Chances are good that you have seen advertisements for reverse mortgages in Florida endorsed by a well-liked, senior celebrity. As a state populated by 4.5 million adults aged 65 and older per Statista’s 2019 report, Florida represents fertile ground for the marketing of reverse mortgages. Reverse mortgages in Florida offer an attractive financial tool for many people who have reached the legally required minimum age of 62 and who understand the pros and cons.
Below is an overview of this type of loan that explains both the good and not-so-good news about reverse mortgages in Florida.
What Is a Reverse Mortgage and How Does It Work?
Florida’s Attorney General’s office defines a reverse mortgage as a loan that allows consumers who are 62 or older to obtain supplemental income cash disbursements by accessing their home equity. Borrowers are eligible to receive tax-free cash payouts in the form of a lump sum or regular ongoing payments. In some cases, a credit line is established for disbursements on an as-needed basis whenever the borrower wants it.
As the borrower, you keep the title to your Florida home. As long as you continue to reside in the home on a full-time basis, make the required tax and homeowner’s insurance payments and maintain the home, then there is no payment to the lender required. In cases where the above requirements aren’t fulfilled, then the loan can be called due by the lender. Common events that trigger a demand for payment are the death of the borrower, when the borrower moves into an assisted living or health care facility, refusing to maintain the home in good condition, or getting behind on homeowner taxes or insurance premiums payments.
It is important to note that the heirs to your property can retain the property by paying the lesser of 95% of the home’s determined fair market value or the loan balance to keep the home when default occurs. Loan balances due include the interest and taxes.
How to Determine If You Qualify for Reverse Mortgages in Florida
Like any loan, it is important to fully understand the required qualifications necessary to be approved. The age requirement for this type of mortgage is that at least one borrower must be 62 years old or older. The home must also be a permanent residence where the borrower spends the majority of their time living in the home as their primary residence.
Borrowers must have a substantial amount of equity in the home to be seriously considered for reverse mortgages in Florida. While they don’t have to own a home outright, the amount of equity must be large enough for risk-averse lenders to feel like they are making a prudent decision to extend the loan.
Homes with tax liens do not qualify. When seniors meet all the other requirements, determined senior Floridians can pay off tax liens to be considered for a reverse mortgage loan.
Another important Florida requirement for a complete loan package is that you must complete a mortgage counseling session with an approved reverse mortgage counselor deemed competent by the U.S. Department of Housing & Urban Development (HUD). The counseling session can be conducted in person or over the phone which makes it more convenient for many borrowers. There is a fee for the counseling that must be paid upfront unless the borrowers are facing tough times that fall under the category of hardship such as foreclosure, bankruptcy, or hospice care.
All people listed on the deed must be in agreement about getting this loan. While this requirement sounds like common sense, there can be problems when one owner is not sure they want the loan. Anyone whose name appears on the deed is required to sign the loan documents.
The Types of Available Reverse Mortgage Products
There are different types of reverse mortgages in Florida that are available for senior borrowers. They all have a purpose based on meeting the different needs of borrowers with unique circumstances to consider.
The Home Equity Conversion Mortgage (HECM) Product
This is by far the most popular reverse mortgage loan available. Like most loans, there are plusses and minuses. While the upfront costs of an HECM tend to be high, the fact that the funds can be used for absolutely any purpose is an attractive benefit.
HECMs are offered exclusively by FHA-approved lenders which means all borrowers must complete counseling to qualify for the loan. While that is considered to be a negative for many seniors, the fact that these lenders and counselors are readily accessible often reassures borrowers to move forward.
Single-purpose Reverse Mortgage Product
This type of mortgage is less common than HECMs. Typically, this mortgage is offered by state and local agencies or nonprofit companies. Loans in this category are usually for a smaller amount and designated for a single purpose. This type of reverse mortgage usually has lower fees.
Proprietary Reverse Mortgage
This mortgage product is offered as a private loan that is not affiliated with government agencies. Larger loan amounts are common, specifically when the homes are expensive with high values.
The Costs Associated with Obtaining a Reverse Mortgage Loan
In many ways, the costs related to obtaining an HECM reverse mortgage are similar to other mortgage loans. While the closing costs for a reverse mortgage loan can be relatively expensive, the good news is that most lenders allow borrowers to roll them into the loan to avoid upfront out of pocket outlays. Below are some costs to expect.
Origination Fee
Lenders charge an origination fee to process your loan. There are limits placed on the amount that can be charged for HECM loans. Specific to the first $200,000 of home value, lenders are allowed to charge a maximum of the greater of $2,500 or 2%, adding 1% to the total after exceeding $200,000 in home value. $6000 is the maximum that can be charged on any home, regardless of price.
Mortgage Insurance Premium (MIP)
A total of 2% MIP is due at the closing as an initial charge. Additionally, 0.5% charged annually is also due at the closing table to cover the first year’s premium. Fortunately, the first year of MIP is typically rolled into the loan for most borrowers.
Third Party Charges
Many services required for a loan closing are outsourced to third parties by mortgage companies. Common charges in this category are credit checks, home appraisals, home inspections, title search, and recording fees, to name a few.
Servicing Fees
Many lenders charge a monthly fee designated for paying for the monitoring and maintenance of an HECM loan throughout the life of the loan. $30 is set as a maximum allowable fee for fixed rate and annually adjusting rate loan products. Borrowers with an adjustable rate loan that adjusts monthly can pay a maximum of $35.
It is worth noting that reverse mortgage loans typically charge a higher interest rate. Granted, different lenders can vary significantly. Shopping around for the best rate is highly recommended.
Pros of a Reverse Mortgage
- Borrowers can stay in their home and make no monthly payments toward the loan until they decide to move out, sell the home or die.
- Senior Floridians can use the loan proceeds for anything they desire in most cases.
- Seniors can use the cash to fund a more enjoyable lifestyle during retirement.
- Borrowers behind on their house payments who are facing foreclosure can pay off the existing mortgage with the funds accessed through a reverse mortgage.
- Flexible payout options allow borrowers the ability to access their money in the form of a lump payment, line of credit, an annuity, or a mix of these different options.
- Borrowers never owe more than the home value even if their home loses value in a declining home market.
- Proceeds disbursed to borrowers are not classified as income and are non-taxable.
- Borrowers have three days after the closing to cancel the loan for any reason.
- Your spouse listed as a co-borrower will not be forced to move out of the house after your death with no repayment necessary until they pass.
Cons of a Reverse Mortgage
- In cases where your spouse is not a co-borrower per the terms of the loan, they may be forced to either move out or payoff the loan after your death.
- The terms of the loan require borrowers to pay mortgage insurance premiums and homeowners insurance as long as the loan is active.
- Substantial fees and closing costs can significantly reduce the equity in your home.
- If you get behind on your property taxes or insurance premium payments, the lender may foreclose on you.
- If you suffer declining health that requires you to move to a long-term care or assisted living community abandoning your primary home, then the loan goes into default.
- Loan proceeds may negatively impact your eligibility for Medicaid or Supplemental Security Income.
- High fees and interest rates associated with a reverse mortgage will deplete your equity significantly.
Where to Get a Reverse Mortgage
You’ve probably seen their ads featuring Tom Selleck on TV and in print publications. AAG is the premier provider of reverse mortgages in the US. They specialize in the financial needs of older adults.
We highly recommend AAG and suggest that you visit them via the orange link below this review.
| 😀 PROS | 😡 CONS |
| Straightforward reverse mortgage options | Must be 62 years old to qualify |
| Financial assessments by qualified experts | No immediate quote available |
| Customized quotes | Interest rates may vary |
Conclusion
If you’re a senior living in Florida, you probably know people who have taken out reverse mortgages in Florida. The idea of tapping into your home’s equity to live a better life is an appealing one. Like so many important decisions in life, this type of loan is not a one-size-fits-all proposition. After careful evaluation of the risks and benefits of reverse mortgages in Florida, senior Floridians can make an educated decision about whether a reverse mortgage makes sense for them and their family.