The answer is yes, you can lose your home with a reverse mortgage. A reverse mortgage line of credit is irrevocable, meaning that the lender cannot cancel or reduce it due to changes in the economy, your finances, or the value of your home. Many seniors are taking advantage of their home equity by applying for a reverse mortgage. In a reverse mortgage, you use your principal to apply for a loan that is repaid with the proceeds of the sale of your home.
To maintain your home's legal status, you must keep three key components in mind. Depending on your situation, you may have some mortgage left to pay after selling the house. Your reverse mortgage lender will mention everything in a quote and tell you how much capital you have and how much you owe as part of the taxes. Make sure the quote has an expiration date if the sale of your property takes some time.
Before you list your home for sale, make sure it's in good condition and hire a real estate agent to help you identify the most critical areas that require your effort so that your home can attract buyers. When your home is sold, the profits are distributed at closing, including the amount needed to pay the reverse mortgage. The remaining amount is capital which you can use to buy another home, invest in other investments, or pay off all your debts and start fresh with a clean slate. A reverse mortgage is a no-recourse mortgage which means that it allows homeowners to receive funds from the sale of a home but they cannot owe more than the value of the property.
Interest and fees are added to the loan balance each month and that amount is then included in the loan balance. Repayment of the loan is possible by selling the house and if these requirements are not met, a default may result in foreclosure. Reverse mortgage debt has no recourse and cannot be transferred to your heirs or your estate. If you're considering a reverse mortgage, be sure to talk to your reverse mortgage specialist about what will happen if you die while you still have the title to the property.
The heirs of a reverse mortgage are not responsible for the loan and can retire without any obligation. In the event that the home is worth less than the loan amount, the lender is responsible for the difference and the borrower must pay the federal insurance fund. You won't be penalized for selling your house and paying your reverse mortgage if the income from the sale of your home is less than the amount of your reverse mortgage loan. Mortgage lenders usually have a checklist of items that must be completed before allowing the sale; some are required by law and others help avoid complications during this process.
It's also important to keep in touch with both your lender and your real estate agent to make sure everything is going well and to answer any questions or concerns that may arise when trying to sell your property. A Home Equity Conversion Mortgage (HECM) is the most common type of reverse mortgage because it is backed by the Federal Housing Administration (FHA). When you and your spouse are co-borrowers of a reverse mortgage, neither of you will have to pay the mortgage until both of you move out or both move. Older borrowers receive a higher capital limit than younger borrowers, and you can't spend the reverse mortgage income you don't have.
Getting a reverse mortgage line of credit as soon as you're eligible and then leaving it alone and letting it grow until you actually need the money may be the best use of a reverse mortgage according to retirement and inverted mortgage experts such as Wade Pfau and Jack M. The closing costs of a reverse mortgage aren't cheap but most HECM mortgages allow homeowners to include them in their loan so they don't have to disburse money upfront. This rule makes it easier for surviving spouses who don't apply for loans to effectively survive their reverse mortgage proceeds.
