A reverse mortgage is a type of loan that allows homeowners who are 62 or older to borrow money using their home equity as collateral. The loan does not have to be repaid until the homeowner dies, sells the home, or moves out permanently. In New York, as well as in other states, there are specific regulations and guidelines that govern the use of reverse mortgages. It is important to research and understands the requirements and potential risks before deciding to take out a reverse mortgage. In this article, Eastcoastlaws.com will outline all you need to know about reverse mortgage in New York.
What Is A Reverse Mortgage?
With a reverse mortgage, you can turn some of the value in your house into cash while maintaining ownership. Reverse mortgages are often offered to homeowners 60 years of age or older. This may be a desirable choice for elderly people who are “home rich” but “cash poor,” but it is not appropriate for everyone. Before you make any decisions, we urge you to speak with a lawyer, financial advisor, or housing counselor.
In a reverse mortgage, the equity in your property is used as collateral for the loan. The equity in your house is the sum of the appraised value minus the outstanding mortgage balance. Your home’s equity increases as your mortgage balance decreases and/or your income increases. Compound interest is applied on reverse mortgage loans. This means that each month, interest is due on both the principal amount and the interest that has already accumulated. Your loan’s balance increases at an ever-increasing rate due to compound interest. This implies that as long as your loan is in default, a sizable portion of the equity in your house will be used to cover the interest on the money that the lender sends you.
Reverse mortgages are “non-recourse” loans, which means that the lender cannot use your other assets (or the assets of your estate) to cover the remaining balance on your loan in the event that you default on the loan or if the debt is otherwise unable to be repaid. Reverse mortgage payments are deferred until a trigger event, such as the borrower’s death or relocation.
Is A Reverse Mortgage Right For Me?
Being a complicated financial product, a reverse mortgage should only be used when absolutely necessary. When deciding whether to submit an application for a reverse mortgage, you should think about, among other things:
- you want to remain in your home
- you are healthy enough to continue living in your home
- other alternatives, such as selling your home and purchasing a smaller, less expensive home, would be better for you
- your children, or other heirs, want to inherit the home
- the loan proceeds will be enough, with any other source of income you have, will be enough to enable you to live in your home
Each person’s situation is different, therefore this is not an exhaustive list of things to think about. You should consider if a reverse mortgage is appropriate for your case, and to assist you to analyze your options, you should speak with a legal, financial, or housing counselor.
280, 280-a, 280-b, And HECM Reverse Mortgage?
Senior borrowers in New York have a choice between two reverse mortgage loans kinds. The first is a mortgage loan arranged in compliance with the guidelines of the Home Equity Conversion Mortgage program run by the Federal Housing Administration, also known as a HECM reverse mortgage (or 280-b). The only reverse mortgages that are covered by federal insurance are HECMs. The second, also known as a proprietary reverse mortgage, is a mortgage loan that complies with Section 280, or 280-a, of the Real Property Law of the State of New York. Both HECM and proprietary reverse mortgage loans are subject to Part 79.
The maximum loan amount made available under each type of reverse mortgage is the key differentiator between a HECM and a proprietary reverse mortgage. The HECM program has a restriction on the largest loan amount. Conversely, there is no cap on private reverse mortgages. They are frequently referred to as “jumbo” reverse mortgages because of this.
What Are The Major Requirements To Qualify For A Reverse Mortgage in New York?
In order to be eligible for a reverse mortgage, typically you must:
- Own your home
- Be at least 60 years of age (as stated above, certain types of reverse mortgages have a higher age requirement)
- Live in your home for more than half of the year
- Have a single-family home, a 1- to 4-unit building, or a federally-approved condominium or planned unit development
- Have no liens on your home or qualify for a large enough cash advance from the reverse mortgage to pay off any existing liens
- If your home needs physical repairs to qualify for a reverse mortgage, qualify for a large enough cash advance from the reverse mortgage to pay for the cost of repairs
Also Read: NEW YORK FORECLOSURE PROCESS AND LAW
What Are The 3 Types Of Reverse Mortgages?
There are three main types of reverse mortgages:
- Home Equity Conversion Mortgages (HECMs): These are the most common type of reverse mortgages and are insured by the Federal Housing Administration (FHA). They have certain limits on the amount of money that can be borrowed, and the homeowner must meet certain eligibility requirements.
- Proprietary Reverse Mortgages: These are private loans that are not insured by the FHA. They may have higher borrowing limits than HECMs, but they also have stricter qualifications.
- Single-Purpose Reverse Mortgages: These are offered by some state and local government agencies, as well as non-profit organizations. They are intended for specific purposes, such as home repairs or property taxes, and have much lower borrowing limits than the other two types of reverse mortgages.
It’s important to note that there are some variations of these types of reverse mortgages, and the rules and regulations can vary from state to state. It is always best to consult with a financial advisor or a HUD-approved reverse mortgage counselor to understand the specific options and requirements in your area.
How Will I Receive My Money?
The earnings of a reverse mortgage may be dispersed in a number of ways, including an immediate cash advance, a line of credit, or a monthly cash advance. You should discuss your alternatives with your lender, a lawyer, or a housing counselor to ensure that you are aware of all of your options because not every borrower will be able to use every option.
What Disqualifies You From Getting A Reverse Mortgage?
There are several factors that can disqualify a homeowner from getting a reverse mortgage. Some of the most common include:
- Age: The borrower must be at least 62 years old to qualify for a reverse mortgage.
- Residency: The borrower must live in the property as their primary residence.
- Property type: The property must be a single-family home, a 2-4 unit owner-occupied home, a condominium, or a manufactured home that meets certain HUD requirements.
- Outstanding mortgage: The borrower must have either paid off any existing mortgage or have a low enough mortgage balance that it can be paid off with the proceeds from the reverse mortgage.
- Income and credit: The borrower must meet certain income and credit requirements, including the ability to pay ongoing property charges, such as property taxes, insurance, and maintenance.
- Occupancy: The borrower must occupy the property as their principal residence within 60 days after the loan closes and must continue to do so for the life of the loan.
- Homeowners Association (HOA) or Condo association: If the property is a condominium or part of a homeowners association, it must meet certain requirements set forth by the Federal Housing Administration (FHA)
- Property condition: The property must be in good repair and meet certain health and safety standards.
It is important to note that these requirements may vary depending on the type of reverse mortgage and the specific lender. It is always best to consult with a financial advisor or a HUD-approved reverse mortgage counselor to understand the specific requirements of your situation.
Also Read: INTESTATE SUCCESSION IN NEW YORK
What Does It Cost To Apply For A Reverse Mortgage?
The only fees a lender may charge a borrower prior to closing on a proprietary reverse mortgage under New York’s Real Property Law Section 280 or 280-a are an application fee, an appraisal cost, and a credit report fee. The application fee must be clearly stated as such and cannot be a portion of the reverse mortgage’s principal or of the amount borrowed. There is often no separate application fee for a HECM loan because that fee is covered by the origination fee that is paid at closing.
Who Owns The House After A Reverse Mortgage?
The homeowner continues to own and retain title to the property after a reverse mortgage, but they are responsible for maintaining the property, paying property taxes, and keeping the insurance current. The lender places a lien on the property, which secures the loan. As long as the borrower continues to live in the property as their primary residence and meets the terms of the loan, they do not have to make any payments on the loan. However, once the loan becomes due, the loan balance plus interest and fees must be paid back, either by the borrower or their heirs.
The loan becomes due when the last borrower dies, sells the home, or permanently moves out. At that time, the borrower or their heirs can choose to pay off the loan balance and keep the home, sell the home and use the proceeds to pay off the loan, or if the value of the home is less than the loan balance, the heirs can walk away from the property and the lender will take possession of the property.
Remember that with a reverse mortgage, the homeowner is responsible for maintaining the property and paying property taxes and insurance, and failure to do so can result in default and the lender may foreclose on the property. It is also important to understand that a reverse mortgage can have an impact on the homeowners’ eligibility for government programs and their ability to leave the property as an inheritance to the heirs.
How Long Can You Live On A Reverse Mortgage?
A reverse mortgage does not have a set term, so the borrower can live in the home for as long as they choose, as long as they continue to meet the loan’s requirements. The loan becomes due when the last borrower dies, sells the home, or permanently moves out of the home.
However, it is important to note that the loan balance will increase over time due to interest and fees. The longer the borrower stays in the home, the larger the loan balance will become and the less equity will be left in the home for the borrower or their heirs.
The loan balance can be paid off in full at any time, either by the borrower or their heirs. If the borrower or their heirs are unable or unwilling to pay off the loan, the lender will foreclose on the property.
It’s important to remember that a reverse mortgage is a loan and it needs to be paid back with interest. It’s essential to consider how long you plan to stay in your home, how much you need to borrow, and the impact of the loan on your heirs and the value of your home. It’s always best to consult with a financial advisor or a HUD-approved reverse mortgage counselor to understand the specific options and requirements for your situation.
How Do You Pay Back A Reverse Mortgage?
A reverse mortgage is typically paid back when the borrower dies, sells the home, or permanently moves out of the home. At that time, the loan balance, including interest and fees, must be paid back in full.
There are several ways to pay back a reverse mortgage:
- Selling the home: The borrower or their heirs can sell the home and use the proceeds to pay off the loan balance. Any remaining proceeds will go to the borrower or their heirs.
- Refinancing: The borrower or their heirs can refinance the home, paying off the reverse mortgage and obtaining a new loan.
- Paying from personal funds: The borrower or their heirs can pay off the loan balance using personal funds.
- Deeding the property to the lender: If the value of the home is less than the loan balance, the borrower or their heirs may choose to deed the property to the lender and walk away from the loan.
Are There Disadvantages To A Reverse Mortgage?
Yes, there are disadvantages to a reverse mortgage. Some of the potential drawbacks include:
- The borrower may not be able to continue living in the home if they are unable to pay property taxes, insurance, or maintain the home.
- The loan balance may grow over time, potentially leaving the borrower with a debt that exceeds the value of their home.
- The borrower may be required to pay additional fees, such as closing costs and appraisal fees, to obtain the loan.
- The borrower may be required to pay interest on the loan, which can be costly over time.
- The borrower may be required to pay a mortgage insurance premium to obtain the loan.
- A reverse mortgage may affect the borrower’s eligibility for certain government benefits, such as Medicaid.
- The borrower’s heirs may not inherit the home or may have to pay off the loan in order to keep the home.
- The home may not be able to be sold or refinanced during the loan term.
It’s important to consider these potential drawbacks and consult with a financial advisor before deciding to obtain a reverse mortgage.
Can You Sell A House That Has A Reverse Mortgage?
Yes, you can sell a house that has a reverse mortgage, but there are some important considerations to keep in mind. When the borrower of a reverse mortgage dies, sells the home or no longer uses it as their primary residence, the loan must be repaid. If the sale proceeds from the home are not enough to pay off the loan, the lender will typically not seek a deficiency judgment against the borrower or their estate.
If the borrower wants to sell the home while they are still alive and still occupying it, they can do so, but they will need to pay off the loan balance with the proceeds from the sale. If the sale proceeds are not sufficient to pay off the loan, the borrower will be responsible for paying the difference. If the home is sold for more than the outstanding loan balance, the borrower or their heirs will keep the remaining proceeds.
Reverse Mortgage Advice
A reverse mortgage is a loan for homeowners 62 or older that uses the home’s equity as collateral. Consider these points before deciding if a reverse mortgage is right for you:
- Purpose: Ensure the loan will meet your financial goals, such as paying off debt or supplementing income.
- Eligibility: You must own the home outright or have a low mortgage balance, and occupy the home as your primary residence.
- Costs: Understand the fees, including origination, closing, mortgage insurance and interest charges, which can be substantial.
- Repayment: The loan, plus interest, is due when the last borrower moves out, sells the home, or dies.
- Impact on Inheritance: The loan reduces the equity in your home, potentially reducing the inheritance you leave to your heirs.
Consult with a financial advisor and a HUD-approved reverse mortgage counselor to evaluate if a reverse mortgage aligns with your overall financial plan.