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What is a Reverse Mortgage?
A reverse mortgage is a loan against home equity that doesn't have to be repaid until you move, sell your home or die. You can receive a lump sum, a line of credit, monthly payments or a combination. To qualify, you must be 62 or older. (If the home is owned jointly, both owners must be at least 62.) The amount you can borrow is based on your home's value, current interest rates and your age.

Do I qualify?
A reverse mortgage enables older homeowners (62+) to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. The reverse mortgage is aptly named because the payment stream is “reversed.” Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you. Below are some common questions asked by consumers about reverse mortgages.

Does my Property Qualify?
Eligible property types include single-family homes, 2-4 unit properties, manufactured homes (built after June 1976), condominiums, and townhouses. In general, cooperative housing is ineligible. However, some lenders have developed private programs that lend on co-ops in New York.

Why do I need to get Counseling?
Counseling is one of the most important consumer protections built into the program. It requires an independent third-party to make sure you understand the program, and review alternative options, before you apply for a reverse mortgage.

You can seek counseling from a local HUD-approved counseling agency, or a national counseling agency, such as AARP (800-209-8085), National Foundation for Credit Counseling (866-698-6322), and Money Management International (877-908-2227). Counseling is required for all reverse mortgages and may be conducted face-to-face or by telephone.

By law, a counselor must review (i) options, other than a reverse mortgage, that are available to the prospective borrower, including housing, social services, health and financial alternatives; (ii) other home equity conversion options that are or may become available to the prospective borrower, such as property tax deferral programs; (iii) the financial implications of entering into a reverse mortgage; and, (iv) the tax consequences affecting the prospective borrower’s eligibility under state or federal programs and the impact on the estate or his or her heirs.

How much can I Borrow?
The government caps the amount you can borrow through an HECM. The limits range from $200,160 to $362,790, depending on where you live. If your home is worth $600,000, and the HECM limit for your county is $362,790, the maximum loan amount will be calculated based on a home value of $362,790.

What is the typical cost associated with closing?
Unlike with conventional mortgages, which are based on the loan amount, fees for reverse mortgages are based on the value of your home or the limit on federally insured reverse mortgages in your area. So even as rising home values have increased the amount that homeowners can borrow through a reverse mortgage, they've also raised the costs.

Homeowners who take out a federally insured reverse mortgage, known as a Home Equity Conversion Mortgage (HECM), typically pay an origination fee of 2% of the home's value, plus a mortgage insurance premium of 2%. Once title searches, appraisals and other expenses are included, closing costs can exceed 5% of the home's value.

My property is in a “Living Trust”
In most cases, as a part of the loan process, you will need to provide a copy of the trust or a Certification of Trust for review by the lender and Title Company.

Do I need Title Insurance?
When you’re obtaining a new loan, even if you stay with your original lender, your lender will require lender's title insurance to protect their investment in the property. You will not need to purchase a new owner's title policy; the one you bought at closing is good for as long as you and your heirs have an interest in the property.
Even if you recently purchased or refinanced your home, there are some problems that could arise with the title. For instance, you might have incurred a mechanics lien from a contractor who claims he/she has not been paid. Or you might have a judgment placed on your house due to unpaid taxes, homeowner dues, or child support for instance. The lender needs reassurance that the title to the property they are financing is clear.

Who holds title to the Property?
A reverse mortgage is only a lien against the property; therefore, the title will stay in your name.

What is the function of Escrow Settlement?
One escrow specialization is reverse mortgage In fact, several escrow officers specialize in this type of escrow because it allows them the opportunity to work directly with lenders, homeowners and help our senior population. We are a Neutral trusted third party appointed to act as a custodian for documents and funds during the financing of a property. Our role in the reverse mortgage process is essential for a smooth transaction, we interface closely with the loan processor, lender and Title Company, we coordinate the closing in our office or via our network of closing agents, attorneys and notaries, and clients can even conveniently sign in the comfort of their own home.

What is the tax liability?
No funds received from a reverse mortgage are generally categorized as loan advances and not taxable income. Consult your tax advisor for more information.

How will this affect other benefits like Social Security and Medicare?
Generally a reverse mortgage will not affect these or most other means tested benefits as long as the monthly cash advances are fully spent every month and not accumulated. However, programs do vary by state, so we strongly encourage you to confirm with your local senior services agency that your benefits will not be affected.

Will my heirs have to sell the property to repay the loan?
No, the loan can be repaid by refinancing the existing reverse mortgage with a standard mortgage loan.

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