Just like many other loans, there are myths many people believe about Reverse Mortgage that are false. Below, some of the major myths are debunked.
- The owner signs away the home and is owned by the bank upon passing.
- NOT TRUE— the owners remain on title and have full authority to sell the house. If the house is sold, the loan must be paid off (just as is required with any home equity loan).
- The owner’s heirs do not have equity when the owner dies.
- NOT TRUE– the highest loan amount a borrower can receive is 75% of the appraised value (must be 90 years old and older). No borrower can receive 100% of the equity. The amount of equity available to the borrower depends on the age of the youngest borrower.
- Anyone can get a Reverse Mortgage
- NOT TRUE– at least one borrower must be 62 years or older. In addition, all borrowers must pass a financial/credit assessment.
- Any type of home can get a Reverse Mortgage.
- NOT TRUE– Reverse Mortgages are available on FHA APPROVED single family residences, condominiums, town homes, and planned unit development dwellings. All must meet FHA guidelines.
- The money received from a Reverse Mortgage with affect the Social Security or Medicare benefits a borrower receives.
- NOT TRUE– the funds received from a Reverse Mortgage are considered the borrower’s home equity. The only way a borrower’s benefits MIGHT be affected is IF the borrower gets a lump sum distribution and deposit it into an account. This will then be counted as part of the borrower’s assets.
- The money received from a Reverse Mortgage is taxable or will affect the borrower’s taxes.
- NOT TRUE– the funds received from a Reverse Mortgage are considered the borrower’s home equity.
- This loan has high closing costs and fees.
- NOT TRUE– typically closing costs for the Nashville area are between 2-3% of the appraised value for either a Reverse Mortgage, Purchase or Refinance that is in 1st lien position.
- The owners must own the home “free and clear” in order to get a Reverse Mortgage.
- NOT TRUE– 1st or 2nd mortgages may be paid off with this loan. Note: the amount of the loan depends on the youngest borrower– as long as the borrower’s qualify for enough money to pay off existing liens, this may be done.
- The borrower must have a credit score above 620 to get a Reverse Mortgage.
- NOT TRUE– credit score doesn’t not affect this loan. The credit assessment is simply an evaluation of your payment history/credit activity for the past 24 months.
- The borrower’s debt to income ratio cannot exceed 40% to qualify for a Reverse Mortgage.
- NOT TRUE– the debt to income ration is not a factor of this loan. The financial assessment that is completed calculates if the borrowers have the excess funds to pay all other debts, annual property taxes, annual homeowners insurance and have enough residual income to live on.
- If the value of the property goes down the loan is due and payable.
- NOT TRUE– once the Reverse Mortgage is closed and funded the loan is cast. The value of the property does not affect the loan after closing. In addition, this is a NON-Recourse loan. If the value goes down and the owner wants to sell, dies or goes into an assisted living, the proceeds of the loan after closing costs and realtor fees will satisfy the debt. If the heirs want to retain the property, they only have pay 95% of the current appraised value to satisfy the debt.
To see additional information regarding Reverse Mortgage, please visit my youtube channel: https://www.youtube.com/user/klgrodi/videos.
Also, you can visit https://www.consumer.ftc.gov/articles/0192-reverse-mortgages for additional information.
If there is a question you may have that I don’t answer, feel free to email me at firstname.lastname@example.org or call be at 615-970-2216. I’d be happy to sit down and discuss any questions or concerns.