A reverse mortgage (RM) is quite literally a regular mortgage in reverse. With a regular mortgage, you typically make a down payment then make regular monthly payments on your house. Your equity increases as your debt decreases. A reverse mortgage gives the “borrower” a check each month for loss of equity in the home or gives it:
o As a Home loan that offers a single lump sum of cash at closing;
o As a “home equity credit line” account that lets the borrower decide when and how much of the available equity is borrowed; or
o As a combination of these payment methods.
Whether the repayment plan is a fixed-rate or adjustable-rate fully indexed (principal and interest) repayment plan or a deferred interest loan (negative amortization loan) with flexible repayment options, you must repay a traditional mortgage. Loosing equity in your home through a reverse mortgage requires no repayment until the last surviving borrower dies, sells the home, or permanently moves out of the home. So, you don’t need a minimum amount of income to qualify for a reverse mortgage. You could have no income and still be able to get a reverse mortgage.
The only eligibility requirements for most reverse mortgages are that you must own your home and be 62 years of age or older. Reverse mortgage loan advances are not taxable, and generally do not affect Social Security or Medicare benefits. This is why lenders are targeting senior citizens when advertising reverse mortgages.
There is even a federally-insured reverse mortgage called the Home Equity Conversion Mortgage (HECM). It is insured by the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD). Qualification is a little stricter. According to the HUD website (www.hud.gov), FHA requires that you:
o You must be 62 years of age or older;
o You need to own the home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and
o You are required to live in the home.
HUD also indicates that you are further required to receive consumer information from HUD-approved counseling sources prior to obtaining the loan. You can contact the Housing Counseling Clearinghouse on 1-800-569-4287 for the name and telephone number of a HUD-approved counseling agency and a list of FHA approved lenders within your area.
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