Technically, there are two types of Chicago reverse mortgages: FHA-insured or conventional. In practice, you will have a hard time finding a conventional reverse mortgage.
For that reason, here I am only covering FHA-insured reverse mortgages (known as Home Equity Conversion Mortgages, or HECM’s).
Chicago Reverse Mortgages: Loan Limits
Forward FHA loan limits vary by county. That’s not the case with reverse mortgages. There’s one amount that applies to the entire county. Tends to be 150% of the conventional loan limits for non-special areas for a one-unit property.
In 2023, the HECM limit is $1,089,300, You can check it each year here: 2023: https://entp.hud.gov/idapp/html/hicostlook.cfm. Just choose reverse (default tab is forward).
Who Qualifies Chicago Reverse Mortgages?
To qualify for a Chicago reverse mortgage, you must be 62 years old or older at the time the loan closes. Keep in mind that the older the younger applicant is, the bigger the loan.
In addition, you must
- occupy the property as your primary residence (183 days each year);
- have enough income (or assets) that you can cover property taxes, property insurance and maintenance and, in case of condos, homeowner’s association fees;
- attend a reverse mortgage counseling session with one of HUD’s approved counselors (your loan originator will provide you a list of such counselors in your area when they give you the loan amount, interest rate, costs);
- have lots of equity or a big down payment… Again, the older you are the less equity / down payment is required. However, even if you’re one hundred years old, you still need a lot more of them than for a forward mortgage.
Like with forward Chicago FHA mortgages, you can get Chicago reverse mortgages only for properties that meet the FHA’s safety standards. They can be a single-family house (can be a manufactured one), a town house, a condo, a 2–4-unit building.
For condos, they must be FHA approved. Here’s the link to where you can check if an association is approved:entp.hud.gov/idapp/html/condlook.cfm.
Some lenders do spot-approvals. But it is something you should be wary of: it takes. rt to get that done and a willing association. (You might come across an individual condo unit that’s gone through the process before you came into the picture, though.)
You do not have to be employed, but you must prove you have enough income or assets to cover your living expenses and property taxes, property insurance, flood insurance (if necessary) and, in the case of condos, homeowner’s association fees.
Loan Funds Options
If you want a fixed-term loan, you get your funds in one lump sum.
If you’re wanting an adjustable interest rate mortgage, you have the following options:
- Tenure – equal monthly payments as long as at least one borrower occupies the home as their primary residence;
- Term – equal monthly payments for a fixed period of months selected;
- Line of Credit – like a credit card: random payments or in installments, any time and amount you want till you reach your loan limit;
- Modified Tenure – combination of line of credit and scheduled monthly payments for as long as you live in the home;
- Modified Term – combination of line of credit plus monthly payments for a fixed number of months (that you chose).
How Much Can You Borrow?
The maximum loan amount depends on a couple of factors:
- The age of the youngest borrower;
- Interest rate at the time you apply (the higher the interest rate, the lower the loan amount);
- The lower of these:
- Appraised value;
- FHA’s reverse mortgage limit;
- In the case of purchases, the price.
All HECM’s have:
- Upfront mortgage insurance premium (currently at 2% of the loan amount);
- Annual mortgage insurance premiums (currently 0.5% of the outstanding mortgage balance;
- Origination fees (the greater of $2,500 or 2% of the first $200,000 of your home’s value plus 1% of the amount over $200,000. (With a $6,000 limit);
- Servicing fees (Servicing means sending you monthly statements, paying property taxes and insurance on your behalf, disbursing the loan). For the life of the loan. The fees can be as high as $30 a month for fixed-rate loans and loans that adjust once a year. It can be as high as $35 if the rate adjusts monthly. I say “it can be” because lenders can charge less. I have not, yet, come across one that does not charge the maximum allowed, though. (The servicing fee is deducted from your available funds at closing. It is added to your loan balance each month. And lenders are allowed to charge interest on it – same rate as the principal.);
- Third party fees (appraisal, title insurance, credit report, survey, home inspection, etc.).
Other Chicago Reverse Mortgage Considerations
If your spouse is younger than 62, you will have to apply for the loan by yourself.
What Happens to Your Reverse Mortgage When You Die or Stop Living in the Home for More Than 12 Consecutive Months?
Well, that depends on several factors:
- How you applied (you’re the only borrower or do you have a co-borrower);
- When you took out the loan;
- Were you married when you closed on the loan and did you remain married till your death.
1-a If you have a co-borrower. When you have a co-borrower, you are both entitled to the benefits of the loan and you both are responsible for it. When one of you dies, the other one remains in the home (and gets loan payments) if they pay taxes, insurance, association fees (and the house is reasonably taken care of. I.e., if the reverse mortgage loan obligations are met. (Note: make sure the servicer has both of you listed as borrowers. I mean, ask them to send you this information in writing and save it.)
1-b If your spouse is not a co-borrower. August 4, 2014 was an important date in the world of FHA reverse mortgages: the term Eligible non-borrowing spouse came into being.
So, if your spouse pays off the loan, they can, of course, stay in the house. If they’re are an eligible non-borrowing spouse, they can stay in the house without paying off the loan.
The servicer determines if your spouse is an eligible non-borrowing spouse under HUD’s rules.
Eligible Non-Borrowing Spouse
To be an eligible non-borrowing spouse, your spouse must:
- Have been your spouse at the time you closed on the loan (or, in the case of same sex couples who could not have legally been married when the loan closed, show you were married at the time of your death);
- Have been legally married to you at the time of your death;
- Be named as non-borrowing spouse in the loan documents;
- Have used the home as their primary residence and will continue to do so after you died or stopped living in it for twelve consecutive months;
- Meet all the loan obligations (pay taxes, insurance, take care of the home).
(Loans with case numbers assigned before 08/04/2014 have different rules. Specifically, your lender can do one of two things:
- Start what is called a Mortgage Optional Election Assignment.
If the Mortgage Optional Election Assignment Is Not an Option (or the Lender Doesn’t Care)
They must start the foreclosure process within 6 months of your death. Your spouse can request a delay for up to 180 days (to try to sell the property or refinance it).
If the Mortgagee Optional Election (MOE) Assignment Is an Option
If your lender or servicer decides not to foreclose and instead enters the MOE Assignment process, your spouse must do the following:
- Provide their Social Security number or Tax Identification Number.
- Agree that they will no longer receive any payments from the reverse mortgage loan.
- Continue to meet all loan obligations, including paying property taxes and homeowner’s insurance.
If You Have Heirs
Your heirs must pay the lower of these two:
- Outstanding balance on the reverse mortgage or
- 95% of the home’s appraised value.
Here are two examples:
1. If the house is worth $300,000 and the balance on the reverse mortgage is $365,000, they must pay $285,000.
2. If the house is worth $300,000 and the balance is $227,000, they must pay $227,000.
Reverse Mortgage Loans and LTV
Loan-to-value ratios for reverse mortgages depend on the age of the borrower and the interest rate.
So, what does that mean, in real life?
I had a 62-year-old borrower recently and a 100-year-old borrower (three weeks apart). Same lender offered them the following:
|Line of Credit Loan LTV||40.30%||26.20%|
|30-Year Fixed (Lump Sum)||26.20%||66%|
The interest rate for the lump-sum version (30-year-fixed loan) was 8.500% for both.
The initial interest rate for the Line of Credit loan was 6.435% for the 62-year-old borrower; 6.970% for the 100-year-old borrower.
The table above shows two things:
- How much equity (down payment) you must have
- How much of a difference age makes.
If you’re looking for a Chicago reverse mortgage (or an Illinois reverse mortgage), feel free to contact me.