Reverse Mortgages: common questions
Each answer links to the guide it comes from, with sources.
Is a reverse mortgage free money?
No. The CFPB says that a reverse mortgage is not free money. It's a loan: interest and fees are added each month, and it's repaid when you leave the home.
Does the VA offer reverse mortgages?
No. The CFPB warns that the Department of Veterans Affairs does not offer any reverse mortgage loans, so be wary of ads that suggest otherwise.
Do I have to live in the home?
Yes. The home must be your principal residence, meaning you live there most of the year. Moving out is one of the things that can make the loan come due.
Can the money I put in come from selling my current home?
Yes. HUD allows cash on hand and money from selling or cashing in things you own. It doesn't allow sweat equity, trade equity, rent credit or premium pricing.
Can I buy a co-op with a HECM for Purchase?
No. HUD's list of eligible homes is one- to four-unit homes, condos in projects on FHA's list and manufactured homes.
Why do reverse mortgages cost more to set up?
The CFPB says reverse mortgage closing costs are typically higher than for other loans, largely because borrowers must pay mortgage insurance.
Does the balance go down over time?
No. Interest, the yearly mortgage insurance premium and any servicing fee are added to the balance each month, so it goes up over time.
Can my family join the counseling session?
Everyone who will be on the loan, and a spouse or other owner who isn't, must be counseled. Ask the counseling agency about bringing family members who just want to listen.
Do I have to pay for counseling?
An agency may charge a reasonable fee, but it must not turn you away because you can't pay. Ask about the fee when you book.
Is there a minimum age?
Yes. For a HECM, the youngest borrower must be at least 62 at closing. A spouse who isn't on the loan doesn't have to be 62, but a younger spouse lowers the amount.
Do I have to own my home outright?
No. You need enough equity that the reverse mortgage can pay off what you still owe at closing. That payoff comes out of your amount first.
Do heirs have to pay the loan out of their own money?
No. A HECM is a non-recourse loan: the lender can only look to the home. If the home sells for less than the balance, FHA mortgage insurance covers the rest.
Can a surviving spouse stay in the home?
A spouse who was on the loan as a borrower can stay. A spouse who wasn't a borrower may be able to stay if they meet HUD's conditions for an eligible non-borrowing spouse.
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