What is a Reverse Mortgage?

A mortgage to buy or refinance a property that you occupy.

The Two Primary Requirements of a Reverse Mortgage

1. You are 62 or better older AND
2. You have a sizable down payment for a purchase or considerable equity if you are refinancing.

How Does a Reverse Mortgage Work if you are Currently Living in the House?

You can borrow against the value of your home, and based on your age and equity, you can receive funds as a

• Lump sum
• Fixed monthly payment, or
• Line of credit

Unlike a forward mortgage, a reverse mortgage doesn’t require the homeowner to make any loan payments.

Instead, the entire loan balance becomes due and payable when the borrower dies, moves away permanently, or sells the home.

Federal regulations require lenders to structure the transaction so that the loan amount doesn’t exceed the home’s value and that the borrower or borrower’s estate won’t be held responsible for paying the difference if the loan balance does become larger than the home’s value. One way that this could happen is through a drop in the home’s market value, another is if the borrower lives for a long time.

Reverse Mortgage Common MYTHS and FACTS

How the Program Works

There are many factors to consider before deciding whether a Reverse Mortgage is right for you. To aid in this process, you must meet with a HUD Approved Reverse Mortgage counselor to discuss program eligibility requirements, financial implications, and alternatives to obtaining a Reverse Mortgage and repaying the loan. Counselors will also discuss provisions for the mortgage becoming due and payable. Upon the completion of the Reverse Mortgage counseling, you should be able to make an independent, informed decision about whether this product will meet your specific needs. To find a Reverse Mortgage counselor please call 714 – 916 – 7928.

There are borrower and property eligibility requirements that must be met. If you meet the eligibility criteria we will have you complete a reverse mortgage application and arrange for you to get a counselor. We will discuss other requirements of the Reverse Mortgage program, the loan approval process, and repayment terms.

Borrower Requirements

You must:

• Be 62 years of age or older
• Own the property outright or paid down a considerable amount
• Occupy the property as your principal residence
• Not be delinquent on any federal debt
• Participate in a consumer information session given by a HUD-approved HECM counselor

Property Requirements

The following eligible property types must meet all FHA property standards and flood requirements:

• Single-family home or 2-4 unit home with one unit occupied by the borrower
• HUD-approved condominium project
• Manufactured home that meets FHA requirements

Financial Requirements

Income, assets, monthly living expenses, and credit history may be verified. Timely payment of real estate taxes, hazard, and flood insurance premiums may be verified.

Five Payment Plans to Choose From

• Lump-sum: Get all the proceeds at once when your loan closes. This is the only option that comes with a fixed interest rate. The other five have adjustable interest rates.
• Equal monthly payments (annuity): For as long as at least one borrower lives in the home as a principal residence, the lender will make steady payments to the borrower. This is also known as a tenure plan.
• Term payments: The lender gives the borrower equal monthly payments for a set period of the borrower’s choosing, such as 10 years.
• Line of credit: Money is available for the homeowner to borrow as needed. The homeowner only pays interest on the amounts borrowed from the credit line.
• Equal monthly payments plus a line of credit: The lender provides steady monthly payments for as long as at least one borrower occupies the home as a principal residence. If the borrower needs more money at any point, they can access the line of credit.
• Term payments plus a line of credit: The lender gives the borrower equal monthly payments for a set period of the borrower’s choosing, such as 10 years. If the borrower needs more money during or after that term, they can access the line of credit.

The Amount you May Borrow Will Depend On

• The age of the youngest borrower
• Current interest rate
• Lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price
• Initial Mortgage Insurance Premium–your choices are HECM Standard or HECM SAVER

HECM Costs

• You can pay for most of the costs of a HECM by financing them and having them paid from the proceeds of the loan. Financing the costs means that you do not have to pay for them out of your pocket. On the other hand, financing the costs reduces the net loan amount available to you. The HECM loan includes several fees which include: 1) mortgage insurance premiums (initial and annual) 2) third party charges 3) origination fee 4) interest and 5) servicing fees. We can discuss which fees are mandatory.