Securing an Arizona Reverse Mortgage

With the popularity of Arizona as a retirement destination and the high number of seniors who have chosen to reside in the state, the Arizona reverse mortgage has grown more and more frequent and reliable as a source of income for retirees. Thousands of homeowners have used this type of financing to pay for living expenses and other important bills.

What is a reverse mortgage?

Reverse mortgages are the opposite of traditional mortgages: your lender pays money to you instead of the other way around. The funds you receive are from the equity in your home.

How can reverse mortgage funds be used?

If you have medical bills, living costs, or other financial obligations, a reverse mortgage can provide you the funds you need. You can pay off other mortgages or debt, or simply spend the money on gifts for relatives or a nice vacation. You can also use a reverse mortgage to downsize or relocate into a new home.

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 Arizona, 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 money your lender provides to you can come in several forms. Pick the one that fits with your financial goals:

• You can receive the money all at once, as a lump sum.
• You can receive payments on a monthly basis until the equity turns out.
• You can access the equity through a line of credit tied to your home.
• You can combine any of the above methods to create a flexible financial solution that’s right for you.

Your equity will transfer to your lender as you receive money through your reverse mortgage.  But don’t worry. The bank cannot repossess your home or take ownership of your property under any circumstances. The loan is tied to nothing more than the equity or value of your home.

Does the equity need to be repaid?

You won’t have to pay the loan off at any point during your life unless you move into a new home.  Upon a reverse mortgage homeowner's passing, the loan obligation passes to whomever receives ownership of the home, i.e. heirs. Heirs may then sell the property to pay back the debt owed to the reverse mortgage lender.

Even if the home decreases in value such that the amount heirs receive for selling the home is less than what is owed, federal law mandates that lenders cannot collect any debt beyond the value of the home at the time of collection.  Heirs will not face any additional debt charges.

Arizona Reverse Mortgage Lenders

No two lenders will offer you the same deal on your reverse mortgage. It’s important to research multiple lenders in your part of Arizona before you come to a final decision of who to work with. It’s good to talk with at least four or five different lenders and brokers before you decide.

Make sure you ask about mortgage rates. Try to find the lowest rate possible. But inquire about fees, too. Fees can be high with reverse mortgage due to the unusual and complex nature of the loan. Different lenders will charge different fees. Don’t be afraid to ask around.

If you want more information on the application process and the things you need to consider when choosing a lender, review our Reverse Mortgage Checklist.

Arizona Senior Resources

The Arizona Department of Economic Security lists numerous assistance options for seniors looking to maintain independence while living at home with a reverse mortgage, including caregiving and meal deliveries. While there are income limits for some programs, there are no restrictions on area, so reverse mortgage homeowners in popular cities like Phoenix, Scottsdale, Flagstaff, and Laughlin are still eligible. 

Lenders in: Arizona.