Eligibility & Process

Requirements for a reverse mortgage...

Eligibility & Process

 

To be eligible for a reverse mortgage, borrowers must meet these initial main requirements:

You Must:

  • Be at least 62 years of age
  • Non-Borrowing spouse under age 62 is allowed
  • You must live in the home as your primary residence. A reverse mortgage cannot be used for a second home or investment property.
  • You must have paid off much or your entire traditional mortgage.

In addition to these initial main requirements above, you will also have to meet other guidelines to qualify for a reverse mortgage.

  • Your current home or your purchase home must be eligible. Single family homes and two-to-four unit homes qualify as long as one unit is occupied by the borrower. Condominiums that meet the U.S. Department of Housing and Urban Development’s FHA approval requirements also are eligible.
  • You must prove to be financially capable of maintaining your home. As the homeowner, you will still be responsible for paying your homeowner’s insurance and real estate taxes and making home repairs. The Federal Housing Administration (FHA) requires all reverse mortgage lenders to qualify borrowers in regards to a financial assessment to determine a homeowners’ capability to remain current on their taxes and insurance. During your financial assessment, we will review your credit history, analyze your income and compare it with your expenses. If you do come up short in regards to the amounts needed for maintaining your home, we may be able to set aside funds from your proceeds to cover these future expenses.
  • Your home must be properly maintained. After you apply for a reverse mortgage, your home will be appraised. During the appraisal process any deficiencies noted by the appraiser will require repair. Items such as roofing issues, peeling paint, and major systems such as your heating & air-conditioning not working will need to be corrected prior to closing your reverse mortgage. Sometimes the lender can allow what is called a “set-aside” to help pay for the cost of repairs. With a set-aside, a portion of your loan proceeds will be held to cover these costs.

Question: If my spouse dies or moves to a nursing home, what happens with my reverse mortgage?

Answer: It will depend on whether you and your spouse are co-borrowers on the reverse mortgage loan, and when the loan was made.

Under the rules governing HECMs, if you live with a spouse, it is a good idea to make your spouse a co-borrower when you apply for a HECM if you both meet the qualifying age of 62. If you are a co-borrower, you can continue living in the home even if your spouse dies or moves out to a nursing home. A surviving co-borrower can also receive money from the loan.

Sometimes, only one of the spouses is listed as a borrower on the loan. For example, one spouse might not have been 62 yet, and would not have been qualified to be a HECM reverse mortgage borrower. In that situation, what happens to a surviving non-borrowing spouse depends the timing of the HECM.

Any HECM loans with case numbers assigned on or after August 4, 2014, allow eligible non-borrowing spouses to remain in the home after the borrower dies if they meet certain initial and ongoing requirements. To qualify as an “eligible non-borrowing spouse,” you must:

·        Be married to the borrower at the time of the loan closing and remain married to the borrower for his/her lifetime. Note: If you marry the borrower AFTER he/she takes out a HECM, you will not be eligible to remain in the home.

·        Be specifically named as a non-borrowing spouse in the HECM documents;

·        Occupy, and continue to occupy the home as your principal residence;

·        The borrower must certify at the time of the loan closing, and each year thereafter, that you are his or her spouse; you must certify at the time of closing that you are an eligible non-borrowing spouse.

·        If you are a non-borrowing spouse, make sure your spouse sends the annual certification and that you comply with all the requirements applicable to you so that you may be qualified to remain in the home when the borrower dies.

Assuming you have met all the requirements above, you as an eligible non-borrowing spouse may remain in the home when the borrower dies if you:

·        Are able to prove legal ownership or obtain the legal right to remain in the property (for example, a lease) within 90 days of the borrower’s death. Note: Make sure you meet this qualification while the borrowing spouse is still alive, since 90 days is a short time. You may want to consult with an attorney.

·        Meet the obligations of the loan to pay taxes and insurance and maintain the property.

·        Annually certify that you are the late borrower’s non-borrowing spouse, and occupy the home, securing the loan as your principal residence.

·        Be aware that although you may be permitted to remain in the home, you are not eligible to get any money from the reverse mortgage, including any money remaining in a set-aside account established for the payment of property taxes and insurance.

To make sure you and your spouse understand these rules and meet these requirements, talk to your lender or servicer, a housing counselor, or attorney – they can help you be prepared should the borrower die before you.

If you are a non-borrowing spouse or partner in a home with a HECM with a case number assigned before August 4, 2014, you may not be able to keep the home without repaying the loan unless your lender or servicer elects to apply to HUD to allow you to stay in the home after the borrower dies. You should contact your lender or servicer to ask if they would seek this approval for you. Both you and the lender or servicer must meet a number of conditions within specific time frames, and HUD must approve the application.

Fees

Just as with a regular home mortgage loan, you’ll be responsible for paying certain fees to process and service your reverse mortgage. Fees such as appraisal, title and credit fees can be rolled into the loan so no upfront costs are necessary.

Following are additional fees you’re likely to encounter in obtaining a reverse mortgage.

Mortgage Insurance Premiums

With a reverse mortgage, you’ll be charged annual mortgage insurance premiums to help pay the Federal Housing Authority (FHA) to administer the loan if your lender goes out of business. Mortgage insurance also ensures that neither the borrower nor his or her heirs will owe more than the fair market value of the home, as determined by a licensed FHA-certified appraiser, when it’s sold to pay back the loan. At closing, most homeowners will pay .5 percent of the appraised value of the home. If you borrow more than 60 percent of the appraised value, the mortgage insurance premium will be 2.5 percent of the appraised value. You also will pay an annual 1.25% fee for the duration of your loan.

Origination Fee

Your lender or broker might charge an origination fee. That amount will depend on the loan amount and can be between $0 and $6,000. The origination fee covers the lender’s costs for processing the loan. Always ask your loan officer what you will be charged if anything as an origination fee.

Servicing Fee

Monthly servicing fees are paid to the lender for maintenance activities on the loan. Servicing fees generally run $35 to $40 per month.