if i take out a reverse mortgage line of credit and have to be admitted to a nursing home in the future is that line of credit considered income and have to be used toward the nursing home bill or is my social security and very small pension considered only...Thank You
I think you have to be VERY careful with RM's. Under FHA backed RM, if the owner moves from the house, the reverse mortgage is out of compliance on the agreement. Again please go over the agreement to see what the policy reads.
If you do a RM there are 4 things that can be a problem for compliance and cause the RM to be due and payable in full:
FAILURE TO PAY - property taxes, homeowners/flood/wind insurance. One issue with RM is that instead of the homeowner selecting their own insurer, the insurance is folded into the RM and uses insurers that the RM selects which can increase cost of the RM. Also realize that if you go into a NH on Medicaid, you are required to do a copay of all your monthly income to the NH less whatever small amount (about $ 50 a month) you can keep for your personal needs allowance. So if this will be your situation, how are you going to be able to pay the taxes and any other costs on the house that the RM requires if you are in a NH?
MOVING TO A NEW RESIDENCE- if reverse mortgage property stops being your primary, you are out of compliance with loan. So if you move into a NH, you are likely required to pay your loan.
BEING OUT OF THE HOME FOR MORE THAN 1 Yr - the loan will come due. Most policies have this.
ALLOWING THE PROPERTY TO DETERIORATE - being away for a while, like a trip or cruise is allowed but if the property gets run down while you are away, the loan could be called in. Again, if you are in a NH, who is going to take care of and pay for the usual maintenance (like cutting the grass) on the house? After Hurricane Katrina, some homeowners who had RM, got letters w/detailed questionnaire as to the status of the home, how it was being secured, status of repairs, utility information - this was all about calling in loans that were in areas with uncertainty. And H. Katrina was in 2005 before the real estate market tanked.
I think RM can work if it is a couple who is young and healthy 65 year olds and the house has a value of over 200K and is in a very very good neighborhood which will gain in value over the life of the RM loan. (FHA RM's have the max value you can get out at about 50% of appraised value, so if the house is low in value you really can't get very much to begin with). So that when the couple are ready to downsize and sell the house; or one of them dies; then the value of the home has increased to the point where the RM can be paid off in full and perhaps with them even extra $. I bet most elderly looking at RM are not in well maintained homes with high property values. Good luck and really look at the agreement carefully - if you don't understand it, don't sign it till you do.