Benefits with Commonwealth of Virginia Members

Reverse Mortgages

A reverse mortgage is a special type of home equity loan that allows you to receive cash against the value of your home without selling it. The following is true for most reverse mortgages:

• You can choose to receive a lump-sum payment, a monthly payment or a line of credit.
• There are no restrictions on how you use the remainder of the money.
• You continue to live in the home, and you retain title and ownership of it.
• You are also still responsible for taxes, hazard insurance and home repairs.
• However, you do not have to repay the loan as long as you continue to live in the home. Instead, the amount you owe, based on loan payouts and interest on the loan, becomes due when you or the last borrower, usually the last remaining spouse, dies, sells or permanently moves out of the home.

To qualify for a reverse mortgage, you must be age 62 or older. Unlike a traditional mortgage, a reverse mortgage does not require you to provide an income or credit history to get the loan. The home must be your primary residence.

How to Apply

You must meet with an approved reverse mortgage counselor before you can start the loan process. These counselors can help you decide whether a reverse mortgage is right for you. Here are some important considerations:

• You must use the funds you receive to pay off any existing mortgages or other debt against your home and to make required home repairs.
• As long as you spend the payments you receive in the month that you receive them, the money is not taxable and does not count toward income or affect Social Security or Medicare benefits.
• This does not count as income for Medicaid eligibility.
• Once you have a reverse mortgage, it is very difficult to borrow any more against your home. However, you can refinance a reverse mortgage if the house increases significantly in value.
• If your heirs want to keep your home, they can repay the reverse mortgage. They can also keep the difference if the home's sale price is greater than the reverse mortgage loan balance when they repay the loan.

Reverse Mortgage Types

Most people get reverse mortgages through a mortgage lender. Some credit unions and banks, with state and local housing agencies, may offer these loans as well. Generally, there are three types of reverse mortgages:

• Home Equity Conversion Mortgage (HECM)—The Department of Housing and Urban Development (HUD) offers HECMs, and the Federal Housing Administration (FHA) insures them. HECMs are the most popular reverse mortgages, representing about 90 percent of the market. The federal government regulates most upfront costs for HECM loans. There are limits on the total fees and interest rates that you must pay.
• Fannie Mae Home Keeper Loan—The loan limits for Fannie Mae Home Keeper Loan is higher than for HECMs. Therefore, you may receive more cash from these loans than with a HECM.
• Financial Freedom Cash Account Loans—Financial Freedom Cash Account Loans are designed for seniors who own expensive homes.

Conventional Versus Reverse Mortgage

The concept of a reverse mortgage may be simple, but there are many details to consider before purchasing one. Below is a comparison chart to help you understand and help you decide if a reverse mortgage is right for you.