Different states have their own nuances to reverse mortgage loans. Learn everything about getting a reverse mortgage in Florida in our guide.
If you’re in the market for a reverse mortgage, it won’t take much time to realize it’s one of the most complex types of home financing out there. Between United States federal regulations, choosing a mortgage payment model, and the high number of scams, reverse mortgages are not contracts to enter lightly.
Reverse mortgages are readily available to Florida homeowners, but the risk of related cons is high. With one of the largest concentrations of retirees in the country, many homeowners in the Sunshine State are ideal targets for both legitimate companies and crooks.
In this guide, we’ll explain everything you need to know about reverse mortgages in Florida, including the benefits, risks, and alternatives.
Who Qualifies for a Reverse Mortgage in Florida?
At a glance, a reverse mortgage sounds like a fantastic deal: you live in your home, and instead of making traditional mortgage payments to a lender, the lender pays you! Indeed, for some older homeowners, the reverse mortgage loan model provides the stability needed for a happy retirement.
Reverse mortgages are specifically designed for people at or nearing retirement age, and thanks to federal regulations, only Floridians who are 62 or older can qualify.
Age is a factor in your eligibility, but not the only one. In Florida, reverse mortgages are restricted to homeowners who:
- Have at least 50% equity in their home
- Live in the home as a primary residence
- Are you current on any federal debt payment
The great thing about reverse mortgages is that credit score isn’t an eligibility requirement, therefore, you can get a reverse mortgage with bad credit.
How Does a Reverse Mortgage Work in Florida?
A reverse mortgage starts with a borrower who already owns their home (or a large part of its equity). The collateral for the loan is your house, and when the lender remits money to you, they are (in most cases) buying the future ownership of your home.
A reverse mortgage entails the following steps:
- Check lender status – Confirm you’re working with a lender that’s federally insured to offer reverse mortgages specifically. This is a specialized loan type that’s not offered by most traditional mortgage lenders.
- Find the best offer – Though reverse mortgages are federally regulated, there is still wiggle room between lenders. Shop around and compare quotes to find the best deal for you.
- Attend counseling – The U.S. Department of Housing and Urban Development (HUD) requires that all reverse mortgage borrowers attend an approved 90-minute counseling session. This is an unusual requirement that recognizes how complicated and risky reverse mortgages are, and how critical it is to figure out what’s in your best interest.
- Check on your benefits – A reverse mortgage can affect eligibility for Medicaid and Supplemental Security Income (SSI). Understanding how this applies to your situation is a key part of the counseling session.
- Select your loan model – Decide on which type of loan payment you want to receive. You can choose to receive a lump sum, a monthly amount for a set period (often 10 years), an annuity that pays monthly until death, a line of credit, or a blend of credit with a lump, monthly term, or annuity payments.
Once you’ve signed the paperwork, you’ll begin to receive payments according to the terms of your loan agreement.
Your loan balance will become due when you sell the home or pass away.
Are There Risks With a Reverse Mortgage?
The short answer is yes.
- Scams – Elderly homeowners are an ideal target for many scam artists. They can potentially fall prey to companies that aren’t insured to offer reverse mortgages. Likewise, relatives or financial advisors could recommend arrangements that take advantage of them.
- Losing the house – If the owner lives outside the home for more than a year (regardless of temporary medical or other need), fails to make payments on mortgage insurance or property taxes, or fails to keep the property up, the lender can take possession.
- Displacing family – A spouse or family member also living in the home may be left homeless when the owner dies, and the house is sold. There’s also a risk to keeping the home in the family, although there is a limited opportunity for family members to pay off the mortgage and take ownership after the borrower’s death.
Reverse Mortgage Facts to Know for Florida
Before you consider this route, there are some reverse mortgage facts to keep in mind. Unlike in some other states, reverse mortgage Florida laws mandate that lenders can only foreclose on a house via a lawsuit. This means that if worse comes to worst, you’ll have your day in court.
But beware: the technical interest rate for foreclosure on reverse mortgages (i.e., for reasons other than the borrower’s death) is nearly 20%, which in recent years has put about 15,000 Florida households at risk of foreclosure.
There are both local and state programs to help seniors faced with foreclosure. Florida’s Elderly Mortgage Assistant Program (ELMORE) provides up to $50,000 in aid specifically to prevent defaulting on a reverse mortgage.
Sale-Leaseback: An Alternative Option for Florida Homeowners
You’ve put money, time, and sweat into your property for years, and while it may be your biggest investment, it’s also the one-of-a-kind home that serves as a place of comfort and rest. If you’re looking to make the most of the home equity you’ve built in your house, a reverse mortgage with high closing and administrative fees that puts you at risk of foreclosure isn’t the only way to go.
A sale-leaseback provides an alternative to reverse mortgages so you can remain in your home while accessing the equity that you’ve built over time.
Contact a financial advisor to learn more.
If you’re in the market for a reverse mortgage, it won’t take much time to realize it’s one of the most complex types of home financing out there. If you are still unsure of alternative options for reverse mortgage after reading this article, consult a financial advisor to discuss your options.
- Naples Daily News. Reverse mortgages: 15,000 older Florida homeowners at risk of foreclosure and homelessness. https://www.naplesnews.com/story/news/local/2019/06/12/seniors-florida-lose-homes-reverse-mortgage-foreclosure-thousands-risk-homeless/1192702001/
- Investopedia. Reverse Mortgage. https://www.investopedia.com/mortgage/reverse-mortgage/