Securing a Colorado Reverse Mortgage

If you’re looking for a Colorado reverse mortgage, you’ll need to be a senior of at least 62 years of age, and you’ll need to own a home with at least some equity established. If you meet these requirements, there’s a great chance you’ll qualify for a reverse mortgage.

What is a reverse mortgage?

Reverse mortgage loans allow seniors who own their homes outright to tap into their equity and apply the funds toward living expenses, another mortgage, or whatever they like. 

How can reverse mortgage funds be used?

Reverse mortgage funds are your money, and you can spend them in whatever way you desire. You can use them for major financial purposes such as paying off other mortgages or debts, or you can simply use them to pay for your living expenses. You can also spend the funds on more expensive things such as vacations and medical costs. 

What types of reverse mortgages exist?

Reverse mortgages have three forms:

• Goverment-insured: FHA HECM (Home Equity Conversion Mortgage).
• Single-purpose: backed by nonprofits or state or local government agencies. 
• Proprietary: backed by private entities.

The most common source is the FHA HECM reverse mortgage, which is insured by the Department of Housing and Urban Development (HUD). This article will focus on HECM reverse mortgages.

Who can get a reverse mortgage?

Homeowners aged 62 and older who own their home outright and have most of their mortgage paid off. If the current mortgage is not paid off, the initial reverse funds or some combination with out-of-pocket cash must be used to deplete the remaining balance. Credit score is not a qualifying factor. 

What costs are associated with a reverse mortgage?

There are several costs associated with securing an HECM reverse mortgage in Colorado, including but not limited to:

• Upfront fees: include the lender's fees, and can be paid from the reverse mortgage funds. This means, however, that the money taken cannot be borrowed back. So a $200,000 reverse mortgage with $16,000 in fees paid via the reverse mortgage funds will leave the homeowner with $184,000. 
• Closing fees: include all the same fees required of a traditional mortgage closing. 
• Reverse mortgage counseling fees: HUD mandates all reverse mortgage homeowners attend reverse mortgage counseling. Fees are in the $100 range but can be waived for lower income seniors. 
• Mortgage insurance: an upfront mortgage insurance premium (MIP) must be paid for reverse mortgage borrowers. It can be as low as 0.5% and as high as 2.5% of the appraised home value, unless the home is over $625,500, in which case the upfront mortgage insurance is calculated by the lender. 

How will I receive my funds, and for how long?

Your lender will distribute the money to you in one of the following ways.

• Receive the money in one lump sum payment equal to the entirety of your home’s equity.
• Arrange a schedule of monthly payments that your lender will provide on a regular basis until the equity is depleted.
• Access the funds through a line of credit attached to your home.
• Combine any of the above methods to craft a flexible financial solution to meet your income needs.

Your lender will take control of an equivalent amount of your home equity. As time goes by, more and more of your equity will transfer to your lender. Your lender will cease providing payments to you once the equity is depleted. Once this occurs, you can go on living in your home free of charge for the rest of your life. Your lender does not own your home and never will.  Your lender only owns the equity.

Does the equity need to be repaid?

The equity does not need to be repaid unless the homeowner sells, moves, or passes away. If the reverse mortgage homeowner passes away, designated heirs will have to pay back the full amount of this equity if they wish to keep the home. Alternatively, they may sell the home to pay back the mortgage in full. Lenders are forbidden by federal law to collect more money than the home's worth at the time of the sale, even if the reverse mortgage amount was higher. This guarantees that heirs won’t have to pay for any debt beyond the money they would get from the home sale.

Colorado Reverse Mortgage Lenders

Every lender you contact for your reverse mortgage will be willing to give you advice and assistance to help you understand the loan better. Check the mortgage rates that different lenders offer and work with the one who offers the lowest rate.

Find out what fees your lender will charge, too. Origination fees and closing costs can add up to a lot if you’re working with an expensive lender. Make sure you don’t pay more money than you have to. Research local lenders in Colorado and contact as many as you can to get quotes. You can also read through our Reverse Mortgage Checklist for additional information on how to apply for a reverse mortgage.

Colorado Senior Resources

The Colorado Department of Human Services has a division for Aging and Adult Services. The Aging and Adult division offers a number of statewide programs that help Colorado seniors maintain independence while continuing to live in their homes, including caregiver, nutrition, and employment support. 

Lenders in: Colorado.