If I take out a reverse mortgage loan, does the lender own my home? | Consumer Financial Protection Bureau (2024)

FAQs

Does the bank own your home in a reverse mortgage? ›

No. When you take out a reverse mortgage loan, the title to your home remains with you. This webpage has information about HECMs, which are the most common type of reverse mortgage.

So, can a creditor or collector GARNISH, PLACE A LIEN OR LEVY funds from your RM? Since a RM is a loan, you do not own the home anymore. You live there and everything stays the same, but you have "pre-sold" it to the RM Company. Therefore, a creditor CANNOT garnish or place a lien.

The loan is repaid when the borrower. Interest and fees are added to the loan balance each month and the balance grows. With a reverse mortgage loan, homeowners are required to pay property taxes and homeowners insurance, use the property as their principal residence, and keep their house in good condition.

Home Equity Conversion Mortgages (HECMs).

These are the most common type of reverse mortgage — you can use them for any purpose. They are federally-insured by HUD, but that insurance doesn't protect the homeowner.

A big downside to reverse mortgages is the loss of home equity. Because you're not paying down your reverse mortgage balance, you'll make less profit when you sell, or limit your borrowing power if you need a new loan. You'll pay high upfront fees.

A reverse mortgage agreement does not require a homeowner to give up the title to borrow money. If you currently own your home and set up a reverse mortgage, you or an heir will only give up ownership of the property if the terms of the agreement are breached.

As housing prices dropped during the recession, it became increasingly challenging to predict whether homeowners could keep up with taxes and insurance obligations. One out of every ten reverse mortgages is in default or foreclosure.

Selling a home that has a reverse mortgage can be tricky, and isn't quite the same as selling one with a traditional mortgage (or no mortgage at all). However, it can be done if you understand the process. Before you make a decision, learn more about how to sell a house with a reverse mortgage.

A reverse mortgage shall constitute a lien against the subject property to the extent of all advances made pursuant to the reverse mortgage and all interest accrued on these advances, and that lien shall have priority over any lien filed or recorded after recordation of a reverse mortgage loan.

This means your heirs can pay off the loan by selling the home for at least 95 percent of the home's appraised value. The rest of the loan is covered by the mortgage insurance that the reverse mortgage borrower paid during the duration of the loan.

What is the 60% rule for reverse mortgage? ›

This is known as the 60% rule, which limits the homeowner to accessing 60% of the initial Principal Limit (the amount that you can borrow), or 10% above the mandatory obligations (a combination of mortgage balances/ liens and closing costs).

Taking a loan too early

The earliest a homeowner is eligible to take out a reverse mortgage is age 62, but Orman considers it risky to do so. "If you tap all your home equity through a reverse at 62 and then at 72 you realize you can't really afford the home, you will have to sell the home," she said.

With a Federal Housing Administration-insured Home Equity Conversion Mortgage (HECM), the borrower retains ownership of the property while continuing to live there throughout the loan. They are not required to make monthly mortgage payments during that time.

Smaller Inheritances and Greater Hassles for Any Heirs

A reverse mortgage can also deplete much of the homeowner's wealth, especially if their home is basically all they have, leaving little behind for their heirs.

A reverse mortgage isn't free money: The borrowing costs can be high, and you'll still need to pay for homeowners insurance and property taxes. Reverse mortgages can also complicate life for your heirs, especially if they don't want the home or the home's value isn't enough to cover what's owed.

A reverse mortgage loan becomes due and payable after your death and after the death of any coborrowers or of an eligible nonborrowing spouse. Once your heirs receive a due and payable notice from the lender, they have 30 days to buy, sell, or turn the home over to the lender to satisfy the debt.

Therefore, the answer is yes: a borrower can sell a home with a reverse mortgage at any time they choose, just like a traditional mortgage. When a borrower sells their home, they must repay the reverse mortgage loan balance and their lender will close their account. Borrowers then keep the remaining equity.

If you plan on living in your home for the rest of your life the Mortgage will last as long as you live in the home and pay your property taxes.