Securing a Tennessee Reverse Mortgage

Seniors who live or plan to retire in the state of Tennessee can take advantage of a unique loan type available there.  The Tennessee reverse mortgage performs a function that few other financial products can successfully perform.  It transforms the borrower’s current home equity into cash.

What is a reverse mortgage?

These loans are structurally very simple.  The lender you choose to work with essentially buys your home equity from you and pays you back for it in spendable cash. Reverse mortgages provide an income stream sourced from the equity homeowners have built through mortgage payments. 

How can reverse mortgage funds be used?

You can use this cash in any way you want.  Medical bills, daily living expenses, vacations, college tuition for grandkids, and other expenses can be paid for with money from your 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 Tennessee, 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 buys your equity from you, the money you receive can be provided to you in a number of ways.

• You can arrange to receive funds equal to the full amount of the equity immediately upon closing the loan.
• You can set up a payment plan that allows your lender to make payments to you in monthly installments.
• You can establish a line of credit through your lender that allows you to access your home equity reservoir whenever you need it.

If you want to create your own customized payout plan, you can combine any of the above options.  You can receive most of the money at closing and put some in a credit line, for example, or receive monthly payments in addition to several lump sum payouts.

Though your lender will own your equity, you don’t need to worry about losing your home.  Your lender does not own your home in a reverse mortgage.  The title or deed of ownership remains in your name and in your possession throughout the entirety of the loan and afterward.  Even once the equity is entirely depleted, the lender has no right to take your home.

Does the equity need to be repaid?

Not unless you move, sell, or live in the home until you pass away. If you choose the latter, the heir that receives ownership of your home will have to repay the reverse mortgage debt that is owed to your lender.  But don’t assume that this debt will be a burden for your children or relatives.  Your heir receives ownership of the home, which means the debt can always be paid off through a sale of the home.  There are government laws in place that guarantee that lenders cannot collect more of the debt that what the home is worth.  Remember, the lender owns your equity, not a preset loan amount as with a traditional mortgage.  If your equity fails to perform, that isn’t your fault or the fault of your heirs.

Tennessee Reverse Mortgage Lenders

It’s easy to get a reverse mortgage.  But the part of the process that will require some work and effort from you is the beginning.  You’ll need to find a good lender.  This is not hard to do, but it can take time and energy.

Every lender in your part of Tennessee is likely willing to administer a reverse mortgage, but each will charge you a different fee to do it.  Reverse mortgage aren’t cheap, unfortunately, and the fees can add up fast when closing one of these loans.  Compare the fees and mortgage rates offered by at least four or more lenders to find out what your options are.

If you’d like to learn more about the process of taking out one of these mortgages, read our reverse mortgage checklist or get in touch with one of the lenders in our network.

Tennessee Senior Resources

Tennessee has several agencies on aging and disability that assist seniors maintain utmost independence, especially while still living at home. Agencies provide resources and assistance for a number of daily needs, including nutrition and transportation. They are located statewide, including Johnson City, Knoxville, Chattanooga, Cookeville, and Jackson. To find an agency near you, visit the AAAD map.  

Lenders in: Tennessee.