Securing a South Dakota Reverse Mortgage

The South Dakota reverse mortgage program allows senior homeowners to cash out their home equity and spend it on things that matter, such as medical bills, trips, housing, and daily living expenses.  It’s not difficult to qualify for one of these loans.  If you’re over the age of 62 and you own a home with equity, you are ready to apply.

What is a reverse mortgage?

These loans are unique and unlike any other loans available.  They truly do function in reverse.  With a reverse mortgage, your lender buys the full value of your home equity from you and pays you for it.  This puts cash in your pocket in exchange for the investment qualities of your home.  The cash is something that many seniors need, while home equity, in the later years of life, is often less useful.  Reverse mortgages in South Dakota can help seniors better leverage their financial holdings.

How can reverse mortgage funds be used?

The money you get from your lender is entirely yours.  No one else owns a cut of it or has any right to it.  It comes directly from your own home equity.  This allows you to spend it on anything you want.  

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 South Dakota, 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?

When your lender purchases your home equity from you, the money you receive as payment can be provided in a number of ways.  Choose from the following payment arrangements.

• Through a credit line you can access as you please.
• As a lump sum at the start of the loan.
• In monthly installments of a preset amount.
• As any combination of the above forms.

You can’t lose your home in a reverse mortgage.  This is one of the many benefit of this loan type.  Though ownership of your equity has transferred to your lender, ownership of your home remains with you.  The title or deed of the home does not transfer.  Your lender can’t take over your home to pay back your debt, even after the equity runs out.

Does the equity need to be repaid?

You won’t have to pay back the loan yourself, either.  Unless you decide to move to a new home, you can stay in your home for the rest of your life without paying your lender a single cent.  Your previous mortgage will be eliminated as part of the reverse mortgage.  

If you live in the home until you pass away, the responsibility of paying back the reverse mortgage will transfer to whoever receives ownership of your home.  This is often your heir.  Your heir can pay back the loan in a monthly fashion, through a refinance, and live in the home.  If your heir has no interest in keeping the home, he or she can sell it and pay back the reverse mortgage with the proceeds.

South Dakota Reverse Mortgage Lenders

Once you’ve decided to take out a reverse mortgage, you’ll need to find a lender to close your loan.  This is easier said than done.  There are plenty of lenders in South Dakota who would be more than willing to work with you, but you must find the one that best meets your needs.

Lenders will sometimes charge high fees to administer reverse mortgages.  Compare the fees and rates offered by at least four or five lenders in your area, and pick the lender who can offer the best terms on the loan deal.

For more information on the process of finding a lender and applying for a reverse mortgage loan, talk to one of the lenders in our network or read our reverse mortgage checklist.

South Dakota Senior Resources

South Dakota's Department of Social Services provides an aging and disability resource center call map for seniors interested in learning more about services that may help them maintain their independence, especially while living at home. The call centers are located in Rapid City, Pierre, Sioux Falls, Watertown, and Mitchell. To see phone numbers for a call center near you, check the agency map. 

Lenders in: South Dakota.