This loan can be a life saver for people who have small incomes and big old mortgages. This is what I do...I originate reverse mortgages.
Here are some basics:
WHO: All owners must be at least 62 and live there. If someone leaves later, fine, but they have to be living in the home when the loan closes. If any owner is under the age of 62, you're better off waiting if you can. You'll have to refinance to add that person later, which means you get to pay the origination and closing costs all over again.
HOW MUCH: You access some percentage of the value of your home, based on the age of the youngest owner...ranging from about 63% up. That percentage is applied to the value of the home for a dollar amount. Any liens, loans, lines of credit, etc get paid off first. Even if that's all you do, you don't have mortgage payments anymore...that money is in your pocket and you can buy food or medicine with it instead. You still pay taxes and home owners insurance. Most reverse mortgages are HECMs, which is an FHA loan so they decide the origination fee and the percentage of equity available, and a lot of other stuff. The maximum value for the home just went up to $417,000. If you're home's value is less, we use the actual value. If it's more, we use $417,000. This precludes a lot of people from getting this mortgage, especially in NYC or California where the homes are more expensive. It's different for HI and AK too, but I don't remember what. You can get your share (after payoffs, I mean) in a lump sum, credit line or 2 different types of monthly checks...one for as long as you live there even if every penny of equity gets used up and the other for however many years you choose. Usually it doesn't pay to invest the money because the rate of interest earned these days is probably going to be less than the amount you pay. You can get part of the money in a lump sum, and put the rest into a credit line or get a monthly check. It's very flexible to meet the needs of the target customer.
WHAT: 1 to 4 family homes, most condos, some manufactured homes that meet all FHA guidelines. Condos also have to meet certain FHA requirements and most do. Sometimes the HOA isn't set up right or is inadequately funded in FL. No mobile homes on rented land no matter what size. No co-ops now, but that's coming soon. They'll get around to telling us when eventually.
So -- negatives: It's not cheap. There's a variable rate, but you're not making payments. If you live there the rest of your life, it won't be your problem. You can't lose your home because you can't make the payments. The origination fee is 2% of the first $200k of the home's value, then 1% of the rest, up to a max of $6000. The closing costs are the same as a purchase. There's mortgage insurance, but it benefits the cst as well as the lender in this case. If the bank goes belly up, the FHA takes care of your loan and assigns it to another lender who will keep sending your checks.
Positives: Money in your pocket...No mortgage payments and/or additional money to live on. No minimum requirements for credit score or income, no DTI issues. There are provisions for making repairs...we have a whole department for that. Non-recourse loan...means that if when it's time to pay us back (sale of home or death of last borrower) the market value is less than the principal balance, we take the sales price and you don't have to find the rest. We won't look to the rest of the estate for the shortfall as we would on a traditional mortgage. The heirs are never liable out of their own pockets for debt they didn't incur. No other loan gives you that deal, unless maybe your mother is your mortgage holder.
If your kids object to you surviving by cutting into their inheritance, screw them. You didn't work for 50 years to have to choose between electricity and groceries each month. Use your money to have a decent life. One lady told me these were supposed to be her "Golden Years", but the only thing golden was her urine. Every day I talk to little old widows who are trying to live on $800 a month. I spend $250 a month on prescriptions with insurance (diabetic, like lots of old people). Working full time, I couldn't buy my prescriptions without insurance. What do these poor people do?
This loan isn't for everyone. If you don't need the money to live on or if you're not having trouble making payments, don't get this. It's too expensive for "just in case". But for the lady I spoke to this morning in Florida, whose husband died a few weeks ago and her income is less than half of what it was or the folks who need home health care to stay out of the nursing home...this is a Godsend.