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Senior Citizen's Guide

Just the FAQs
Answers to Common Questions about Reverse Mortgages

Misconception #1
Reverse mortgages are only for desperate seniors or for the "house rich, cash poor".

INCORRECT. The reverse mortgage is an excellent financial planning tool that is used by homeowners from all walks of life to enhance their retirement years.

Before Getting A Reverse Mortgage
Am I eligible for a reverse mortgage?

To qualify for a reverse mortgage, you must:

1 If one spouse or co-owner is under 62, that person's name must be removed from the title so that the other person can qualify for the reverse mortgage.

Misconception #2
Your home must be debt-free to qualify for a reverse mortgage.

INCORRECT. Even seniors with an outstanding first mortgage or other debt on their home may qualify for a reverse mortgage. The proceeds of the reverse mortgage, though, must first be used to pay off such debts.

Q. How much does a reverse mortgage cost?
A. Many of the same costs associated with a regular mortgage apply to reverse mortgages. You will be charged an origination fee, a mortgage insurance premium (for FHA Home Equity Conversion Mortgages), an appraisal fee, and certain other standard closing costs. In most cases these fees and costs are capped and may be financed as part of the reverse mortgage.

Q. Am I required to receive counseling before I get a reverse mortgage?
A. Yes. Counseling is required for all three reverse mortgage products currently available in the marketplace. You can get the name of a local counseling agency or qualified telephone counselor from a reverse mortgage lender or by calling the National Foundation for Credit Counseling (866-698-6322), Money Management International (877-908-2227), or HUD's Housing Counseling Clearinghouse (800-569-4287).

Q. Is the money from a reverse mortgage taxable income? Will it affect my Social Security or other government benefits?
A. Funds from a reverse mortgage are tax-free; it's your money, not additional income. A reverse mortgage does not affect regular Social Security or Medicare benefits. However, if you receive a lump sum payment from a reverse mortgage, any amount retained the month after you get it would count as a resource and could affect Medicaid eligibility. To be safe, consult a reverse mortgage lender, or a Medicaid expert.

Misconception #3
The bank owns the home after you get a reverse mortgage.

INCORRECT. You own your home and retain title throughout the life of the reverse mortgage. Once you permanently moveout of your home or pass it to your estate, the loan must be repaid.

Q. Am I required to pay anything during the course of the reverse mortgage loan?
A. No. The flow of payments is reversed during the term of the reverse mortgage – the lender pays you. However, you are responsible for keeping up payments on your homeowner's insurance and property taxes, and to maintain the condition of your home.

After Getting a Reverse Mortgage

Q. Are there any limits on how I can use the funds from a reverse mortgage?
A. No. Borrowers have used reverse mortgages for a variety of purposes, including paying health care expenses, supplementing retirement income, financing home improvements or modifications, paying a grandchild's college tuition, or visiting friends and family.

Misconception #4
When a reverse mortgage comes due, the bank sells the home.

INCORRECT. When the loan must be repaid, you or your heirs can either pay the balance due on the reverse mortgage and keep the home, or sell the home and use the proceeds to pay off the reverse mortgage.

Q. What happens if I move out of my house after I get a reverse mortgage?
A. A reverse mortgage comes due and must be repaid when the borrower dies or permanently moves out of the home. Similarly, if you sell your house, the reverse mortgage comes due.

Q. What happens when my house gets passed to my heirs?
A. Once your home is passed to your heirs, the reverse mortgage comes due. Your heirs may either pay the balance due on the reverse mortgage and keep the home, or sell the home and use the proceeds to pay off the reverse mortgage. If they sell the home, they get to keep any excess sales proceeds.

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