Who Owns the House for a Reverse Mortgage in Detroit?
Reverse mortgages have gained popularity over the past few years for people over the age of 62 who need money for medical expenses, home repairs, and additional funds needed during retirement. This type of mortgage allows seniors to collect on the unencumbered value of their residential property in exchange for regular payments from the mortgage loan company. Before considering a reverse mortgage, it is important to understand the entire process of how a reverse mortgage works.
Who Owns the House for a Reverse Mortgage in Detroit?
A reverse mortgage allows the homeowner to obtain cash for equity while still retaining ownership. Equity is the difference in how much is left to pay on the home and what the home is worth. The homeowner receives monthly payments while still retaining the deed.
If one spouse passes away or is moved to a separate, permanent living situation, such as a long-term care facility, the other spouse remains protected. As long as one spouse is on the mortgage, the reverse mortgage is still in effect, and they still retain the title. You don’t pay back a reverse mortgage until all people on the loan have permanently left it.
If you inherit a home with a reverse mortgage, you will not receive the title to the home until the reverse mortgage debt is paid back. For example, if the original homeowners received $100,000 in reverse mortgage payments, you would inherit the debt of $100,000 with the home plus any fees or interest that have added up. There are a few options if the reverse mortgage is an HECM mortgage, which is backed by the Federal Housing Authority.
Those who inherit a home that is subject to a reverse mortgage can:
- Pay back the loan. With an HECM, the heirs may pay either the mortgage balance or 95% of the current appraised value of the home. They may choose the lesser amount of the two and the FHA insurance will cover the remaining loan balance.
- Sell the home and use the profit to repay the reverse mortgage. With an HECM, someone who inherits the property can sell it for the full amount of debt owed or 95% or more of the current appraised value.
- Give the deed to the home to the lender.
- Take no action and let the lender foreclose.
What’s a Proprietary Reverse Mortgage?
There are several types of reverse mortgages. A proprietary reverse mortgage is one type offered by a bank or financial institution on its own. This type of reverse mortgage is backed by private companies and not insured by the federal government. It’s generally for people who have high value homes. A federally insured loan means that if the housing market declines, the money is still there and will not be reduced.
How Long Does a Reverse Mortgage Last?
Unlike most mortgages or loans, a reverse mortgage does not have a due date to be paid back. The homeowner must follow the conditions of the mortgage, such as maintaining the home and paying the taxes and insurance. However, they don’t have to repay the loan until the last homeowner permanently leaves the home or passes away.
How to Apply for a Reverse Mortgage
To apply for a reverse mortgage, you must first ensure you qualify, which involves meeting conditions such as:
- You and anyone else who will be on the loan must be at least 62 years old.
- The home you are listing for a reverse mortgage must be your primary residence.
- If there is debt from a previous mortgage, you must pay off that debt or pay off the remainder of the debt with the reverse mortgage amount.
- You must have a consultation with a HUD-approved reverse mortgage counselor before applying for a reverse mortgage loan. The reverse mortgage counselor will talk to you about how a reverse mortgage works and the associated fees. The goal of the session is to make sure that you fully understand and are comfortable with the process and the terms of the loan.
- The home must be a single-family property, a 2–4-unit property in which you own a unit, an FHA-approved condo, a manufactured home built after June 1976 that meets HUD requirements, or a townhouse.
- You must prove you have the financial ability and willingness to meet the loan obligations, such as paying property taxes, paying insurance, and keeping up with regular home maintenance and repairs.
It is important to work with a lending institution that knows the entire process of the housing market and can help you navigate the best ways to obtain your home if you are a first-time home buyer, wanting to buy a second home, or wanting to refinance your current home. Be sure to choose wisely when evaluating mortgage lenders in Detroit.
