Is it true that you can use your reverse-mortgage money for anything? Anything legal, that is?

No. you cannot use the loan to pay anyone at all for having given you advice about a reverse mortgage. Only a HUID-approved lender or a licensed mortgage broker working with a HUD-approved lender can receive compensation for the origination of a loan.

Can I be turned down for a reverse mortgage? If, for example, my house is a dump?

Yes. A house must be inspected, and if a lot of repair work is needed, you may not qualify. HUD lets you obtain a reverse mortgage if the repairs are estimated to be 15 percent or less of the maximum principal limit that you would otherwise qualify for. If the repairs are between 15 percent and 30 percent, the borrower can have enough repairs done to bring the amount down to 15 percent and then finalize the loan. If the repairs amount to over 30 percent, no loan.

If you have a pending lawsuit or are in bankruptcy, you may also be denied the loan. If you have too large a mortgage against your house, you may also be turned down. But if you can get outside funds – from a relative, for example – to help pay off the mortgage at the closing, the loan could go forward, as long as the new loan is the first-loan position.

I would like to tear down my house and build another. Can I get a reverse mortgage and use the money to build a new house?

No. you could get a reverse mortgage and use the money to build a second home, but if you tear down the primary residence, the loan is due and payable.

Besides, currently HUD prohibits a reverse mortgage on homes that are less than one year old, so you would have to wait to do a reverse mortgage on the new home.

It’s a “reverse” mortgage because the bank pays you?

Yes. In a traditional or “forward” mortgage, you typically make a down payment and then regularly pay the lender for the money advanced to you, along with interest. In a reverse mortgage, the bank may pay you a monthly income for as long as you live in the house. Or you may choose to receive a lump sum, or obtain a line of credit, or choose a combination of ways to receive the loan. So a reverse mortgage is not quite the mirror image of a forward mortgage.

What choices do I have?

Yu can receive a lump sum, a line of credit, a monthly income, or a combination of these. Most people choose a line of credit, which may be the most sensible.

Where do I get a reverse mortgage?

You begin with an “originator”, who completes the paperwork.

Will I have to pay anything?

Yes, the closing costs, as with any mortgage.

What if I don’t have enough cash to pay even the closing costs?

They can be folded into the loan, so you will have few or no out-of-pocket expenses.

Can two people who are not married, but own a house together, get a reverse mortgage? This might include brothers and sisters or domestic partners.

Yes.

What should I do with the money?

First, you must pay off any mortgage you already have and make any needed repairs to your home. Then you should pay off any credit card bills you may have, because of their high interest rates. Pay off other bills, too. Next develop a plan.

What should I not do?

In general, don’t get a reverse mortgage if you suspect you will live in your house for only a few years. If, for example, you are planning to move to a smaller home in a warmer climate soon, or our health is such that you are thinking of moving to an assisted-
living facility. The closing costs will come back and bit you.

Don’t go haywire because of all that ready money. Don’t succumb to lottery-winner syndrome and start spending like mad.

Don’t become a victim of the crooks and quasi-crooks out there, eager to part you from your money. Beware of people trying to sell you or miraculous life-prolonging medications that the medical profession in a cruel conspiracy wants to keep you from using.

Can I get a reverse mortgage on my summer home?

No, it must be your main residence.

What kinds of residences don’t qualify?

Motor homes and cooperatives (except co-ops in New York state, which do qualify).