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If you’re thinking about getting a reverse mortgage, you’ve probably explored the benefits it can provide. Unlike a traditional “forward” mortgage, the HECM (Home Equity Conversion Mortgage) borrower is not required to make mortgage interest or monthly mortgage payments during the lifetime of the loan.*
Instead, the loan and interest are due when the borrower sells, moves from the home or passes away. Usually, the home is sold to repay the loan and, if FHA-insured, FHA pays for amounts not fully covered by the sale proceeds.
However, there are very important obligations that all borrowers must meet in order to remain current on the reverse mortgage loan.
The main responsibilities include primary occupancy, maintaining a homeowners’ insurance policy, keeping current on property taxes and any other property charges as well as maintaining the home to Federal Housing Administration standards.*
The property used as collateral for the reverse mortgage must be the primary or principal residence. Vacation homes and investor properties do not qualify.
Homeowners insurance & applicable HOA fees
Most homeowners should already be very familiar with these responsibilities. Reverse mortgage borrowers are required to have a current homeowners’ insurance policy which includes hazard and flood insurance. Failing to maintain insurance will result in the loan becoming due and payable. Additionally and where applicable, homeowners must stay current on their HOA (Home Owner Association) dues.
Like all homeowners, reverse mortgage borrowers are required to pay property tax as deemed by their local jurisdiction. Failure to pay property taxes can result in loan default.
The Federal Housing Administration insures all HECM mortgages. These are the most common reverse mortgages in the market. As part of the FHA loan agreement, borrowers must keep the home up to FHA’s standards and pay utilities. This includes, but is not limited to, completing mandatory repairs and maintaining the condition of the property. Your reverse mortgage specialist and counselor can discuss the complete list of the required property standards with you.
Failure to meet these responsibilities can result in loan default, so it’s very important to acknowledge and understand them before getting a reverse mortgage.
Depending on the borrower’s financial situation, the loan may require a set-aside for property taxes and insurance. A reverse mortgage professional can help you learn more about this possibility and whether it applies to your individual situation.
An additional note: Conveyance of the mortgage property by will or operation of law to the estate or heir after borrower’s death: When a reverse mortgage becomes due and payable upon the death of the last surviving borrower and the property is conveyed by will or operation of the law, the estate or heirs (or parties if multiple heirs) may satisfy the HECM debt by selling the property for the lesser of the mortgage balance or 95% of the current appraised value of the property.
If you’re a homeowner age 62 and older considering a reverse mortgage and would like to learn more about reverse mortgages, please contact a Finance of America Reverse mortgage professional today!
*The borrower meets all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.