• Don't be in the dark on reverse mortgagesdesperation - No acceptance here image by Yanir Taflev from Fotolia.com
  
  Reverse mortgages are a popular way for homeowners 62 or older to gain income from their home, with no monthly payment requirement. This is done by refinancing the home with a Federal Housing Administration (FHA) reverse mortgage. The equity can be accessed in three ways: homeowners can choose an equity loan where a lump sum of funds is taken, they can choose an equity line of credit to draw against as needed or they can have a monthly payment sent to them each month (or a combination of any of these). Reverse mortgages do have some negative aspects that must be considered, however.
  
  

The Home Must Qualify

• In a reverse mortgage, the borrower does not have to qualify for credit or monthly payments. The weight of approval is on the property. The appraisal is completed by an FHA-approved appraiser, and any major repairs to the home will be listed and must be dealt with prior to closing. (For example, a home in dire need of a new roof must have the work completed before closing.) It is possible to get the work done and have the contractor paid out of the proceeds from the loan at closing. Call or visit Eldercare.gov (800-677-1116) for grant programs available for home repairs or help with taxes (see Resource).
  
  

No Money Left to Heirs

• In a reverse mortgage, the payments drawn against the loan (or the equity used) may total up to more than the home appraises for at the homeowner's death. The good news is that the FHA's MIP (mortgage insurance premium) will pay the difference so the family members do not have a "shortfall" to pay when the home is sold. The downside is that often there is no equity left over to leave to family members.
  
  

You Must Have Equity

• If you are considering a reverse mortgage, call a mortgage lender to discuss costs. The cost of closing a reverse mortgage is high. Depending on the state that your property is located in, you may incur other costs such as the intangible tax, documentary stamps and title insurance. Add these to the FHA's MIP and other costs. Your closing may add up to $18,000 or more.
  
  FHA reverse mortgages will usually be limited to 65 percent of the appraised value of the home, so if your appraisal comes in low and you have a mortgage to pay off, you may not have enough equity to be approved. (For example, your home appraises for $200,000, but your mortgage balance is $150,000. Add your closing costs to this figure for an approximate total of $168,000 and divide by $200,000. This gives you an 84 percent loan-to-value percentage, which is too high. The mortgage balance would have to be paid down or the appraised value would need to increase.
  
  

Confusion

• Homeowners who are 62 or older may qualify for a reverse mortgage, but the process can be confusing. When gathering information on this loan, visit your bank or a lender you know and are comfortable with. There is a requirement for counseling before going forward with this loan, which should answer some of your questions and put you at ease. Your lender should give you some options for counseling. Or call the U.S. Department of Housing and Urban Development at 800-510-0301 to get referrals for acceptable counselors in your area (see References).