Gidget Jackson is SRES, Senior Real Estate Specialist and Licensed Mortgage Broker. She offers Traditional and Reverse Mortgages to help Seniors with financial solutions.
Call or Text me anytime 305-900-8217
Apply for a Traditional Mortgage (Click here) OR apply for a Reverse Mortgage (click here)
Staying in your home for as long as possible is an option when in-home assistance is affordable.
Tapping into your home's equity is a way to stay in your home longer and cover needed expenses.
Benefits
Tapping built-up equity: Allows borrowers to use equity that has built up in their home over time
Lifetime income: Stay in your home longer
Non-recourse financing: Neither the homeowner nor their heirs will owe more than the property is worth if the loan amount is more than the value of the property.
Tax Free payouts: The money received from a reverse mortgage is non-taxable income.
Asset preservation: It may be better to tap into your equity than spend down other assets.
Finance Options
Tenure: Equal monthly payments as long as living in the home
Term: Equal monthly payments for a fixed number of months
Line of Credit: Payments as needed until the line of credit is exhausted
The loan only accrues interest on the loan amount withdrawn and the remaining line of credit grows at the same rate so that the amount of available credit increases.
The HECM line of credit does not require repayment until the borrower sells, vacates the home or passes away.
The amount cannot be frozen
A negative-equity situation cannot occur. The borrower, or heirs, will never owe more than the property is worth at the time of sale.
Modified Tenure: Combination of scheduled payments and a line of credit
Modified Term: Combination of monthly payments (fixed number of months) and a line of credit
Lump Sum (Note: This could affect Medicaid)
Eligibility Criteria
The youngest borrower must be 62 or older. I have some programs that start at age 55.
You must own the property outright and have a considerable amount of equity
Occupy the property as your principal residence
Not be delinquent on any federal debt
Have financial resources - residual income - to continue paying taxes, insurance, HOA fees, if applicable and maintenance of the property. In some cases, taxes and insurance can be included in the mortgage.
Not be delinquent on any federal debt
Participate in a counseling session with a HUD Certified HECM Counselor
Eligiable Properties: Single family homes, FHA-Approved Condos/HOA/Coops, Manufactured homes built after 1976 and installed on a permanent foundation.
Two-to-Four unit homes with one owner occupied unit.
Four factors determine the amount available
Appraised value of the home
Age of the youngest borrower or non borrowing spouse
Interest rates
Maximum claim amount
Upfront Costs
Counseling: $125 HUD recommended fee, some services offer free counseling
Origination Fee
$2,500 minimum, $6,000 maximum
Greater of $2,500 or 2% of MCA up $200,000
Plus 1% of MCA over $200,000
Mortgage Insurance (Not required for proprietary reverse mortgages)
2% initial premium
.05% annual premium
Closing costs
These costs are usually the same as a traditional mortgage including appraisal, title insurance, title search, inspections, recording & closing fees, state and municipal fees, Fees can be financed as part of the loan.
Monthly fees
Service Fee $30-$35 (waived by some lenders)
Taxes: Real estate taxed and insurance may be set aside by lender
When the Loan Ends
Move/Absence: The borrowers move to another residence, or the last borrower no longer lives in the home as a primary residence for a period of 12 consecutive months. Short-term stays in a hospital or second home do not disqualify the property.
Sale: The property is sold
Death: The last borrower or non-borrower spouse residing in the home passes away
Neglect: The borrower stops paying taxes and insurance and/or stops maintaining the property.
Non-Borrowing Spouses
If the Borrower passes away and the HECM was issued on or after August 2, 2014, the eligible non-borrowing spouse (NBS) may remain in the home. The loan repayment is deferred if the following conditions are met
At the time of loan closing, the NBS is married to the borrower and remains married for the rest of the borrower's lifetime or until the loan is satisfied
The spousal status of the borrower and NBS is disclosed at the time of the loan application and closing.
The NBS is specifally named as such in the mortgage documents.
The property is the NBS's principal residence.
The NBS continues to meet all loan obligations.
Heirs
When the last surviving homeowner passes away, the remaining equity in the property goes to the heirs, not the bank. Heirs have a chance to sell the house (must be arms length) to pay off the debt, pay off from another source, or obtain a new forward mortgage. If the property is sold by heirs, the sale price must be at least 95% of the appraised value.
If the amount owed is more than the market value, the heirs or the owner may let the house go to the lender through transfer or foreclosure. A reverse mortgage is a non recourse loan so neither the heirs or the estate are responsible for the short fall. This is covered with the mortgage insurance.
If ther are no heirs, the bank may take possession of the home and sell it. The estate may retain ownership of the property, but would be required to pay off the loan balance.
Spending down the equity in the home reduces the value of the estate for tax purposes.
More FAQs
If a borrower needs more money to close, the funds must be available at least 60 days in advance. The borrower must present proof of the availability and source of funds, such as a letter of deposit, proof of liquidation of other assets, a deed of sale, a closing disclosure, or a letter from a relative stating that any funds given do not need to be repaid.
When a reverse mortgage is placed on a property, two liens are created on the property. One is from the lending institution, and the other lien is from HUD when it's a government-insured loan.
If downsizing or relocating, selling your home and purchasing another one, there are many options
Traditional financing requires qualifying based on the borrower's income and expenses, with monthly mortgage payments that are typically made. This works well for individuals who can afford the added expense.
Reverse for Purchase Option
A reverse for purchase option allows homeowners to sell their existing home and purchase the new home with a mortgage that requires no monthly payments and, in some cases, can include taxes and insurance.
This option helps borrowers to access more of their residual income without the expense of a mortgage payment.
This type of loan provides a lump sum for the purchase of a home. Buyers usually need to make a substantial down payment.
New Purchase is more than the sale of the prior home
Seniors can use the proceeds from the sale of their prior home as a down payment. If there is not enough proceeds other qualifying sources may be used.
Buy a second home without having to pay a mortgage by using the equity in your primary home, and have no mortgage payments
A Reverse Line of Credit on a primary home can also be used to purchase a second home.
Traditional mortgages can be used to purchase a second home, but do require monthly mortgage payments.
When family members and heirs can be part of the decision-making process, they have an opportunity to work through the practical and emotional issues and participate in making the best choice for the family dynamic.
Heirs are not responsible for debt, but should be aware of the mechanics of a reverse mortgage and their options when the loan comes due. Equity in the home is determined by the difference between the sale of the home and the balance owed on the reverse mortgage. Heirs have the option of selling, refinancing with a new forward mortgage, or paying off the mortgage with other assets.
It's a good idea for family members to participate in the counseling session. The HECM counselor is required to document the names and relationships of everyone participating in the counseling session. A person holding a durable power of attorney, a life trust, or appointed conservator is eligible to obtain the loan on behalf of the homeowner; proof of these authorizations must be provided to the counselor.
When most family members have their elderly relatives best interests at heart; they want them to live comfortably in a safe, suitable home and enjoy a good quality of life.
If there is not enough equity in your home to cover expenses, the next option is to sell your home.
Prior to putting the home on the market it is important to request a loan payoff to confirm the balance due to the lender. This will help to determine the current equity in the home.
The sale price must be at least 95% of the appraised value.
Proofs of residency
An affidavit declaring residency
Voter registration
Documented length of time spent in the residence
A bank account
Church or temple membership
Driver's license
Utility bills
Mailing address on a tax return
Reference to the domicile/principal residence in a will
Property Taxes
In Florida, a senior homeowner can take advantage of additional tax exemptions to reduce their property tax
Deferring or freezing taxes is available to avoid taxing seniors out of their homes. The state may recover deferred taxes through a property lien due on the sale or death of the homeowner or surviving spouse.
Mortgage Interest Deduction
The Tax Duts and Jobs Act of 2017, enacted Dec. 22, suspends from 2018 until 2026 the deduction for interest paid on a home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer's home that secures the loan. These types of loans have limited loan amounts and are only used for the primary residence or second homes.
Capital Gains for Heirs
Basis-Step-Up for Heirs
The estate is subject to tax, generally based on the fair market value of the assets at the time of death, not the deceased's basis. Heirs receive the estate assets with a stepped-up basis of fair market value. at the date of the decedent's death. This means that if an heir sells an asset received from the estatebefore the asset further appreciates in value, there is no capital gain tax due on the sale. The stepped-up basis rule applies to real property included in the decedent's gross estate. In community property states, surviving spouses benefit from a stepped-up basis for both the inherited and their own shares of community property.
The step-up basis rule does not apply to property acquired by the decedent by gift within one year of the date of death when the heir is the original donor or donor's spouse. The decedent's basis in the property carries over to the heir.
Capital Gains on a Principal Residence
A capital gain of up to $250,000 single or $500,000 married filing jointly is exempt from tax if the property has been owned and used by the taxpayer as a principal residence for at least two years out of the five years before the sale.
The exemption does not require a minimum age or require rolling over to a higher-valued property. It can be claimed repeatedly as long as residency requirements are met.
A widowed homeowner can claim the full $500,000 exemption if the sale occurs within two years of the death of the spouse and the surviving spouse has not remarried.
Military and Foreign Service personnel on qualified active duty assignments are allowed to suspend the five-year test period for up to 10 years.
If the homeowner must sell due to illness or disability (their own or that of a family member for whom they are responsible), job relocation, or specified unforeseen circumstances, a prorated portion of the gain is exempt.
Gift and Generation Skipping Tax
Gifting assets to intended heirs during life, instead of as a bequest, moves assets out of the gross estate. It also provides the givers the pleasure of making the gift during their lifetime and assures that assets go to particular individuals. An individual can make an annual gift to another individual, free of gift taxes and reporting, of up to $16,000 per recipient. Each spouse can make gifts of up to that amount, totaling $32,000 per year, to any other person. When a gift exceeds $16,000, its value is based on the fair market value as of the date of the gift, not on the donor's basis. This includes an interest in real estate.
Gift tax is paid by the donor if the gift exceeds $15,000, but, in reality, very few donors ever pay a gift tax. This is because taxable gifts are made during the donor's life. However, a gift tax return must be filed; no tax is payable out of pocket until the cumulative amount of lifetime taxable gifts exceeds the exclusion limit. Payment of medical expenses or college tuition is not subject to gift tax if payments are made directly to the institutions; these are know as "direct transfers." The top gift tax is 40%.
Gifts and bequests from grandparents to grandchildren can trigger generation-skipping transfer (GST) tax. Gifts and bequests made to heirs who are not direct descendants, such as the children of a life partner, can also trigger GST of 40% if the recipient is 37.5 years younger than the donor.
Payout from a reverse mortgage doesn't impact Social Security or Medicare benefits. But a recipient of a need-based program, like Medicaid and Supplemental Social Security (SSI), must be careful that the payout does no exceed liquid-asset limits. Reverse mortgage payouts can impact Medicaid eligibility even though home equity is not a countable asset. An estate recovery or TEFRA lien placed on a reverse-mortgage property will prevent an heir from selling the home without first reimbursing Medicaid. Local public benefits of office or an attorney should be contacted for more information and clarification before taking any action.
Reverse Mortgage: When expenses become overwhelming to care for a home or mortgage payments become too high, a reverse mortgage can be a great option.
If a borrower is in default a reverse mortgage can be potentially used to avoid foreclosure and may also be used for a short sale.
How Do Reverse Mortgage Work? www.consumerfinance.gov/ask-cfpb/what-is-a-reverse-mortgageen-224/
What are the types of HECMs? www.consumerfinance.gov/ask-cfpb/are-there-different-types-ofreverse-mortgages-en-226/
Who is eligible for an HECM? www.consumerfinance.gov/ask-cfpb/can-anyone-apply-for-areverse-mortgage-loan-en-227/
What does counseling involve? www.consumerfinance.gov/ask-cfpb/what-should-i-think-aboutbefore-applying-for-reverse-mortgage-en-228/
What are the principal limits and costs? www.consumerfinance.gov/ask-cfpb/what-are-the-costs-i-will-haveto-pay-for-a-reverse-mortgage-en-237/
Are there reverse mortgage alternatives? www.files.consumerfinance.gov/f/documents/cfpb_reversemortgage-discussion-guide.pdf
Who Owns the Property www.consumerfinance.gov/ask-cfpb/if-i-take-out-a-reversemortgage-loan-does-the-bank-own-my-home-en-234/
What Happens to the Non-Borrowing Spouse if the Borrower Dies? www.consumerfinance.gov/ask-cfpb/what-happens-my-reversemortgage-when-i-die-en-2096/
What Do Heirs Receive? www.consumerfinance.gov/ask-cfpb/will-my-children-be-able-tokeep-my-home-after-i-die-if-i-have-a-reverse-mortgage-loan-en-242/
Can family members live in the home? www.consumerfinance.gov/ask-cfpb/can-my-partner-family-ordependents-if-i-have-a-reverse-mortgage-en-1213/
Can a reverse mortgage fund a home purchase? www.consumerfinance.gov/ask-cfpb/can-i-use-a-reverse-mortgageloan-to-buy-a-home-en-238/
Can a reverse mortgaged home be sold? www.consumerfinance.gov/ask-cfpb/what-happens-if-i-havereverse-mortgage-and-i-want-sell-my-home-en-2095/
How much money can a reverse mortgage borrower get and what are the payment options? www.consumerfinance.gov/ask-cfpb/how-much-money-can-iget-with-a-reverse-mortgage-and-what-are-my-payment-optionsen-233/
What are a borrower’s ongoing responsibilities with a reverse mortgage loan www.consumerfinance.gov/ask-cfpb/do-i-still-need-to-pay-myproperty-taxes-and-home-insurance-with-a-reverse-mortgage-loanen-235/
When does a reverse mortgage need to be paid back? www.consumerfinance.gov/ask-cfpb/when-do-i-have-to-pay-back-areverse-mortgage-loan-en-236/
What if a reverse mortgage borrower cannot pay their property taxes and/or homeowners' insurance? www.consumerfinance.gov/ask-cfpb/what-should-i-do-if-i-have-areverse-mortgage-and-i-cant-pay-my-property-taxes-or-insuranceen-1509/
What can a reverse mortgage borrower do if they receive a notice of default? www.consumerfinance.gov/ask-cfpb/what-should-i-do-if-i-have-areverse-mortgage-and-i-received-a-notice-that-i-am-delinquent-indefault-or-behind-on-my-property-taxes-and-insurance-en-1511/
What happens if the balance of the loan grows larger than the value of the home? www.consumerfinance.gov/ask-cfpb/what-happens-if-my-reversemortgage-loan-balance-grows-larger-than-the-value-of-my-homeen-1217/
Should a reverse mortgage be used to consolidate debts? www.consumerfinance.gov/ask-cfpb/should-i-use-a-reversemortgage-to-consolidate-my-debts-en-1219/
Does an older homeowner need to use estate planning services to take out a reverse mortgage loan? www.consumerfinance.gov/ask-cfpb/do-i-have-to-use-an-estateplanning-service-or-pay-to-find-a-reverse-mortgage-en-229/
Are ads saying no-payment reverse mortgages offered by Veterans Affairs legitimate? www.consumerfinance.gov/ask-cfpb/i-saw-an-ad-for-a-no-paymentreverse-mortgage-from-the-department-of-veterans-affairs-va-is-thislegitimate-en-1719/
Comprehensive reverse mortgages discussion guide published by the federal Consumer Financial Protection Bureau www.files.consumerfinance.gov/f/documents/cfpb_reversemortgage-discussion-guide.pdf
