A reverse mortgage works by allowing homeowners 62 and older to borrow money from their home. As a borrower, you can choose to raise funds in a lump sum, line of credit or through structured monthly payments. So here is a short summary of how do reverse mortgages work in California.
Full Answer
How do you calculate a reverse mortgage?
• Reverse mortgage calculators work by gathering information about you and your property: Your age, your spouse’s age, whether or not you have a non-borrowing spouse, the estimated value of your home and the current outstanding forward mortgage balance.
How much equity do you need for a reverse mortgage?
To qualify for a reverse mortgage, borrowers must own their home outright or have significant equity. Exactly how much equity do you need for a reverse mortgage? The specific percentage varies by lender and the type of reverse mortgage, but the general rule of thumb is to have at least 50% equity in your home.
What are facts about reverse mortgage?
- Experience level - How familiar are they with reverse mortgages? How many have they closed?
- Options - Ideally, the lender will be able to explain various other alternatives to a reverse mortgage, what the benefits and possible disadvantages are, and suggest you consult with an ...
- Fees - All reverse mortgages have associated closing costs. ...
Who are the best mortgage lenders in California?
What are the best mortgage lenders in California?
- Quicken Loans. When it comes to customer service, you'd be hard-pressed to find a better choice than Quicken Loans.
- Chase Bank. When buying your first home, it can be helpful to have as much hand-holding as possible. ...
- Navy Federal Credit Union. Former members of the armed services deserve the best when buying a home. ...
- New American Funding. ...
- Bank of America. ...
What is the downside of getting a reverse mortgage?
A big downside to reverse mortgages is the loss of home equity. Because you're not paying down your reverse mortgage balance, you'll make less profit when you sell, or limit your borrowing power if you need a new loan. You'll pay high upfront fees.
What are the requirements for a reverse mortgage in California?
A reverse mortgage is also known as a home equity conversion mortgage. According to California law, in order to qualify for a reverse mortgage homeowners must be age 62 or over, occupy the property as a principal residence, and own the home outright or have significant equity in the home.
What are the 3 types of reverse mortgages?
There are several kinds of reverse mortgage loans: (1) those insured by the Federal Housing Administration (FHA); (2) proprietary reverse mortgage loans that are not FHA-insured; and (3) single-purpose reverse mortgage loans offered by state and local governments.
What are the 5 restrictions that must be observed in a reverse mortgage?
10 reverse mortgage rules you should knowRule #1: You must meet the age requirement. ... Rule #2: You need to have a good chunk of home equity. ... Rule #3: You must live in the home you're financing. ... Rule #4: You can't be delinquent on federal debt. ... Rule #5: You must prove you can pay ongoing housing costs.More items...•
What credit score is needed for reverse mortgage?
There is no minimum credit score requirement for a reverse mortgage, primarily because the main thing lenders want to know is whether you can handle the ongoing expenses required to maintain the house. Lenders will, however, look to see if you're delinquent on any federal debt.
Who pays the taxes on a reverse mortgage?
No, reverse mortgage payments aren't taxable. Reverse mortgage payments are considered loan proceeds and not income. The lender pays you, the borrower, loan proceeds (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home.
Who benefits most from a reverse mortgage?
1. Helps Secure Your Retirement. Reverse mortgages are ideal for retirees who don't have a lot of cash savings or investments but do have a lot of wealth built up in their homes. A reverse mortgage allows you to turn an otherwise illiquid asset into cash that you can use to cover expenses in retirement.
Is a reverse mortgage a good idea for seniors?
The Takeaway If you're an older homeowner who plans to stay put, a reverse mortgage may be a sensible way to help fund your golden years. This is especially true for seniors whose spouses are also over age 62 and can be listed as co-borrowers on the loan.
What are monthly costs for a reverse mortgage?
Ongoing costs Loan servicing fees: Lenders can charge a monthly servicing fee of up to $30 if your reverse mortgage loan has an interest rate that adjusts annually, and no more than $35 monthly if the interest rate adjusts on a monthly basis.
Can you be kicked out of your house with a reverse mortgage?
Regardless of how much you borrow from the reverse mortgage or how much equity you have available, you cannot be forced out of your house unless you fall behind on taxes, insurance, utilities or property maintenance. If any of those situations occur, the loan defaults and the balance becomes due.
What does Suze Orman say about reverse mortgages?
In her view, it's best to treat a reverse mortgage as a last resort for emergency money, and to wait as long as you possibly can before going that route. "If you tap all your home equity through a reverse at 62 and then at 72 you realize you can't really afford the home, you will have to sell the home," she says.
What is the most commonly used reverse mortgage?
A Home Equity Conversion Mortgage (HECM), the most common type of reverse mortgage, is a special type of home loan only for homeowners who are 62 and older.
What are three major requirements to qualify for a reverse mortgage?
PERSONAL REQUIREMENTSAll borrowers on the home's title must be at least 62 years old. ... You must live in your home as your primary residence for the life of the reverse mortgage. ... You must own your home outright or have at least 50% equity in your home to be eligible for a reverse mortgage loan.More items...
What are the 4 basic documents that are given to the borrower for a reverse mortgage?
— Valid identification. — Verification that the property is your principal address. — Proof of income that shows you have enough money to pay property taxes and homeowners insurance. — Certificate that you have undergone reverse mortgage loan counseling.
Is it hard to qualify for a reverse mortgage?
Reverse mortgages don't have income or credit score requirements. This is one of the ways in which reverse mortgages differ from a home equity loan or a home equity line of credit (HELOC).
What are mandatory obligations in a reverse mortgage?
As a reverse mortgage borrower, you have three main responsibilities: You are required to pay your property charges—such as property taxes and homeowners insurance—on time. Your home must be kept in good repair. Your home must be your principal residence.
Reverse Mortgage Meaning
A reverse mortgage is exactly as it sounds. Rather than the borrower making payments to the lender, the lender makes payments to the borrower based on the value or equity in the borrower’s owner-occupied principal residence.
Reverse Mortgage – California State Law
Under California state law, prior to accepting a reverse mortgage application, the lender must provide the borrower with a list of at least 10 nonprofit counseling agencies to ensure the borrower fully understands the risks and implications of this type of loan.
Reverse Mortgage – Federal Law
In addition to California state law regulations, the lender must also comply with federal regulations under the Truth in Lending Act. For instance, the lender must provide a special disclosure stating that the borrower is not required to complete the transaction even if he received the disclosures or signed the application.
What happens if you reverse mortgage your home?
A reverse mortgage, of course, will decrease the equity in your home, thereby leaving less in your estate for your heirs. Reverse mortgages vary.
When does a reverse mortgage come due?
The loan does not come due until you move out of the house, sell the house, or both spouses (if they were both borrowers) have died. Make sure both spouses are on the reverse mortgage, however.
What age can you get a reverse mortgage in California?
Understanding the Pros and Cons of Reverse Mortgages in California. A reverse mortgage is a type of loan that enables people who are age 62 and older to use the equity they have built up in their home over the years. The homeowner borrows against their home equity; instead of you paying a lender for a mortgage, the lender makes payments to you.
Can you take a reverse mortgage out on your primary residence?
A reverse mortgage must be taken out on the borrower’s primary residence. The California’s Reverse Mortgage Elder Protection Act of 2009 states that a reverse mortgage may have a fixed or adjustable rate of interest. There are basically two kinds.
Do you have to meet with a government counselor before applying for a reverse mortgage?
But there are some issues you need to know about before making a decision. There is a reason there is a federal requirement that you meet with a government-approved counselor before even applying for a reverse mortgage.
Can you use a qualified mortgage to pay for anything?
You can use it to pay for anything you like, such as health care, early retirement, or even travel. Qualification is usually not based on credit or income. It’s generally based on the age of the youngest borrower or non-borrowing spouse, the value of the home and the current interest rate.
Do you have to pay back a home equity loan?
Payments can be received monthly, in a lump sum or through a credit line. Unlike a home equity loan where you make monthly payments, you don’t have to pay the loan back while you remain in the home. All interest is paid at the end of the loan rather than at the beginning, but that can be an advantage or a disadvantage.
What is reverse mortgage?
Reverse Mortgages are equity-based loans. The older the home buyer is, the less down payment is required. Buyers who have purchase reverse mortgages never have to worry about making a single monthly mortgage payment for the rest they own the home. Homeowners are responsible for property taxes and homeowners insurance.
What happens to a reverse mortgage when a homeowner passes away?
When the homeowner passes away, the heirs to the property either has the option of refinancing, selling the home, or surrendering the home to the lender. The payments due on reverse mortgages gets added to the balance of the loan. The reverse mortgage loan balance keeps on getting larger as time passes.
How old do you have to be to get a reverse mortgage in California?
Senior homebuyers who are at least 62 years old are eligible to qualify for purchase reverse mortgages in California.
What is the average home value in California?
California has the highest home values in the nation. The medium home value in the state of California is $623,500 versus the national $334,760 average. California has seen a sharper increase in the value of housing due to the extreme shortage of homes in the state. California has the most high-cost counties than any other state in the nation. Home builders have a harder time getting land and permit in the state of California due to its strict environmental rules and guidelines. This is why California has sharply increasing home values than any other state in the nation. The spike in home values over the past several years has motivated many senior homeowners to take advantage of taking out a reverse mortgage. Proceeds from reverse mortgages are tax free. There is no rules or regulations on what homeowners can spend the proceeds from reverse mortgages. In this article, we will discuss qualifying for a reverse mortgage in California.
Why is it so hard to get a home permit in California?
Home builders have a harder time getting land and permit in the state of California due to its strict environmental rules and guidelines. This is why California has sharply increasing home values than any other state in the nation.
Do you have to pay taxes on a reverse mortgage?
Reverse mortgages are tax-free and borrowers do not have to pay taxes on the amount of cash out they get when refinancing.
Can reverse mortgage proceeds be used for homeowners?
Proceeds from reverse mortgages can be used in any way or form by homeowners.
How does reverse mortgage work?
A reverse mortgage works by allowing homeowners age 62 and older to borrow from their home’s equity without having to make monthly mortgage payments.
How is reverse mortgage different from traditional mortgage?
The traditional loan is a falling debt, rising equity loan. A reverse mortgage is a falling equity, rising debt loan.
Why does Jane take a reverse mortgage?
Jane, who took a reverse mortgage, decides to make some repayments to keep her balance from rising. Because reverse mortgages are OPEN ENDED loans, the lender is required to increase Jane’s available line of credit by each payment she applies to her loan balance .
How old do you have to be to get a reverse mortgage?
You must be at least 62 years of age for a reverse mortgage. The Principal Limit of the loan is determined based on the age of the youngest borrower because the program uses actuarial tables to determine how long borrowers are likely to continue to accrue interest.
Why does the age of the youngest borrower lower the amount available?
If there are multiple borrowers, the age of the youngest borrower will lower the amount available because the terms allow all borrowers to live in the home for the rest of their lives without having to make a payment.
What is a monthly statement for a reverse mortgage?
As with all mortgages, you will receive a monthly statement that will outline the interest charges, loan balance and line of credit activity. One thing to keep in mind is with a reverse mortgage you own your home and are responsible for maintaining future property charges such as your taxes and homeowner’s insurance.
What are the factors that determine the amount of a mortgage?
Also factoring into the loan amount are: 1 Costs to obtain the loan (which are subtracted from the Principal Limit) 2 Existing mortgages and liens (which must be paid in full) 3 Any remaining money belongs to you or your heirs.
What is reverse mortgage?
The reverse mortgage lender is merely extending a loan to the borrower. Because the homeowners retain title, they remain responsible for the payment of property taxes, insurance, utilities, home maintenance, and other expenses - just as they would with a standard first mortgage or home equity loan.
How long does a reverse mortgage last?
Most reverse mortgages are taken out on single family, one-unit homes.
What happens when you sell your home?
When you sell your home or no longer use it for your primary residence, you or your estate must repay the lender for the cash received from the reverse mortgage, plus interest and service fees. Any remaining equity belongs to you or your heirs.
How long can a borrower stay in a home?
the last surviving borrower fails to live in the home for greater than 12 consecutive months (up to 12 months absence is allowed for health care rehabilitation needs)
Is reverse mortgage income tax free?
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 acquire from a reverse mortgage is yours to use in any way you choose. *Consult your tax advisor.
Do you have to make monthly payments on a reverse mortgage?
However, with a reverse mortgage you do not make any monthly mortgage payments for as long as you stay in the home.
Do you have to pay back a mortgage loan?
No, they cannot. And the loan is not due at that time either. In fact, you don't need to repay the loan as long as you or another borrower continues to live in the house, keep the taxes paid and insurance in force.
