Reverse Mortgages in Florida
Florida seniors are always looking for new ways to supplement their income. For Floridians who own their own home, one option may be a reverse mortgage. The Federal Housing Administration, a division of the United States Department of Housing and Urban Development has developed a federally-insured reverse mortgage program called the home equity conversion mortgage (HECM). If you or your family have questions about reverse mortgages or want to hear more about HECMs, contact a lending professional at Dynamic Funding today.
FHA Reverse Mortgages
The FHA insures certain reverse mortgages through their Home Equity Conversion Mortgage (HECM) program. This program authorizes seniors over 62 to refinance through an FHA-approved lender and in the process, withdraw some of the home’s equity either in a lump sum or over a period of time. A variety of factors including the age of the borrowers, the current interest rate, and home value determine how much will be available for withdrawal.
A major benefit of the FHA reverse mortgage occurs when the loan is repaid. At the end of an FHA reverse mortgage, when the last occupant has left the home, the home is sold to pay the remaining loan balance. Generally, the estate will keep any remaining funds. Sometimes however there are no excess funds, or worse, not enough to cover the cost of the mortgage. With an FHA-approved reverse mortgage, when the home is sold, the FHA will make up the difference if the sale of the home does not cover the remaining cost of the mortgage.
These HECM loans have many benefits but they also come with responsibilities. For example, most borrowers still have to maintain the home and pay any applicable property taxes and HOA dues. If the homeowner fails to uphold these responsibilities, the lender may foreclose on the property.
Understanding the Advantages of a Reverse Mortgage
There are a number of attractive benefits to reverse mortgages, including:
- Flexible repayment. Depending on the circumstances, a borrower may be able to make reduced monthly payments or even no payment at all.
- Stay in your home. A reverse mortgage allows you to take advantage of your home’s equity without having to move.
- No income taxes. Generally, the monies received from a reverse mortgage are considered loan proceeds and are not counted as income for tax purposes. However, tax regulations are very complicated and all tax-related questions should be directed to a tax professional.
- Options for heirs. When the borrower is out of the home, his or her heirs generally have the option of selling the property and paying off the loan, keeping the home and refinancing the mortgage, or handing the property over to the lender.
- Locks in home equity. Especially in volatile real estate markets, a reverse mortgage may allow a homeowner to refinance at the peak of a market to maximize the available cash.
- Federal insurance. HECMs are insured by the FHA. If at the time the home is sold, the sale does not satisfy the mortgage amount, the FHA will pay the difference.
There Are Different Types Of Reverse Mortgages
There are three primary categories of reverse mortgages. They are as follows:
- Single-purpose reverse mortgages. This is the least expensive and least common type of reverse mortgages. Usually, they are only offered by local governments and nonprofit organizations, the withdrawn funds may only be used for a single purpose such as home improvement.
- Proprietary reverse mortgage. These are private loans and are not insured by the federal government.
- Home Equity Conversion Mortgage (HECM). These are the FHA-backed, federally-insured reverse mortgages.
Before you make a decision about any reverse mortgage, get all the information you need from a loan specialist at Dynamic Funding.
There Are More Fees Involved With Reverse Mortgages In Florida Than Traditional Mortgages
While FHA-insured high equity conversion mortgages are generally thought to be less risky than the types of reverse mortgages, they do come with the burden of additional costs and fees. Some of these include:
- Counseling fee. Every applicant for an FHA HECM must first complete counseling with an approved financial counselor. The cost of the fee varies but is typically around $125.
- Home appraisal. A HECM applicant must also undergo a home appraisal. The applicant will bear the cost of the appraisal which also varies, but can typically be completed for under $500.
- Origination fee. Every HECM contains an origination fee of $2,500 or 2% of the first $200,000 of the home’s value and 1% of any additional value, whichever is greater. The fee is capped at $6,000.
- Mortgage insurance. Mandatory mortgage insurance of 2% of the home’s value upfront and one-half a percent of the outstanding balance annually.
Talk To A Mortgage Professional
If you and your family are interested in a reverse mortgage in Florida, contact the loan professionals at Dynamic Funding today. Call us at (215)364-7171 or fill out the online contact form below.