Traditional Reverse Mortgage
Traditional Reverse mortgages are a way for older Americans to tap into their home’s equity to help fund expenses in retirement. A reverse mortgage provides cash you may need now after first paying off your remaining mortgage.
This is possible because, unlike a conventional mortgage — where you receive the loan amount upfront and pay down the loan over time — a reverse mortgage allows you to increase the loan balance over time as you receive monthly payments or a lump sum (the loan balance increases due to the accumulation of interest; the amount available to the homeowner does not increase). Reverse mortgages may be appropriate for your situation, but here are some questions to ask to help you decide. Home equity conversion mortgages — HECM for short — and are by far the most common type of reverse mortgages. To qualify for an HECM reverse mortgage:
One homeowner must be at least 62 years old. If the spouse is younger, they can be listed as a non-borrowing spouse on the application, according to the Department of Housing and Urban Development (HUD) this grants them some of the protection of the reverse mortgage should the borrowing spouse pass away.
The home needs to be the primary residence.
Several factors go into determining how much you can receive with a reverse mortgage. These include:
This is possible because, unlike a conventional mortgage — where you receive the loan amount upfront and pay down the loan over time — a reverse mortgage allows you to increase the loan balance over time as you receive monthly payments or a lump sum (the loan balance increases due to the accumulation of interest; the amount available to the homeowner does not increase). Reverse mortgages may be appropriate for your situation, but here are some questions to ask to help you decide. Home equity conversion mortgages — HECM for short — and are by far the most common type of reverse mortgages. To qualify for an HECM reverse mortgage:
One homeowner must be at least 62 years old. If the spouse is younger, they can be listed as a non-borrowing spouse on the application, according to the Department of Housing and Urban Development (HUD) this grants them some of the protection of the reverse mortgage should the borrowing spouse pass away.
The home needs to be the primary residence.
Several factors go into determining how much you can receive with a reverse mortgage. These include:
- The home’s current appraised value
- How much you owe on your mortgage
- Age of the youngest homeowner
- Costs of obtaining a reverse mortgage
Reverse for Purchase
A major benefit of the home equity conversion mortgage (HECM) for purchase is that it allows homebuyers age 62 or older to purchase a new principal residence using loan proceeds from a reverse mortgage.
This home buying process is a bit different from purchasing a home with a traditional mortgage.
A HECM for Purchase loan allows borrowers to obtain a reverse mortgage and buy a new home with a single transaction. Not only does this enable borrowers to eliminate their monthly mortgage payments, but it also allows them to reduce their closing costs and other fees since both the home-buying and loan processes are combined into one transaction. The best feature of all is that you double your buying power! You double your buying power and have no monthly mortgage payments. You must pay your home owners insurance, property taxes and keep up the house.
With a HECM for Purchase, a borrower provides a down payment that is typically about half of the new home’s purchase price.
Down Payment Funding Sources
Many buyers often wonder how much you have to put down on a reverse mortgage for purchase. To cover the remaining half of the purchase price, borrowers typically use the loan proceeds obtained from the reverse mortgage transaction. This could help buyers save their personal funds that might otherwise be used to purchase the property and instead use this money for other means.
It’s important to note:
This home buying process is a bit different from purchasing a home with a traditional mortgage.
A HECM for Purchase loan allows borrowers to obtain a reverse mortgage and buy a new home with a single transaction. Not only does this enable borrowers to eliminate their monthly mortgage payments, but it also allows them to reduce their closing costs and other fees since both the home-buying and loan processes are combined into one transaction. The best feature of all is that you double your buying power! You double your buying power and have no monthly mortgage payments. You must pay your home owners insurance, property taxes and keep up the house.
With a HECM for Purchase, a borrower provides a down payment that is typically about half of the new home’s purchase price.
Down Payment Funding Sources
Many buyers often wonder how much you have to put down on a reverse mortgage for purchase. To cover the remaining half of the purchase price, borrowers typically use the loan proceeds obtained from the reverse mortgage transaction. This could help buyers save their personal funds that might otherwise be used to purchase the property and instead use this money for other means.
It’s important to note:
- The borrower may only use their own money or money obtained from the sale of a previous home.
- Withdrawal from a borrower’s savings or money gifted to them by a family member is acceptable.
- Borrowed money in the form of bank financing or borrowed from a family member is not permissible.
Jumbo Proprietary Reverse
The good, the bad and the ugly... Borrowers age 62 living in higher-priced homes with significant equity may be able to tap up to $4 million with a jumbo reverse mortgage.
The funds can be used to meet changing healthcare needs or to replace a regular mortgage with one that doesn’t require a monthly payment.
While jumbo reverse mortgages have a lot in common with traditional reverse mortgages, the differences are worth knowing to make sure they’re a good fit for your financial plans.
A jumbo reverse mortgage is a program offered by private lenders that allows you to borrow more than the Federal Housing Administration’s (FHA’s) Home Equity Conversion Mortgage (HECM) loan limits. The “maximum claim amount” for 2021 for the HECM program is $822,375.
Any reverse mortgage amount above the FHA HECM loan limit of $822,375 would require a jumbo reverse mortgage. However, you still have to meet the basic reverse mortgage requirements which means:
The funds can be used to meet changing healthcare needs or to replace a regular mortgage with one that doesn’t require a monthly payment.
While jumbo reverse mortgages have a lot in common with traditional reverse mortgages, the differences are worth knowing to make sure they’re a good fit for your financial plans.
A jumbo reverse mortgage is a program offered by private lenders that allows you to borrow more than the Federal Housing Administration’s (FHA’s) Home Equity Conversion Mortgage (HECM) loan limits. The “maximum claim amount” for 2021 for the HECM program is $822,375.
Any reverse mortgage amount above the FHA HECM loan limit of $822,375 would require a jumbo reverse mortgage. However, you still have to meet the basic reverse mortgage requirements which means:
- You must live in the home you’re financing as your primary residence
- You must have enough equity to cover your current loan balance and any cash you want
- You’ll need to prove you can pay your property taxes and insurance
- You must maintain your home
- Some proprietary reverse mortgage programs may lend to borrowers at age 60 — two years younger than the standard 62 year age minimum for a HECM loan. However, the younger you are, the less equity you’ll be able to borrow.
- Ask us to run some numbers to make sure the amount you’re eligible for fits your financial plans.
- You can get a bigger lump-sum payout or line of credit. Jumbo reverse mortgages allow you to borrow up to $4 million in a lump sum or with a line of credit, giving you more borrowing power for other financial goals.
- You won’t pay mortgage insurance. Because jumbo reverse mortgages aren’t insured by any government agency, you pay the FHA upfront mortgage insurance fee of 2% of the loan balance, plus an ongoing insurance premium that rises as your loan balance increases.
- You can qualify for a reverse mortgage at a younger age. FHA’s HECM minimum age is 62, but proprietary reverse mortgages allow you to borrow once you turn 60.
- Your interest rate will be higher than a regular reverse mortgage. Although this won’t have an impact on your monthly budget because you don’t have a payment, a higher interest rate means your equity will drop at a faster pace as your loan balance grows. If home values drop, you could end up with a home worth less than what you owe. Definetly something to consider when compairing loan products.
- You may not have the same legal protections. Jumbo reverse mortgage guidelines are set by private lenders, which could leave you at a higher risk of foreclosure or even leave your heirs stuck with the bill if your home is worth less than the loan balance when you die. This loan is not insured by HUD.