Reverse mortgage – Can you short sale this kind of mortgage

Yes, you can short sale your reverse mortgage. In case of reverse mortgage short sale, it is important for you to contact the lender. Actually, the borrower will not be able to short sale the reverse mortgage till he/she lives at the home. In case the borrower would like to get another home and sell off this home, he/she can opt to shorts sale the reverse mortgage. Other than this, on the event of death of the borrower, the heirs can short sale the reverse mortgage. As you cannot get a mortgage modification on reverse mortgage, you can try to refinance it and if it does not work, you can always short sale the mortgage.

Short sale on reverse mortgage :

Reverse mortgage is one where instead of the homeowner, it is the lender who makes the payments. Just as the name suggests, the lender makes the payments if you take out a reverse mortgage. It is only the veterans who can take out a reverse mortgage. So, if you are above 60 and if you have a home, you can get a reverse mortgage. Actually a reverse mortgage helps you in reversing the equity in your home into cash that you can use for different other purposes.

The lender is going to make the payments on the mortgage till the borrower lives in that home. In case the borrower moves out of that home, it is the duty of the borrower to make the payments. Similarly, if the borrower dies, the loan has to be repaid. In such cases, if you have problems in making the payments, you can short sale the house.

However, it is important to do the short sale wisely so that you are bale to get out of the problem that you might be facing with a reverse mortgage. A short sale can in fact help you in avoiding foreclosure situation. A short sale is not going to have high negative effects on the credit rating, but in case of foreclosure and the Deed in Lieu of foreclosure is going to have a bad effect on your credit for sure.

One problem that you can face with short sale on reverse mortgage is the same that the borrowers with reverse mortgage face. That is, they are in the same kind of predicament just as the borrowers with the traditional mortgages do. That is, the homes lose almost as much as 50% and even may be more of its value and the lien against that home will be greater than even the value of your home. But one great advantage that the borrower of the reverse mortgage has is that even when the home is encumbered under the mortgage, the borrower can actually go on living in the home without having to make any payments, even for the whole life. So, it is important for the borrower or the heir of the borrower to consider all of the nuances of getting a short sale on the reverse mortgage.

The short sale can actually be done either by the lender himself or by the homeowner or his/her in case of the death of the homeowner/borrower. So, while the lender does the short sale on the house, it is important for you to keep a close watch on the whole process. The lender can sell the home loan either for lesser than the amount that was borrowed or as per the current appraised value. So, it is important for you to keep a close watch on the whole process.

FHA Reverse Mortgages (HECMs) for Consumers

The Home Equity Conversion Mortgage (HECM) is FHA's reverse mortgage program which enables you to withdraw some of the equity in your home. You choose how you want to withdraw your funds, whether in a fixed monthly amount or a line of credit or a combination of both.

You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.

HECM counselors will discuss program eligibility requirements, financial implications and alternatives to obtaining a HECM. They will also discuss provisions for the mortgage becoming due and payable. Upon the completion of HECM counseling, you should be able to make an independent, informed decision of whether this product will meet your needs. You can search online for a HECM counselor.

You can use a reverse mortgage calculator to help you see if you qualify. If you meet the eligibility criteria, you can complete a reverse mortgage application by contacting a FHA-approved lender.

Borrower Requirements

You must:

● Be 62 years of age or older
● Own the property outright or have a small mortgage balance
● Occupy the property as your principal residence
● Not be delinquent on any federal debt
● Participate in a consumer information session given by an approved HECM counselor

Mortgage Amount Based On

● Age of the youngest borrower
● Current interest rate
● Lesser of appraised value or the HECM FHA mortgage limit or the sales price
● Initial Mortgage Insurance Premium (MIP)--your choices are HECM Standard or HECM SAVER initial MIP

Financial Requirements

● No income or employment qualifications are required of the borrower
● No repayment as long as the property is your principal residence and the obligations of the mortgage are met
● Closing costs may be financed in the mortgage

Property Requirements

The following eligible property types must meet all FHA property standards and flood requirements:

● Single family home or 1-4 unit home with one unit occupied by the borrower
● HUD-approved condominium
● Manufactured home that meets FHA requirements

How FHA Reverse Mortgages Program Works

If you are a homeowner age 62 or older and have paid off your mortgage or have only a small mortgage balance remaining, and are currently living in the home, you are eligible to participate in FHA's reverse mortgage program. The program allows you to borrow against the equity in your home. You can select from five payment plans:

● Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.

● Term - equal monthly payments for a fixed period of months selected.

● Line of Credit - unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.

● Modified Tenure - combination of line of credit plus scheduled monthly payments for as long as you remain in the home.

● Modified Term - combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.

You can change your payment options for a fee of $20.

Unlike ordinary home equity loans, a FHA reverse mortgage HECM does not require repayment as long as the home is your principal residence and the obligations of the mortgage are met. Lenders recover their principal, plus interest, when the home is sold. The remaining value of the home goes to you or your heirs.

If the sales proceeds are insufficient to pay the amount owed, FHA will pay the lender the amount of the shortfall. FHA collects an insurance premium from all borrowers to provide this coverage.

The amount you can borrow depends on:

● Age of the youngest borrower

● Current interest rate

● Lesser of the appraised value of your home, the HECM FHA mortgage limit for your area or the sales price

● The initial Mortgage Insurance Premium (MIP) option you choose (2% HECM Standard option or .01% HECM Saver option).

You can borrow more with the HECM Standard option. Also, the more valuable your home is, the older you are, and the lower the interest rate, the more you can borrow. If there is more than one borrower, the age of the youngest borrower is used to determine the amount you can borrow. For an estimate of HECM cash benefits, go to HECM Home Page and select an online calculator.

There is no limit on the value of homes qualifying for a HECM. The value of your home will be determined by an appraisal. However, the amount that you may borrow is derived from the lower of the appraised value, sales price or the FHA HECM mortgage limit of $625,500. You are charged an upfront insurance premium of 2 percent of the maximum claim amount for HECM Standard and .01 percent for the HECM Saver. In addition, you will have an annual mortgage insurance premium of 1.25%.