Improve your life by cashing in on your home’s equity
Whether seeking money to finance a home improvement, pay off a current mortgage, supplement their retirement income, or pay for healthcare expenses, many older Americans are turning to “reverse” mortgages. They allow older homeowners to convert part of the equity in their homes into cash without having to sell their homes or take on additional monthly bills.
In a “regular” mortgage, you make monthly payments to the lender. But in a “reverse” mortgage, you receive money from the lender and generally don’t have to pay it back for as long as you live in your home. Instead, the loan must be repaid when you die, sell your home, or no longer live there as your principal residence. Reverse mortgages can help homeowners who are house-rich but cash-poor stay in their homes and still meet their financial obligations.
To qualify for most reverse mortgages, you must be at least 62 and live in your home. The proceeds of a reverse mortgage (without other features, like an annuity) are generally tax-free, and many reverse mortgages have no income restrictions.
Types of Reverse Mortgages
The three basic types of reverse mortgage are: single-purpose reverse mortgages, which are offered by some state and local government agencies and nonprofit organizations; federally-insured reverse mortgages, which are known as Home Equity Conversion Mortgages (HECMs), and are backed by the U. S. Department of Housing and Urban Development (HUD); and proprietary reverse mortgages, which are private loans that are backed by the companies that develop them.
Single-purpose reverse mortgages generally have very low costs. But they are not available everywhere, and they only can be used for one purpose specified by the government or nonprofit lender, for example, to pay for home repairs, improvements, or property taxes. In most cases, you can qualify for these loans only if your income is low or moderate.
HomeSafe® Standard
The HomeSafe® Standard product stands out with features tailored for homeowners seeking financial flexibility. It offers a fixed-rate based on the chosen loan-to-value (LTV) tier, accommodating loan amounts up to $4 million. Notably, this product distinguishes itself by allowing borrowers to pay off debts at closing to meet income qualification, a unique aspect absent in the FHA HECM product. The absence of upfront or monthly mortgage insurance premiums enhances the cost-effectiveness for borrowers. The non-recourse feature, shared with the FHA HECM product, ensures that borrowers are not held personally liable for more than the value of their homes. It is essential to consult product-specific job aids for comprehensive information on other HomeSafe® products.
Certain property types are ineligible for the HomeSafe® Standard product, ranging from agricultural-zoned properties and bed and breakfast establishments to log homes and working farms exceeding 20 acres. Exceptions may exist, as indicated in the HomeSafe® appraisal guidelines. The guidelines also provide insights into using light agricultural-zoned properties if proof of non-agricultural use is provided. Additionally, properties with titles in a business name can be eligible if the borrower documents 100% ownership and transfers the title to themselves before closing. These criteria provide a clear framework for understanding property eligibility within the HomeSafe® Standard program.
HomeSafe® Second Lien Product
The HomeSafe® Second, an exclusive proprietary reverse mortgage loan from Finance of America Reverse (FAR), distinguishes itself as a non-recourse loan, absolving both borrowers and their heirs from personal liability. This financial instrument enables borrowers to maintain a first lien fixed-rate, closed-ended forward mortgage while securing a second lien reverse mortgage for supplementary funds. With a fixed rate, ranging from a minimum principal limit of $50,000 to a maximum of $4,000,000, the HomeSafe® Second offers a streamlined financial assessment, permitting repair set-asides but disallowing life expectancy set-asides. Originating from FAR, this loan incurs a $1,000 origination fee, yet stands out with no upfront or monthly mortgage insurance premiums, and no lender credits. The product maintains the non-recourse feature seen in the HomeSafe® Standard, and notably, it lacks a minimum property value requirement. However, non-borrowers are prohibited, and the HomeSafe® Second is restricted from exceeding the funds provided by the HECM (Home Equity Conversion Mortgage).
The HomeSafe® Second becomes accessible when the borrower's primary lien is a fixed-rate forward mortgage. To qualify, the combined balance of the existing mortgage and any set-asides must be lower than the maximum loan proceeds available through the HomeSafe® Second. Eligibility hinges on the nature of the existing first-lien mortgage, requiring it to be either fully amortized with a fixed rate, a HELOC (Home Equity Line of Credit) during the repayment period, or a fully amortizing ARM qualified at the maximum rate specified in the Note. Notably, certain first lien types, such as interest-only, negatively amortizing, private lender, rehab loan during construction/draw period, and reverse mortgages, including HECM, are deemed ineligible. Additionally, the program imposes restrictions on deferred property taxes under a state tax deferral program and prohibits additional subordinate liens, while the first lien cannot be in forbearance.
In order to see if you qualify, due to the HomeSafe® program not being avaiable in every state, please contact us now!
Loan Features
Reverse mortgage loan advances are not taxable, and generally do not affect Social Security or Medicare benefits. You retain the title to your home and do not have to make monthly repayments. The loan must be repaid when the last surviving borrower dies, sells the home, or no longer lives in the home as a principal residence. In the HECM program, a borrower can live in a nursing home or other medical facility for up to 12 months before the loan becomes due and payable.