There are several myths about Reverse Mortgages that sometimes get in the way of making a reasonable decision about whether an Orange County senior should get a Reverse Mortgage or not. Below are some of the more common myths, followed by the truth.
Myth #1: The homeowner will lose the home at the end of the mortgage, or the bank takes ownership of the property.
Truth: Just like a Forward Mortgage, a Reverse Mortgage is just a mortgage. The borrower retains ownership of the property. the borrower cannot be forced out of their home as a result of the Reverse Mortgage. Once the last borrower on the loan moves out of the home, the loan must be repaid. Typically there is equity remaining in the property. If the borrower has died, the heirs can choose to sell the property to repay the loan, or the Reverse Mortgage can be refinanced into a “forward” mortgage and the heirs would retain ownership.
Myth #2: The home must be paid off or debt free to qualify for a Reverse Mortgage.
Truth: The main purpose of a Reverse Mortgage is to convert equity into cash. This also helps to explain the acronym “HECM”, or Home Equity Conversion Mortgage, as termed by FHA. As long as there is sufficient equity in the property the owner can qualify for a Reverse Mortgage. Quite often Orange County seniors will use a Reverse Mortgage to payoff an existing loan on their property.
Myth #3: When a Reverse Mortgage becomes due, the bank will sell the home.
Truth: As mentioned before, the borrower retains title to the home. Even if the borrower dies, the heirs get title. The bank never has title to the home. It is up to the borrower or their heirs as to whether the loan is repaid by either selling the home or refinancing.
Myth #4: Children want the equity in the home or are not comfortable with a Reverse Mortgage.
Truth: Well actually, most children probably do want the equity in the home, and most are uncomfortable with a Reverse Mortgage if they have not done their research. But once they do their research, they come to realize they should still get the equity when that times comes (as long as they stay on the parents good side 
). For those children who still don’t think their parents should get a Reverse Mortgage, I guess they could help contribute to their parents cashflow, which resolve the need for a Reverse Mortgage. Typically once that suggestion is made, the children will see the light.
Myth #5: The borrower could end up owing more than the home is worth.
Truth: This will never happen. The last thing the bank wants is to potentially lose money on a loan. The formula for figuring the amount of a Reverse Mortgage is very conservative in order to make sure there is a good chance that plenty of equity will always be left in the home. In addition, the HECM product is insured by the Federal Housing Administration (FHA), a division of US Housing and Urban Development (HUD).
Myth #6: There are restrictions to how the money is used.
Truth: This is definitely not the case. The borrower is allowed to do anything they want with the money. Vegas (probably not the best idea), medical expenses, vacations, food, etc. The borrower should talk to their financial advisor to make sure the funds are used in an intelligent way, but the lender or FHA will not have a say in how the funds are used.
Myth #7: The proceeds of a Reverse Mortgage will be taxed.
Truth: Again, not the case. The cash proceeds from a Reverse Mortgage are not taxed. This is because it is already your money, or your equity in your home. you will not pay tax on the proceeds from the loan. Again, it is important to talk to your financial advisor for advice.
Myth #8: My credit is bad and I can’t qualify for a mortgage.
Truth: This is the beautiful thing about a Reverse Mortgage. The borrowers income and credit are not even considered in the loan underwriting. The two main factors are the borrowers age and their property value. Borrowers could have had a bankruptcy yesterday and they’d still qualify for a Reverse Mortgage if they are the right age and have enough equity in their home.
The first step in determining whether a Orange County Reverse Mortgage is feasible is to talk to an experienced Orange County Reverse Mortgage Specialist. The Reverse Mortgage Specialist will be able to provide loan scenarios that will clearly spell out your options.
Authored by Tim Storm, an Orange County, CA Reverse Mortgage Loan Officer – Please contact my office at Frost Mortgage Lending Group for more information about an Orange County, CA Reverse Mortgage. 877-786-4243 x 7.
Contact us for your Orange County Reverse Mortgage:
877.786.4243 x 7 | tstorm (at) ochomebuyerloans.com
*Licensed by Department of Corporations under the California Residential Mortgage Lending Act. PRMI Branch License 813F487.
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