Those who have reached the age of 62 and would like to utilize the equity in their home benefit from a type of loan known as a reverse mortgage. Intended to help seniors pay for home health care and living expenses, the reverse mortgage serves as a supplemental form of retirement income.

The term reverse mortgage indicates a direct reversal of the role of lender and borrower. In a traditional loan, the borrower makes monthly mortgage payments to the lending institution. In a reverse mortgage, the lender forks over monthly payments to the borrower.

While the borrower is not obligated to pay back the loan until the home is sold or vacated, the individual is still responsible for property taxes and homeowners’ insurance. Reverse mortgages stipulate that the borrower must live in the home in order to waive the monthly payments to the lender.

What are Eligibility Requirements?

Not everyone is eligible for a reverse mortgage. Age is a determining factor for those seeking a reverse mortgage. Individuals must be 62 years of age or older. With married couples, the youngest spouse must be 62 years or older in order for a loan officer to consider eligibility.

Occupancy requirements also determine who qualifies for the loan. The borrowers must make the home their primary residence. Generally, as long as the borrower lives in the home, the loan will not be due. Vacation homes do not meet the eligibility requirements for reverse mortgage loans.

Borrowers are responsible for all real estate taxes and homeowners’ insurance. Applicable HOA fees also should be paid by the borrower. The condition of the property should be kept up to standard, meaning the borrower is obligated to make all necessary home repairs, as needed.

What Types of Homes Qualify for Reverse Mortgages?

Townhomes, most single-family homes, certain multi-family homes, approved condominiums, and manufactured homes meet the criteria for reverse mortgage loans. The Federal Housing Administration’s (FHA) property standards must be met in order for the home to be considered for a reverse mortgage loan.

How are Reverse Mortgage Loans Used?

Knowledgeable homeowners apply the payments from reverse mortgages to home renovations, healthcare costs and living expenses. Reverse mortgage loans may also be used to pay for existing home mortgages. Those eligible for the reverse mortgage are not restricted in how payments are used.

What are Features of a Reverse Mortgage Loan?

Individuals who obtain a reverse mortgage loan keep 100 percent ownership of their home. Even upon the surviving spouse selling the home, the lender does not own the property—equity belongs to the borrower. Once the borrower passes away, sells the property or moves, the mortgage payments become due.

Those who qualify for a reverse mortgage receive higher amounts when their home has substantial market value and when they are older in age. An 85-year-old borrower with a high-value home will receive a larger sum than a 65-year-old with low-value property. Also affecting the amount is the interest rate offered by the lender.

Heirs are protected in a reverse mortgage loan. When a house sells but the monies received do not cover the payments made by the lender, the lender is stuck with the loss. With reverse mortgages, the lender does not have the legal authority to pursue the financial loss from heirs.

What are Withdrawal Options?

Proceeds from the reverse mortgage may be received via four ways. A borrower may combine any of the four withdrawal options to suit her needs. Alternately, the withdrawal methods can be changed as time goes on. A high degree of flexibility is available when withdrawing reverse mortgage proceeds.

Once the loan closes, a lump sum may be obtained. Or, a monthly annuity may be given to the borrower as long as she lives in the home, and is known as a tenure annuity. In a term annuity, the borrower receives an annuity for a set time she designates. Lastly, a line of credit may be obtained and used.

How Does the FHA Protect the Borrower?

The FHA protects seniors in two significant ways. First, the FHA guarantees the borrower will receive all the payments she is due; this protection comes into play when a lender goes bankrupt or refuses to follow through on the reverse mortgage loan payments.

Second, the FHA’s policy protects borrowers from being subject to owing a greater amount on the loan than the property is actually worth. The FHA steps in to pay the difference if the value of the home is exceeded by the unsettled mortgage debt.

Seniors who seek a supplemental retirement income may benefit from a reverse mortgage. Older people who do not have others living with them (such as other family members) are good candidates for a reverse mortgage—especially since the loan becomes due once the borrower dies.

Plus, older folks who plan on living in their home for an extended duration are suitable for a reverse mortgage. Over the long term, reverse mortgages become less expensive; in the short run, these loans fail to be financially practicable, and other, less costly options are recommended.’

Work with a Real Estate Attorney

Rules and regulations in the mortgage industry continually evolve, making hiring a real estate attorney a sensible decision when buying or selling a home. The qualified real estate attorneys at Berry K. Tucker & Associates, Ltd. are prepared to guide you through the complexities of home buying. If you are selling a property, the Berry K. Tucker & Associates, Ltd. team of real estate attorneys will ensure the real estate transactions are handled with proficiency.

Our experts stay up to date on the changing laws in Illinois and are knowledgeable about all aspects of real estate transactions. The Berry K. Tucker & Associates, Ltd. real estate lawyers will explain the purchase contracts, register legal documents and attend closing meetings.

Residents in the communities surrounding Oak Lawn, Illinois, turn to Berry K. Tucker & Associates, Ltd. for dependable legal advice and the legal services necessary to conduct all real estate transactions.

Contact Us

To schedule a consultation with one of our experienced real estate attorneys, contact Berry K. Tucker & Associates, Ltd. at (708) 425-9530.