Florida is home to more seniors than any other state in the country with nearly 20% of the population being people who are 65 or older. Sadly, many of these seniors also experience financial difficulties, causing them to consider taking out a reverse mortgage on their home.
Here the Law Offices of Gary I. Handin discusses everything you need to know about reverse mortgages in Florida before you apply.
What’s A Reverse Mortgage?
A reverse mortgage is a financial agreement where a homeowner relinquishes equity in their home in exchange for routine payments. These types of loans are typically made to supplement retirement income and should not be a sole means of income for the applicant. Traditionally, these loans are backed by the Federal Housing Administration (FHA) and offer more consumer protections, making them popular in Florida. Unlike a traditional mortgage, with a reverse mortgage, the lender pays you rather than you paying the lender. What’s more, there’s no repayment obligation until all of your home equity is gone or you no longer live in the property.
Another characteristic of reverse mortgages are the interest rates, which are typically lower and have less requirements than with a traditional mortgage. However, the closing costs are substantially higher than a standard mortgage.
Here are some things to know about reverse mortgages before deciding if this is something that would work for you.
Who Can Qualify for a Reverse Mortgage?
Whether or not you can qualify for a reverse mortgage depends on several different factors and is best discussed with a mortgage lender. First and foremost, you must be 62 years old or older and have a mortgage that’s paid off or is considerably paid down so you can tap into the home’s equity. Finally, the home must be the applicant’s primary residence.
Because this loan type allows you to receive payouts from your home equity, lenders look for seniors whose home values are high enough to provide the maximum benefit.
Additionally, lenders who offer reverse mortgages also want clients who have adequate retirement income, are in relatively good health, have no other outstanding debts, and are not expecting any inheritances that would affect their ability to repay the loan.
How Does a Reverse Mortgage Work?
You can choose to rollover your reverse mortgage credit into an account that allows you to draw on your home equity at will.
Most reverse mortgages allow homeowners access to the money any time. With this option, each month’s payment starts with whatever cash is left in your equity account. Then, the amount of the loan’s principal is reduced by the principal amount paid out on that month’s loan payment.
Advantages of a Reverse Mortgage
The biggest plus of a reverse mortgage is that you can get access to your home equity without selling your home. This loan type allows you to receive monthly income through the lender, so if you decide to downsize or relocate, you can move into another home without losing the money in your home equity account.
Another advantage of reverse mortgages is that there are no income taxes due on the money you receive. Unlike traditional mortgages, with reverse mortgages lenders pay out interest-free loans for as long as you live in the house.
Disadvantages of a Reverse Mortgage
The biggest drawback of reverse mortgages is that you can lose your home if you don’t repay the loan. Because these loans are unsecured, the lender has no recourse if you don’t pay. However, the good news is that they cannot go after one of your other assets to recoup their loss.
Another disadvantage of a reverse mortgage is that sometimes it needs to be repaid sooner than you think, like ,if you move out of your home to live in an assisted living facility. Unlike traditional loans, a reverse mortgage doesn’t require monthly payments, rather you pay back the loan all at once.
Finally, in Florida, there are more fees associated with reverse mortgages than typical home mortgages. While reverse mortgages backed by the FHA include some tremendous protections, those protections come at a cost.
Some of the fees you need to be aware of when applying for a home equity conversion loan are:
- Mortgage Insurance: 2% of your home’s value up-front
- Counseling Fee: This can vary but averages at about $125 in Florida
- Origination Fee: $2,500 OR 2% of the first $200,000 of your home’s value and then 1% of any additional value, whichever amount is greater – this fee is cut-off at $6,000
- Home Appraisal Fee: In Florida, the average cost for an appraisal fee is $300 to $500
Before you apply, talk to your lender about all the fees involved. This will help you determine whether or not you can afford a reverse mortgage loan in the first place.
Legal Implications
Borrowers are advised to check with their legal counsel because the rules are different depending on the state you live in. The same is true for homeowners who have family members who are interested in taking over the house.
Laws governing these practices are changing, so it’s best to get all of your questions answered before you proceed.
Have More Questions About Reverse Mortgages?
If you’re considering a reverse mortgage, it’s important to understand what they are and whether or not they are right for you. With a reverse mortgage, you can receive money now in exchange for agreeing to give up your home equity over time.
Before you take out a reverse mortgage, speak with an attorney with experience in real estate law. If you have questions about applying for a reverse mortgage in Coral Springs, contact the Law Offices of Gary I. Handin, PA . Our experts will help you with all your mortgage questions.