Reverse mortgages in Orange County, explained in plain English

How a reverse mortgage works

With a traditional mortgage, you make monthly payments and your loan balance goes down. With a reverse mortgage it works the other way: the lender pays you, and the loan balance goes up over time as interest and fees are added. You do not have to make monthly mortgage payments, although you can make payments if you choose.

The loan is repaid when the last borrower sells the home, moves out permanently, or passes away. It is usually repaid from the sale of the home.

Most reverse mortgages are Home Equity Conversion Mortgages (HECMs), which are insured by the Federal Housing Administration (FHA). Some lenders also offer private, or "proprietary," reverse mortgages, which may suit higher-value homes. We can compare both for you.

Who qualifies

To qualify for a HECM reverse mortgage, generally:

• You (and any co-borrower) must be at least 62 years old. Some proprietary programs may have different age requirements.
• The home must be your primary residence, where you live most of the year.
• You need significant equity in the home. Any existing mortgage is paid off with the reverse mortgage proceeds.
• The property must meet FHA standards. Single-family homes, 2-4 unit homes you live in, and FHA-approved condominiums may qualify.
• The lender will do a financial assessment to confirm you can keep paying property taxes, insurance and upkeep.
• You must complete a counseling session with a HUD-approved reverse mortgage counselor before you apply. It is an independent, third-party session designed to make sure you understand the loan and your alternatives.

Ways to receive the money

You choose how to receive your funds, and some options can be combined:

• Lump sum at closing
• Monthly payments for as long as you live in the home, or for a set number of years
• A line of credit you draw from as needed; with a HECM, the unused portion of the line can grow over time
• A combination of monthly payments and a line of credit

How much you can receive depends on the age of the youngest borrower or eligible non-borrowing spouse, current interest rates, your home's value, and program limits. We will prepare a personal estimate for you.

Your responsibilities

A reverse mortgage removes the monthly mortgage payment, but not the costs of owning a home. To keep the loan in good standing you must:

• Continue to live in the home as your primary residence
• Pay property taxes, homeowners insurance and any HOA dues on time
• Keep the home in good repair

If these obligations are not met, the loan can become due and payable, and you could lose your home. We will walk through these responsibilities with you so there are no surprises.

Costs to understand

Reverse mortgages have costs, and they are typically added to the loan balance instead of paid out of pocket. These can include FHA mortgage insurance premiums, an origination fee, third-party closing costs such as the appraisal and title, and interest that accrues on the balance. Because interest and fees are added to the loan over time, the balance grows and the equity left for you or your heirs shrinks. You will receive a full breakdown before you decide.

What happens when the loan ends

The loan becomes due when the last borrower sells, passes away, or moves out of the home for more than 12 months in a row. At that point:

• You or your heirs can sell the home, repay the loan, and keep any remaining equity.
• Your heirs can keep the home by paying off the loan. With a HECM, they can pay the lesser of the full loan balance or 95% of the home's appraised value.
• A HECM is a non-recourse loan. You and your heirs will never owe more than the home is worth when it is sold. If the sale does not cover the balance, FHA insurance covers the shortfall.

Buying a home with a reverse mortgage

A HECM for Purchase lets buyers 62 and older buy a new primary residence, such as a single-level home closer to family, using a reverse mortgage together with a down payment. There is no required monthly mortgage payment on the new home, though taxes, insurance and upkeep still apply.

Is a reverse mortgage right for you?

A reverse mortgage may be a good fit if you plan to stay in your home for many years, want to reduce monthly expenses or supplement retirement income, and can comfortably keep up with taxes, insurance and maintenance.

It may not be the best choice if you plan to move soon, want to leave the home free and clear to heirs, or would struggle with ongoing property costs. In those cases, a HELOC, a home equity loan or selling and downsizing may serve you better. We will compare these alternatives in your review.

We encourage you to include your family or trusted advisors in the conversation.

These materials are not from, nor approved by, HUD or FHA, or any government agency. A reverse mortgage is a loan. Borrowers must be at least 62, must occupy the home as their primary residence, and must continue to pay property taxes, homeowners insurance and HOA dues and maintain the home, or the loan may become due and payable. Interest and fees are added to the loan balance over time.