WHAT IS A REVERSE MORTGAGE?

A Maryland Reverse Mortgage lender can facilitate a loan that can turn a portion of your home value into tax-free money without having to make a payment until you and any co-borrower moves, passes away, or sells. In other words, the home pays you back so the money you receive can help you achieve your financial goals.

How do I qualify for a Reverse Mortgage in Maryland?

  • One homeowner must be at least 62 years old
  • Homeowner must occupy the property as their primary residence
  • Homeowner must pay off any existing mortgages with the proceeds from the Reverse Mortgage
  • Homeowner must attend a HUD approved housing counseling session

What Type of Home Qualifies for a Maryland Reverse Mortgage?

Not all Maryland homes qualify for a Reverse Mortgage. Before applying for a Reverse Mortgage, you’ll need to know if your home is qualified.  Some home types automatically qualify for a Reverse Mortgage, while others get approved only if they meet certain requirements. Some Reverse Mortgages would not offer Reverse Mortgage to the latter group.

Single Family Home

Most single family homes are approved for a Reverse Mortgage. There is a strict requirement that the person applying for the Reverse Mortgage occupies the home as his primary residence.

Multi-Family Homes

Multi-family homes contain up to four (4) units and are known as quadruplexes, duplexes or triplexes depending on how many units it contains. Any multi-family home can qualify for a Reverse Mortgage in Maryland, but only if one of the home units serves as the primary residence of the borrower.

Condominiums

Not all Maryland condominiums qualify for a Reverse Mortgage. The ones that do are approved by the Federal Housing Administration and are listed online here. You can check to see if the condominium in which you live appears on this list and, therefore, qualifies.

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Homes on Agricultural Lands

Homes found on agricultural lands are eligible for Reverse Mortgage, but only if they meet certain requirements. The first requirement is that the farm cannot be an income producing property. Second, the home is appraised with at least five surrounding acres.

Manufactured Homes

Not all manufactured homes are eligible for a Reverse Mortgage.  For example, manufactured homes qualify only when they are approved by the HUD and FHA. The following requirements must be met by manufactured homes to be approved for a Reverse Mortgage.

  • Be constructed after June 15, 1976 and in accordance to the federal manufactured home construction and safety guidelines.
  • Be situated on a permanent chassis. The manufactured home must not have been occupied or built in another location.
  • Be built with a permanent foundation that falls within the FHA’s requirement for foundations.
  • Must cover a floor area limit of 400 sq. ft.

Any manufactured home that meets all of these requirements would be approved for a Reverse Mortgage.

What Types of Home do not Qualify for a Reverse Mortgage?

Mobile Homes

On the other hand, some homes are not on the approved list for Reverse Mortgages and they include:

Mobile homes, unlike manufactured homes, cannot qualify for a Reverse Mortgage because they don’t qualify as permanent property.

Multi-Family Homes More than a Quadruplex

Any multi-family home containing more than four (4) units is considered a commercial property. Only residential properties are eligible for a Reverse Mortgage.

Vacation Homes or Second Homes

Vacation homes or second homes aren’t eligible for a Reverse Mortgage because they do not fulfil the requirement of being the primary residence of the borrower.

Can a Reverse Mortgage be done if I have a current mortgage?

Yes, in fact many homeowners choose the Reverse Mortgage because it frees them up from their monthly mortgage payment. The only condition is that they must receive enough money from the Reverse Mortgage to pay off their current mortgage. Any money that is left over is theirs to use for any purpose.

Do I still own my home if I do a Reverse Mortgage?

Yes, as with any mortgage the title of the home remains your name, not the lender.

How can I receive my Reverse Mortgage money?

The way you receive your money depends exclusively on your needs.  Pay out options include:

  • Lump sum allows you to receive the available money at the time of settlement.
  • Line of credit gives you access to the money when the need arises.  When the money is left in the account, it will grow to give you access to more funds.
  • Tenure plan provides you with a monthly check for as long as you live in your home.
  • Term plan allows you to receive a monthly payment for a fixed number of years.

Any of these options can be combined or changed at any time in order to customize a plan that best meets your needs.

Can I make a payment if I want?

Yes, with the flexible repayment option you decide how much or how little to pay and when towards the principal and interest. You can even choose to make no payments at all.

How is the Reverse Mortgage repaid?

The loan becomes due when all the Reverse Mortgage borrowers no longer live on the property.  When this happens, you or your estate may settle the loan by either selling the property or refinancing the mortgage.

What are some of the common uses of a Reverse Mortgage?

Money obtained from a Reverse Mortgage can be used for any reason.  Some of the most common uses include

  • Paying off existing mortgages
  • Paying off credit card debts
  • Doing home improvements
  • Purchasing a new home
  • Supplementing income
  • Paying for in-home healthcare
  • Helping family members

What are my responsibilities once I choose a Reverse Mortgage?

When participating in a Reverse Mortgage, you have three responsibilities:

  • Occupy the home as your primary residence
  • Pay homeowners insurance, and
  • Pay property taxes.

As long as you fulfill these obligations, you cannot be forced from your home.

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What happens if I pass for before my spouse?

If one spouse has passed and the surviving spouse is listed as a co-borrower on the Reverse Mortgage, the surviving spouse may continue to live in the home and the terms of the loan do not change.

How is the government involved?

The Federal Housing Administration ensures that if you ever owe more than the property is worth, you are not responsible for the money beyond the current market value of the home.  This guarantees your heirs will not be responsible for the excess obligation.  The government guarantees to pay back the difference of the loan balance if the property appraises for less than the money that is owed. In contrast, if the home appraises for more, the heirs can pay the loan balance and keep the rest of the money

What are the interest rates?

When you do a Reverse Mortgage you have a choice between doing an adjustable rate mortgage or a fixed rate.  They both have their advantages and disadvantages. If you choose to do a fixed rate, you are required to take the money available upfront and you will not have access to a line of credit in the future. With the adjustable rate, you have the choice of a lump sum, line of credit or a check each month. You may even choose to mix and match these combinations. You can choose a one year adjustable rate that can never go up or down more than 2% in one year and no more than 5% over the lifetime of the loan.  There is also a monthly adjustable rate that changes each month and has no monthly cap, but has a 10% lifetime cap. Most people choose the annual adjustable rate.

What determines how much money you receive?

The amount of money that’s available depends on three factors:

  • The age of the youngest homeowner,
  • Current interest rates, and
  • The appraised house value.

Basically the older you are, the more money you will receive.

What is better, a home equity line of credit or a Reverse Mortgage?

It really depends on your situation. A home equity line allows you to borrow against your house value.  In some cases, you only make interest-only payments for a period of time. At some point, you are required to make principle and interest payments. When this happens, people often struggle with the payments.  On the other hand, the Reverse Mortgage is like a home equity line but the big difference is it does not have a monthly payment.  As a result, the Reverse Mortgage offers two benefits:

1) No monthly payment, and

2) The line of credit option grows to give you access to more money in the future, no matter what the market is doing.

Can you cancel a Reverse Mortgage?

Yes, but only within a stipulated time frame. For most Reverse Mortgages, there is a three (3) day recision period after the last papers have been signed. If you pullout within this period, the lender must reimburse you for any money you’ve paid in financing the deal within twenty (20) days.

To cancel a Reverse Mortgage, you must let the lender know in writing via certified mail. Ask for a return receipt to help you track down that the lender received the notification and when. Remember to keep copies of all your letters with the lender. Depending on when you decide to cancel, most Reverse Mortgages would not charge you a fine.

What are the different types of Reverse Mortgages?

There are three types of Reverse Mortgages.

  1. Home Equity Conversion Mortgage
  2. Single Purpose Reverse Mortgage
  3. Propriety Reverse Mortgage

Home Equity Conversion Mortgage (HECM)

The most popular Reverse Mortgage is known as the HECM, which is insured and guaranteed by the Federal Housing Administration.

A HECM Reverse Mortgage is used by a lot of people because it requires neither income limits nor medical requirements. The borrower also has total control over how the loan proceeds may be used.

There are also privately insured Reverse Mortgages that are designed for houses with values over a million dollars. The HECM has much lower rates and offers more flexible options.

Before you can apply for a HECM, you must undergo a mandatory counseling session. This session can be done over the phone or face-to-face.  During housing counseling, you are told everything you need to know about the HECM loans and your options should you choose to pull out.

You don’t need to meet any specified income requirements to be eligible to apply for a HECM. Even with that, homeowners must undergo financial assessment when processing their loan applications.

When approved, you might decide to include a set-aside option for your property taxes and home insurance. The set-aside option means that the lender would deduct the amount for the taxes and home insurance premiums before paying you.

Unlike other types of Reverse Mortgages, the HECM offers many payment options:

  • Fixed monthly cash payment for a specified amount of time.
  • Fixed monthly cash payment for the duration you stay in the home.
  • Line of credit that allows you to withdraw money at will until the money is exhausted.
  • A single lump pay.
  • A combination of line of credit and any of the monthly payment options.

Single Purpose Reverse Mortgage

 A Single Purpose Reverse Mortgage has the least cost and is offered by non-profits agencies. The Reverse Mortgage can only be used for one purpose, which is set up by the non-profit agency who lends the money.

 Single Purpose loans are often used for small repairs and payment of property taxes. Single Purpose Reverse Mortgages have to be repaid if

  • The ownership of the home changes,
  • The borrower moves to a new primary residence,  
  • The borrower dies,
  • The city condemns the property, or
  • The borrower stops paying homeowners insurance

Single Purpose Reverse Mortgages are very limited in options, unlike the HECM. The homeowner is limited in how much he can borrow and doesn’t have the freedom to spend the money on anything he chooses.  The advantage of a single Purpose loan over a HECM and a propriety Reverse Mortgage is that it has lower interest rates and fees.

Proprietary Reverse Mortgage

Proprietary Reverse Mortgages are special mortgages for homes that are worth more than the Reverse Mortgage limit for federal backed HECMs.

People who take out proprietary Reverse Mortgages must have a home that is worth more than $679,650, the limit for HECMs.

Before you can apply for a proprietary loan, you’ll need to undergo a compulsory counseling session. During the counseling session, you’ll be told the risks and benefits of the proprietary Reverse Mortgage. You’d also be advised and offered other alternatives.

You should know that proprietary Reverse Mortgages do not have any federal backing and there is no mortgage insurance premium payment. This means that you can borrow more, unlike in HECM.

What are the Pros and Cons of Getting a Reverse Mortgage?

Pros

  1. Depending on the type of Reverse Mortgage you do, there are many options.
  2. The money from Reverse Mortgages can be used to pay off the mortgage on your home.
  3. You don’t have to make monthly mortgage payments as long as you still live in the home, maintain the property, and pay your property taxes as well as home insurance.
  4. Reverse Mortgage makes it easier for homeowners of 62 and above to enjoy a financially comfortable retirement.
  5. You live in and own the title to your house with the Reverse Mortgage as long as you are up to date with your responsibilities.
  6. A Reverse Mortgage is a non-recourse loan, which means that neither you nor your spouse or children are responsible for any mortgage that is greater than the value of your home.

Cons

  1. Interest and fees accumulate making the loan balance increase over time.
  2. With the use of home equity, the home is usually sold in order to pay off the Reverse Mortgage. Hence, you’ll be unable to leave the home to your heirs unless they are able to pay off the loan.
  3. With a Reverse Mortgage payment, eligibility for other needs-based government aids may be affected.