How reverse mortgage works? A reverse mortgage is a FHA loan to a person or person ages 62 years old and older that uses the equity in a home as collateral for the loan. The loan must be repaid after the borrowers move out of the home or become deceased. Any proceeds that exceed the loan balance when the home is sold is transferred to the borrowers estate and then transferred to the heirs. If the loan balance exceeds the monies paid for the property, the excessive debt is forgiven.
To be eligible, the house must have no encumbrances, liens, or unsatisfied mortgages or at least have mortgages that can be paid off with the proceeds from the reverse mortgage at the closing. The borrower does not need to meet credit or income requirements and must be at least 62 years old. Single family and multi-family houses and mobile homes on a permanent foundation sitting on land that is also owned are eligible for reverse mortgages as are townhomes and condos.
The loan is determined by the value of the home, the age of the borrower, current interest rates and FHA lending limits. The borrower’s responsibilities are to maintain the home, pay real estate taxes and pay homeowners insurance. No monthly payments are due during the course of the loan. Payments are due when the owner moves out of the house for 12 months or longer or dies. At that time the loan is deducted from the borrowers estate from the proceeds earned from the sale of the house.