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Seniors wonder if they qualify for a reverse mortgage even if still they still owe money on an existing mortgage. Typically, the reverse mortgage must be in a first lien position, so any existing loans on the home must be paid off. You can pay off the existing mortgage with a reverse mortgage, money from your savings, or assistance from a family member or friend.
Let’s look at an example. Say you owe $100,000 on an existing mortgage. Based on your age, home value, and interest rates, you qualify for $125,000 under the reverse mortgage program. Under this scenario, you will be able to pay off ALL the existing mortgage and still have $25,000 left over to use as you wish.
If you only qualify for $85,000, then you would need to come up with $15,000 from your own savings to get the reverse mortgage. Even then, all the money from the reverse mortgage will have been used to pay off the existing mortgage. On the other hand, you won’t have a monthly mortgage payment anymore.
If a senior finds him/herself in a deficit situation not having ample money to pay off the existing mortgage, you are able to use funds from a grant or gift from a family member or friend to cover the gap, but you cannot incur a new debt obligation or loan.
The FHA HECM program charges a monthly servicing fee that ranges from $30-$35 to manage your account once the loan closes. The SFSA is an estimate of what the total servicing fees will be over the life of the loan, by multplying your life expectancy (converted from years into months) multiplied by either $30 or $35. Although it’s not considered a closing cost, the SFSA can equal several thousand dollars, which is deducted from your available loan proceeds. You do not have access to that money, nor do you earn interest.
Most seniors ask if they will lose the right for government assistance if they apply for a reverse loan. It does not affect regular Social Security or Medicare benefits. However, if you are on Medicaid, any reverse mortgage proceeds that you receive must be used immediately. Funds that you retain would count as an asset and could impact Medicaid eligibility. If you receive $5,000 in a lump sum for home repairs and spend it all the same calendar month, everything is fine. Any residual funds remaining in your bank account the following month would count as an asset. If the total liquid resources (including other bank funds and savings bonds) exceed $2,000 for an individual or $3,000 for a couple, you would be ineligible for Medicaid. To be safe, you should contact the local Area Agency on Aging or a Medicaid expert. For More Information Click here.
Or call Bob Heckler at 888-268-7481 to find out more. Or fill out the form on Reverse Loan Guide.
