Reverse Mortgages - What are they? How do I get one? Is it right for me?
Using an FHA Reverse Mortgage to Purchase a New Home

Reverse mortgages (also called home equity conversion loans) enable elderly homeowners to tap into their equity without selling their home. The lender pays you money based on the equity you've accrued in your home; you can receive a lump sum, a monthly payment, or a line of credit.




Repayment is not necessary until the borrower sells the property, moves into a retirement community or passes away. When you sell your home or no longer use it as your primary residence, you or your estate must repay the cash you received from the reverse mortgage plus interest and other finance charges to the lender.

Most reverse mortgages require you be
at least 62 years of age, have a low or zero balance owed against your home and maintain the property as your principal residence.

Reverse mortgages are ideal for homeowners who are retired or no longer working and need to supplement their income. Interest rates can be fixed or adjustable and the money is nontaxable and does not interfere with Social Security or Medicare benefits. Your lender cannot take property away if you outlive your loan nor can you be forced to sell your home to pay off your loan even if the loan balance grows to exceed property value.


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What advice should I get before taking a reverse mortgage?

Q. I understand that I must meet with an unbiased counselor before completing my reverse mortgage application. What does that accomplish?
A. This is a federally mandated feature of the reverse mortgage process and is designed for your protection. The counselor, who is from an independent government-approved housing counseling agency, explains in detail the pro's and con's of all your reverse mortgage alternatives. He or she will discuss a reverse mortgage’s costs and financial implications, should tell you about any government or nonprofit programs for which you may qualify, and advise you on any proprietary reverse mortgages that may be available in your area.

How much money can I get?

Q. How do you determine the amount of cash I am eligible for?
A. The amount you can borrow depends on several factors, including your age, the type of reverse mortgage you select, current interest rates, the location of your home, and the appraised value of your home and FHA's lending limits for your area. In most cases, the older you are, the more valuable your home, and the less you owe on it, the more money you can get.

What are the advantages of a reverse mortgage?

Q. What are the advantages of a reverse mortgage?
A. There are many. Here are a few of the most significant:

  • Remain independent. A reverse mortgage allows you to remain in your home and retain home ownership.
  • Stay in your home. It allows you to remain in your home and retain home ownership.
  • No monthly mortgage payments. You need not pay back the reverse mortgage loan nor make any monthly mortgage payments until you permanently move out of the home.
  • Tax-free money. Because the money you receive from a reverse mortgage is not considered income, it is tax free* and will not affect your Social Security or Medicare benefits.
  • Freedom and flexibility. The money you get from a reverse mortgage is yours to use in any way you choose.

When must a reverse mortgage loan be repayed?

Q. When will I have to pay the principal and interests cost of this loan?
A. Your reverse mortgage loan becomes due and must be paid in full when one or more of the following conditions occurs: (a) the last surviving borrower passes away or sells the home; (b) all borrowers permanently move out of the home; (c) the last surviving borrower fails to live in the home for 12 consecutive months due to physical or mental illness; (d) you fail to pay property taxes or insurance; (e) you let the property deteriorate, beyond what is considered reasonable wear and tear, and do not correct the problems.

Are there tax consequences? What about my Social Security and Medicare benefits?

Q. What are the tax consequences of a reverse mortgage? What about my Social Security and Medicare benefits?
A. Because reverse mortgages are considered loan advances and not income, the IRS considers them to be not taxable. Similarly, having a reverse mortgage should not affect your Social Security or Medicare benefits.
If you receive SSI, Medicaid, or other public assistance, your reverse mortgage loan advances are only counted as "liquid assets" if you keep them in an account past the end of the calendar month in which you receive them. You must be careful not to let your total liquid assets become greater than these programs allow. It may be wise to consult your tax advisor on this.
Another tax fact to bear in mind: interest on reverse mortgages is not deductible on your income tax returns until the loan is paid off entirely.

Q. If I take on a reverse mortgage, how will it affect my government benefits?
A. The funds from a reverse mortgage do not affect regular Social Security or Medicare benefits. You should discuss the impact of a reverse mortgage on federal, state or local assistance programs with a professional advisor, such as your local Area Agency on Aging (toll free at 1-800-677-1116), an independent reverse mortgage consultant, or a tax attorney.

Three types of reverse mortgages:

Fannie Mae offers three reverse mortgages to help homeowners 62 and older convert their home equity into cash and remain in their homes for life. Fannie Mae offers its conventional reverse mortgage loan, The Home Keeper Mortgage®, Home Keeper for Home Purchase, and the Home Equity Conversion Mortgage, an FHA-insured reverse mortgage.

The Home Keeper Mortgage is Fannie Mae's adjustable-rate conventional reverse mortgage. The amount available is based on three factors: the number of borrowers, the ages of the borrowers, and the adjusted property value. Anyone 62 years or older who either owns his or her home free and clear, has very low mortgage debt, and occupies the property as his or her principal residence is eligible for a Home Keeper.

Home Keeper for Home Purchase is a variation of this reverse mortgage product that gives homebuyers 62 and older additional flexibility not available through standard first mortgage financing. This product allows borrowers to purchase a new home without using all of their personal resources to fund the purchase, and they will have no monthly mortgage payments.

HUD's Home Equity Conversion Mortgage (HECM) is another viable option for homeowners 62 and older to tap the equity in their homes, while giving them other options to address their particular housing needs. The maximum mortgage amount insured by FHA is based upon local FHA loan limits.

Can You use an FHA Reverse Mortgage to Purchase a New Home?

YES - You may be able to use a reverse mortgage to purchase a new home. This means you could get a new home WITHOUT a mortgage payment. You would put down the equity that was required and take out a reverse mortgage for the difference.

Here is an example:

The Johnson’s (both age 63) want to sell their home that they have lived in for 30 years and move into a town home (purchase price $400K).  At age 63, the Reverse Mortgage could provide $230,000.

Purchase price of new town home                        $400,000

Reverse Mortgage money to buy home              -$230,000

Cash required from the buyer to close            $170,000

Your benefit?  There are no credit or income qualifiers, and this gives the opportunity for seniors to move into a more expensive home. Plus, you now own more home with no monthly payments!  

* The Johnsons could use proceeds from the sale of their single family home, funds from personal savings, or funds from other accounts. 

CALL (651) 552-3681 TO GET STARTED. We are here to help put you in a better place!
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Mortgages Unlimited Minnesota
33 Wentworth Ave E, St Paul, MN 55118
(651) 552-3681

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Mortgages Unlimited, Inc. NMLS # 225504. Joe Metzler NMLS # 274132