The first reverse mortgage (RM) was done in 1961 to help Nellie Young stay in her home after her husband died. Nellie Young was the widow of a high school football coach and Nelson Haynes of Deering Savings & Loan created a new program called a RM that helped her stay in her home even though she lost her husband’s income. Since that first RM to the 70,000 retirees that get one each year this program has had some growing pains, but the FHA has worked to make this a safe and dependable option for seniors. Here we will debunk common misconceptions on this government insured product:
Can I lose my home if I run out of equity?
By the 1970’s several private banks were offering RM loans. Seniors were able to access money from their homes without a payment, but did not offer any of the protections that are in place today. These prior loans on occasion would force a senior out of their home due to falling equity in the home. This has led many mature homeowners to believe that a Reverse Mortgage will take your home from you once you have little equity. This simply is not true today! To fix this issue, the FHA has required Mortgage Insurance that guarantees you can never lose your home if you run out of equity. You just keep your home in proper repair, pay your taxes and insurance, and stay in the home as your primary residence.
Will the RM take my remaining equity from my kids?
Prior to the 1980s, RM loans would take all of the equity upon the death of the borrower leaving the heirs with nothing. This has led many homeowners today to believe that a Reverse Mortgage will take your remaining equity upon your passing. This is not true today. The RM is a non-recourse loan that only has claim on the money you have taken out, plus the interest and fees; any remaining equity in the home passes on to your heirs as directed by your will or living trust. If you were to take the money out of your RM and put it in a bank account before passing away, the heirs would have quick access to those funds. The RM is nothing more than a regular loan on the house. In fact, if your home value drops and there is no equity left in the home, your heirs can purchase the home for 5% under the assessed value of the property after your passing.
Will my spouse be kicked out of the home after I die?
Previously, some couples took the younger spouse off of title because the RM required both spouses to be over 62 years old. This has caused some spouses to have to sell the home after the RM borrower died. Today, the RM does not allow a spouse to be taken off title to qualify for a RM. In fact, the RM now only requires one of the spouses to be over 62; the other spouse could be 20 years younger and both would be guaranteed to live in the home for the rest of their lives!
Are the RM fees as high as I have heard?
When I first started doing RM’s 14 years ago, clients would often have to pay $18,000 in fees to close the loan. There have been significant changes in the fee structure on this government insured product. The typical fees can be half of what it used to be. The FHA Mortgage Insurance is what makes this product safe, but it used to be 2% on every loan. On a $500,000 home that is $10,000 in IMIP Fee. Today that fee can be as low as ½ % on the loan, depending on what is owed. On a $500,000 home that could be as low as $2,500 in IMIP Fee. This fee is designed to last until the youngest borrower is 100 years old, if the borrower sells the home or passes away before that, any unused IMIP fee is returned to them or the heirs. If a borrower is 70 years old and pays an IMIP fee of $2,500 only $83 of that IMIP fee is used every year. If that borrower sells the home in 10 years she would get $1,670 of that IMIP fee back. To ensure our clients receive the best fees, we offer a low price guarantee; we will match or beat any competitors written pricing.
From Nellie Young’s RM to the 70,000 done annually today this FHA product has seen quite a few changes over the years. These changes have made this federally insured product, safer and less expensive. If you have any questions, or would like to know how the RM could help you, call us today at (877) 567-7476 or visit our website at www.Funds4Seniors.com.