Your Complete Guide to the Reverse Mortgage Home Loan
- SECTION 1What is a REVERSE MORTGAGE Loan?
- SECTION 2Am I Eligible for a REVERSE MORTGAGE Loan?
- SECTION 3REVERSE MORTGAGE Loan Benefits
- SECTION 4REVERSE MORTGAGE Loan Rates
- SECTION 5First-Time Homebuyers
- SECTION 6REVERSE MORTGAGE REVERSE MORTGAGE Loans
- SECTION 7Refinancing with a REVERSE MORTGAGE Loan
- SECTION 8Contract Guidelines
- SECTION 9The REVERSE MORTGAGE Loan Process
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What is a Reverse Mortgage Loan?
Video: The Reverse Mortgage Loan Process
A reverse mortgage Home loan is one that is through the Department of Housing and Urban Development (HUD). Unlike conventional loans that are supported by Fannie Mae and Freddie Mac, reverse mortgage home loans are supported by HUD. HUD is a Federal Agency responsible for national policy and programs that address America's Housing needs, that improve and develop the Nation’s communities, and enforce fair housing laws. HUD has a record of accomplishments that spans more than 30 years. Thousands of communities and tens of millions of Americans have benefited from HUD's housing and community development programs.
Reverse mortgage home loans have been streamlined through the years to provide access to the mortgage market for buyers over the age of 62. A reverse mortgage home loan is a using the equity in your property to pay yourself monthly, lump sum, or a combination of the two instead of paying for a mortgage. Reverse mortgage home loans often have higher lending requirements but the benefits of meeting those requirements are returned with being given money instead of giving it. When a prospective homeowner is ready to shop around for a mortgage, they will work with their Orbit Home Loan mortgage broker. This is a financial professional who brings together borrowers and lenders. They are not lenders and, as such, do not use their own funds to advance mortgage loans. Instead, they act as intermediaries, helping consumers comparison shop, bringing them a variety of quotes from different lenders at one time.
If you're ready to start your Reverse Mortgage, check your eligibility or have specific questions on the Reverse mortgage, talk with a Orbit Home Loans specialist today.
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How Do Reverse Mortgages Work Loans Work?
Reverse mortgage homework like this: Your Orbit Home Loan mortgage broker (Mortgage Banker) works on your behalf to qualify you with the most competitive lenders in the nation. Reverse mortgage home mortgages are typically for the duration of your life; the one that’s right for you depends on your current rate and the interest rate you secured. Once you are qualified, completed the process HUD be the servicer of your loan and will be responsible for giving your payments. There is a possibility that your servicer may change so do not worry if that happens, it is normal.
Types of Reverse Mortgage Loans
1. Single-Purpose Reverse Mortgages
A single-purpose reverse mortgage is offered by state, local, and nonprofit agencies. It is the least expensive option for a reverse mortgage loan, partly because it's backed by the government and other nonprofits. As such, homeowners can expect to pay less in interest and fees for a single-purpose reverse mortgage than for a home equity conversion mortgage or a proprietary reverse mortgage.1
This kind of loan is the least common among the three types and isn't available in every state. It works a little differently than home equity loans, which can be used for any purpose. Single-purpose reverse mortgage lenders restrict how the proceeds can be used. As the name implies, homeowners can only use them for a single, lender-approved item, such as necessary repairs to the home or property taxes.
2. Home Equity Conversion Mortgages
Home equity conversion mortgages (HECMs) are federally insured, which means they are backed by HUD. This type of loan is likely to be more expensive than a traditional home loan and comes with high upfront costs. It is the most widely used reverse mortgage because it carries no income limitations or medical requirements, and the loan can be used for any reason.
Counseling is required before applying. This ensures that the homeowner is fully aware of the costs, payment options, and responsibilities involved. Interested parties are also informed about any nonprofit or government-issued alternatives, as long as they're eligible. There is a charge for the counseling session, which can be paid from the loan proceeds.
After the counseling session, you find out how much you can borrow with a HECM. Your age, the value of your home, and current interest rates determine how much you can take out. Those who are older and have higher equity are provided with more money. Once the loan is established, you can choose between several payment options, A term option that allots monthly cash advances for a specific time, or a tenure option pays monthly advances for as long as the home is your primary residence. You can also choose a credit lined that lets you draw from the account at any time or a combination of this credit line coupled with monthly payments. You can change your payment option for a low fee if your situation ever changes.
3. Proprietary Reverse Mortgages
Rather than being backed by the federal government, proprietary reverse mortgages are backed by private lenders. They benefit homeowners who want more money and whose homes are appraised at higher values. This means you may qualify for a proprietary reverse mortgage if your property is worth more than the 2022 lending limit of $970,800 for federally backed HECMs.
People whose mortgage balances are low qualify for more funds. Counseling is sometimes required before applying, which can help provide a comparison between the costs and benefits of a proprietary loan and a HECM. Payment works the same way as the HECM option, which means you can choose a lump sum or series of monthly payments.
Because proprietary reverse mortgages are not federally insured, they do not have up-front or monthly mortgage insurance premiums (MIPs). That means you can probably borrow more. Whether this makes it better than a HECM depends on the lender's interest rate and how much they're willing to advance based on the home's value to compensate for the lack of mortgage insurance. Make sure you investigate both if you’re considering a proprietary reverse mortgage. Compare the interest rates and fees from several proprietary reverse mortgage lenders and gather quotes from several HECM providers to see which option gives you the best deal. Your age—and how far above HECM limits your home’s value is—will also influence which one will be the better deal.
Exploring the Reverse Mortgage
Reverse Mortgage Purchase Loan
A reverse mortgage is a loan that works a little differently than a traditional mortgage. It allows homeowners who are 62 or older to borrow money by using their homes as security to back the loan. It is often used to pay off current mortgages, help pay health care expenses, or supplement current income. Once a reverse mortgage is established, repayment is typically not required until you die, move, or sell your home.
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What are Reverse Mortgage loan limits?
For the government-insured Home Equity Conversion Mortgage (HECM), the maximum reverse mortgage limit you can borrow against is $970,800 (updated January 1st, 2022), even if your home is appraised at a higher value than that.
What is the Reverse Mortgage funding fee?
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Is the Reverse Mortgage loan a good option?
REVERSE MORTGAGE loans are arguably one the most powerful loan option on the market. It is of course not for everyone and there can be some downside, but we are here to make sure we help you make the best choice. Here are some of the benefits of getting a reverse mortgage
1. Helps Secure Your Retirement
Reverse mortgages are ideal for retirees who don’t have a lot of cash savings or investments but do have a lot of wealth built up in their homes. A reverse mortgage allows you to turn an otherwise illiquid asset into cash that you can use to cover expenses in retirement.
2. You Can Stay in Your Home
Instead of having to sell your home in order to liquify your asset, you can keep the property and still get cash out of it. This means you don’t have to worry about potentially downsizing or getting priced out of your neighborhood if you had to move.
3. You’ll Pay Off Your Existing Home Loan
Your home doesn’t have to be paid off in order to take out a reverse mortgage. In fact, you can use the proceeds of a reverse mortgage to pay off an existing home loan. This frees up money to put toward other expenses.
4. You Won’t Have Tax Liability
According to the IRS, money you get from a reverse mortgage is considered to be a loan advance rather than income. That means the funds aren’t taxed, unlike other retirement income such as distributions from a 401(k) or IRA.
5. You’re Protected If the Balance Exceeds Your Home’s Value
In some cases, the value of your home could end up being less than the total amount owed on the reverse mortgage. This can happen if home prices fall, for example. If this occurs, your heirs don’t have to worry about paying the balance.
Every buyer's situation is different and going over all of your loan options with a home loan specialist can help ensure you make the best financial decision possible.
How do I get a Reverse Mortgage loan?
Talk with a trusted lender that knows reverse mortgages loans and how to get the most from this hard-earned benefit. The process typically starts with getting pre-approved, which can often be done in minutes using your phone, laptop or tablet.
Loan pre-approval is a key first step before making an offer on your dream home. Having that pre-approval letter gives you a clear sense of your buying power and shows sellers and listing agents you have what it takes to get to closing.
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If I’ve Previously Used a Reverse Mortgage loan, can I use it again?
Yes, this is not a one-time option. Once you use the conventional loan benefit, it's yours for life. You can reuse the conventional loan over and over again, and it's even possible to have more than one active conventional loan at the same time.
Continue to learn more about Reverse mortgage loan in our next section.