on the interest which gradually accumulates on the loan.
Do my heirs have to sell the home immediately after I pass away?
No. The bank gives your heirs up to a year to sell the home.
How can I be sure the bank won’t try to take away my home from me?
The reverse mortgage is a government-run program, so it is insured by the FHA to make sure that the mortgage never changes, and that neither you, nor your heirs, will ever get stuck paying a bill.
Can I get a reverse mortgage on a rental home?
No. A reverse mortgage can only be taken out on your homestead property.
Will I continue to pay for my homeowner’s insurance and taxes?
Yes. Those will still be your responsibilities.
Can I ever sell my home?
Yes. You can sell your home at any time. You would simply sell your home for the market value, this will pay off the reverse mortgage, and you will receive the remaining equity. So, in essence, it would be as if you are receiving some of the money out of your home now by using a reverse mortgage, and you will receive the remaining home equity when you sell the home, if you choose to sell.
If my home needs repairs will I need to fix my home before getting a reverse mortgage?
No. The appraiser will determine if any FHA required repairs will be needed in your home. Cosmetic repairs are not of any concern to the FHA. If a repair is needed, you will simply have to provide an estimate to us, and the work can usually be done after you receive your money. The bank will put aside some money, out of the proceeds, for the repairs so they can pay the repairman after he finishes the job. This helps so you won’t have to pay any money out of pocket for repairs.
How long have Reverse Mortgages been in existence?
Reverse mortgages became a government-run program in 1989. Since them they have gained in popularity as people learn the facts.
Can I receive more money from an equity loan?
Possibly, if you qualify; however, you will have a monthly mortgage payment. Also, many senior citizens don’t qualify for an equity loan, at least not a large equity loan, because of fixed incomes and credit issues. Anyone at least 62 years old, who is considering an equity loan, should really take out a reverse mortgage, which is an equity loan that never requires a monthly payment.
So, I receive between 40% to 75% of my home’s appraised value; I can live in my home for the rest of my life; I make no house payments; I pay no income tax on the reverse mortgage proceeds; and my children can inherit my home? This sounds too good to be true. Are there any drawbacks to a reverse mortgage?
Not to senior citizens. Your heirs will not receive the total value of your home when you pass away because the mortgage will have to be paid when you pass away. That would also be true if you have a conventional mortgage.
If you have any questions about reverse mortgages (or any type of mortgage for that matter) don't hesitate to CONTACT US and we will get back to you ASAP!!!!!
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