1. The bank owns the home after you get a reverse mortgage loan
Incorrect. The homeowner remains on title with full ownership of the home at all times. However, the loan is secured by a lien and foreclosure may occur if the homeowner does not continue to pay property taxes and insurance, maintain the property, or otherwise comply with the loan terms.
2. You need good credit to qualify for a reverse mortgage loan
Incorrect. There are no credit score requirements to qualify for a reverse mortgage. However, a financial assessment is conducted to determine that borrowers are able and willing to pay their property taxes and homeowner’s insurance.
3. A reverse mortgage loan will affect my Social Security, Medicare and taxes
Incorrect. The proceeds from a reverse mortgage are not considered income. The money received from the loan is not taxable and will not affect either Social Security or Medicare. Certain needs-based government benefits, like SSI and Medicaid, may be impacted. Consult with your tax advisor for additional information.
4. Your home must be debt free with no mortgages or liens
Incorrect. One of the best things about a reverse mortgage is the ability to pay off existing mortgages. This will allow you to stay in the home and never make another mortgage payment. The money that was used to pay your existing mortgage can now be used for your everyday living expenses or to simply increase your standard of living. The existing mortgage must be paid off at closing as a condition of the reverse mortgage.
5. My children will have to use their own funds to repay the loan
Incorrect. Reverse mortgages are non-recourse loans. That means that you can never owe more than the value of your house. In fact the opposite is true. You or your heirs might have the opportunity to sell the house and keep the excess equity.