Securing a New Jersey Reverse Mortgage

Many seniors in New Jersey have chosen to take advantage of the New Jersey reverse mortgage option, a specialized loan type that allows retirees over the age of 62 to borrow money against the equity in their homes.  The borrowed money is provided to them as tax free income on a monthly basis or as a lump sum.

What is a reverse mortgage?

These loans are unlike other mortgages in that they function in reverse.  The lender essentially buys your home equity from you and pays you for it each month, like a mortgage.  You get to receive the income and spend it as you wish.  It doesn’t matter whether you’re wealthy or not.  Reverse mortgages in New Jersey have helped many seniors get the money they need to live comfortably and securely.

How can reverse mortgage funds be used?

There are no spending stipulations imposed on the funds you receive.  You can put the money toward anything you need, whether you’re paying for medical bills, living costs, or a nice vacation.  The money is all yours already, and the lender has no say in how you spend it.

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 New Jersey, 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?

The method through which you choose to receive your money will vary depending on your financial needs and personal goals.  You can receive the funds in one of the following ways.

• Your lender can deliver a portion of the equity to you each month as a steady stream of income.
• Your lender can provide it to you all at once as soon as the loan is closed.
• You lender can set up a credit line for you tied directly to the equity in your home.

If you want, you can combine any of the above methods to receive your funds in the way that best fits with your financial goals.

As mentioned above, your lender purchases ownership of your home equity in a reverse mortgage.  This may concern some seniors who fear that their homes may be possessed by the lenders when the equity is gone.  This is not true.  Reverse mortgages don’t give lenders the right to take your home under any circumstances.  You will always own your home until the day you pass away or choose to move into a new residence.

Does the equity need to be repaid?

The reverse mortgage amount only comes due when you move into a new home or pass away.  At this time, your heirs will inherit the debt along with the home and must pay it back.  But this can be done easily.  Your heirs can simply sell the home and turn the proceeds of the sale over to the lender.  Federal regulations guarantee that the maximum amount owed is never more than the value of the home at the time of the sale.  This ensures your financial independence and gives you peace of mind and assurance knowing that your heirs won’t see a penny of debt beyond what the home is worth.

New Jersey Reverse Mortgage Lenders

The part of the reverse mortgage process that will take the most time and effort on your part is the first step, which requires you to find a lender to work with.  This may seem simple, and it can be.  But if you want to find the best reverse mortgage lender around, you should conduct thorough research.

Meet with several lenders in your part of New Jersey to discuss mortgage rates and fees on your new loan.  Each lender will offer you a different deal.  Your goal is to identify which lender can administer the loan in the most affordable way.  If you want more information on how to determine this, read our reverse mortgage checklist.

New Jersey Senior Resources

The New Jersey Division of Aging Services site has a Getting Help at Home page with a number of programs that enable seniors to continue living at home independently. Support options are statewide, incuding popular areas like Princeton, Cherry Hill, and Newark. You can also find local aging support agencies by choosing from the county map. 

Lenders in: New Jersey.