Florida has the highest percentage of seniors in the United States; approaching 20 percent of the state’s population is over 55, according to the latest U.S. Census. And because of the strong senior population, the Sunshine State has been a strong market for reverse mortgages, a loan structure exclusively for senior homeowners 62 years and older.
According to the federal Department of Housing and Urban Development (HUD), which administers the majority of them, reverse mortgages lets the borrower convert a portion of their home equity into cash.
Although the interest continues to increase, the reverse mortgage doesn’t mature until the borrower passes away or moves out of the home permanently – meaning that they haven’t lived in the home for a year or more. The repayment amount can’t exceed the sales value of the home. After the loan is repaid, any remaining equity is distributed to the borrower of the borrower’s heirs or estate.
Lemar Wooley, a spokesman for HUD, said that Home Equity Conversion Mortgage (HECM) loans make up about 95 percent of the reverse mortgage market. These are the only reverse mortgages insured by HUD’s Federal Housing Administration (FHA). Applicants must be 62 or older; own the property outright or have a small mortgage balance; occupy the property as their primary residence; not be delinquent on any federal debt; and participate in a consumer information session given by an approved HECM counselor. And HUD-approved condos definitely are one of the types of housing that meet the requirements.
“All reverse mortgage lenders who are originating the FHA-insured HECM use the same calculator to determine your benefits,” says Michael Branson, CEO of All Reverse Mortgage Co., a California-based lender that operates in Florida and 12 other states.
“As long as each lender is using the same property value and the same birth dates, then the only things that can affect the amount of money you would receive would be the interest rates (and then only if one or both lenders are far enough over the floor of 5%) or the fees,” he adds.
However, getting a reverse mortgage does not always proceed smoothly. What happens when the borrower moves or passes away? What does it mean that “the repayment can’t exceed the value of the home?” And what if the market drops and the estate cannot get enough money for the property?
These topics are addressed in the initial HECM counseling session. Lenders recoup the principal from the home’s sale, plus interest, when the home is sold, usually by the borrower or heirs, and the remaining valued of the home foes to the borrower or heirs.
“If the sales proceeds are insufficient to pay the amount owned,” he says, “FHA will pay the lender the amount of the shortfall. FHA collects an insurance premium from all borrowers to provide this coverage.”
Reverse mortgages are usually considered a needs-based product of last resort. Many seniors have considered that the fees of these types of mortgages were high. There are many places where prospective senior condo owners can get advice for reverse mortgages: AARP, HUD, the lenders themselves, the National Reverse Mortgage Lenders Association, and, in many cases, their condo’s manager or board president.