Securing a Minnesota Reverse Mortgage

Many retirees choose to live in Minnesota for its accessible health care, strong focus on continued education, and natural beauty.  Though homes are affordable and living costs are low, a Minnesota reverse mortgage can help seniors homeowners in the state secure the income they need to retire well.

What is a reverse mortgage?

Your reverse mortgage package will look different than others depending on your age and your financial needs and plans, but in general, the structure is the same for all.  Your lender takes over ownership of your home equity and transforms this equity into money you can spend by making payments to you at intervals or as a lump sum.

How can reverse mortgage funds be used?

When you receive money from your lender, you don’t have to apply it to your home.  The money is no longer tied to your property in the form of equity.  You can spend it on anything.  Medical costs and basic day to day living expenses will likely claim some of your money, but feel free to put the funds toward a vacation, a new car, a down payment on a home, or anything else you feel you need. 

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 Minnesota, 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 provide the money to you in whatever way you specify.  In general, there are three primary payout methods available to choose from.

• The lump sum payout.  This method provides you with all of your money up front, to spend as you wish.
• The monthly payment plan.  This method splits your money up into small chunks and pays you each month over several years or decades, until your equity is depleted.
• The credit line option.  This method makes all of your money available to you as you need it through a credit line.

You can also combine any of the above methods or vary them to meet your needs.

You lender owns the equity of your home during and after the reverse mortgage process, but your lender won’t ever own your home.  You can rest assured that you can continue living in your home as long as you want, even with a reverse mortgage.  The title or deed remains in your name only.

Does the equity need to be repaid?

You do not need to repay equity unless you move, sell the home, or pass away. If you pass away, your heirs will have to pay back the reverse mortgage debt.  But this is not a problem.  The debt follows the home.  With most reverse mortgages, the heir or heirs will sell the home and use the money gained from the sale to pay off the debt.  The government has established laws that prevent lenders from trying to collect more money than what the home sold for, even if the reverse mortgage amount is higher than the value of the home at the time of the sale.

Minnesota Reverse Mortgage Lenders

Finding the right reverse mortgage lender is the most important responsibility you have when taking out a reverse mortgage loan.  Everything else is secondary.  If you don’t find the best lender, you may end up losing a portion of your equity through fees and high rates on the loan itself.  Your equity is a finite amount that cannot be easily replenished.  Avoid as many fees as you can.

To find the best lender, simply contact four or five lenders in your part of Minnesota and compare the rates and fees they charge.  Don’t let any of them know that you’re shopping around, though.  Ask them for their real rates, not their advertisement rates.  Fees can add up fast.  Find out what fees they charge and how much they charge for each fee.  You can learn more about these aspects of the loan by reading our reverse mortgage checklist.

Minnesota Senior Resources

The Minnesota Department of Human Services division for Aging provides a nutritition program that enables seniors to maintain independence while living at home. To learn more about SNAP (Supplemental Nutrition Assistance Program) and other services, visit the Aging site for Minnesota. 

Lenders in: Minnesota.