Many seniors are taking advantage of the equity in their home by taking out a reverse mortgage. A reverse mortgage is a loan that allows homeowners 62 and older access to part of the equity in their home and convert it to cash.
Most reverse mortgages are Home Equity Conversion Mortgages (HECM) loans; HECMs are insured by the Federal Housing Administration (FHA)1 who tightly control HECM loan requirements to protect borrowers and lenders. Therefore, it is important for borrowers to understand how reverse mortgages work.
Can I Lose My Home?
The answer is yes, you can lose your home with a reverse mortgage. However, there are only specific situations where this may occur:
- You no longer live in your home as your primary residence.
- You move or sell your home.
- You are away from your home for more than six months of the year for non-medical reasons.
- You are away from your home for more than 12 consecutive months.
- You pass away and your spouse or partner is not listed on the loan as a co-borrower or non-borrowing spouse.
- You stop paying property taxes and homeowner’s insurance.
- You don’t maintain the home according to FHA requirements.
Failure to meet these requirements can trigger a loan default that may result in foreclosure.
What Are My Obligations?
Once you obtain a HECM loan, you must continue to meet the following conditions to keep your loan in good standing.
- Complete a counseling session required by Department of Housing and Urban Development (HUD)
- Continue to own and live in your home as your primary residence
- Continue to pay property taxes and homeowners insurance
- Maintain your home according to FHA requirements
Over the years, the media has highlighted unfortunate instances of seniors losing their home with a reverse mortgage. Reverse mortgage lenders and the FHA do not want seniors to lose their homes.
To help you make an informed decision, HUD requires mandatory reverse mortgage counseling by an independent HECM counselor as part of the reverse mortgage application process.2 The counselor discusses program eligibility requirements, financial implications and alternatives to obtaining a HECM loan, and provisions for the mortgage becoming due and payable.
Additionally, in 2015 the Financial Assessment regulation was introduced to the reverse mortgage program to decrease the potential of seniors defaulting on a reverse mortgage.3 Lenders must determine your ability to meet ongoing tax and insurance obligations by reviewing your credit and housing history in order to detect any potential financial issues.
Financial circumstances vary among individuals. If you are considering a reverse mortgage, call 1 (800) 976-6211 to speak with a licensed loan advisor for a free, personalized loan assessment to discover your options.
1As required by the Federal Housing Administration (FHA), you will be charged an initial mortgage insurance premium (MIP) at closing and, over the life of the loan, you will be charged an annual MIP based on the loan balance.
2The U.S. Department of Housing and Urban Development (HUD) provides a list of approved reverse mortgage counseling agencies for you to choose from. The purpose of this requirement is so you are aware of all of your options, and can evenly weigh the pros and cons of each.
3Reverse Mortgage Daily. Financial Assessment Continues to Reduce Reverse Mortgage Defaults. https://reversemortgagedaily.com/2017/08/17/financial-assessment-continues-to-reduce-reverse-mortgage-defaults/