Who Covers Property Taxes in Reverse Mortgages?

One of the primary questions I get asked the most is - Who pays the property taxes on a reverse mortgage? So, today’s article is going to be entirely about this one question because, let me tell you, it’s one of the main aspects of a reverse mortgage loan!

I’ll address all your concerns regarding property taxes and reverse mortgages, along with the responsibilities for you as a homeowner/borrower if you end up getting a reverse mortgage.

Understanding Property Taxes

Let me first break down what property taxes actually are!

Property tax is money that property owners pay to the local government. It's like a bill you have to pay every year or sometimes twice a year.

The amount you owe depends on how much your property is worth. Your tax helps contribute funds to your community, such as schools, police, road repairs, fire departments, public libraries, and other services in your locality that benefit everyone who lives there.

Who Pays the Property Taxes on a Reverse Mortgage?

In simple terms, when it comes to property taxes in reverse mortgages, the property owner or their heir is responsible for paying them.

• If you have an existing mortgage, your mortgage company might handle the taxes through an escrow account.

• But remember, even if they pay, you still need to make sure the taxes are covered because if you don't pay, your property could face a tax lien, which is like a warning sign that you owe taxes.

• To make sure your payments are made right, you can easily check by visiting the tax collector's website and looking up your payment history. If you have to pay the taxes yourself, you can do it online, in person, or by mail.

If you think your tax payments are very expensive, there’s a way to lower your property taxes and that’s with the help of Homestead Exemption. Stick around to see how that works!

How Does a Homestead Exemption Work?

A homestead exemption is like a special discount on your property taxes if you own a house and live in it as your main home. Depending on where you live, you might qualify for this discount if you're:

• Someone with a disability

• A veteran

• A senior citizen

• A disabled law enforcement officer or first responder

Now, how much you save with this discount can depend on a few things. Some places give you a set amount off your taxes, while others take a percentage off.

If your home is worth less, you might get a bigger discount with the set amount method. But if your home is worth more, the percentage method might save you more money.

Importance of Property Tax for Reverse Mortgages

Staying current on your property taxes is one of the main requirements when it comes to qualifying for reverse mortgages.

This will be thoroughly explained and counseled during your consultation with a HUD counselor. To check if you can manage, they conduct a financial assessment.

Depending on how that goes, you might need to save some money from your loan to cover these costs. This saved money goes into something called a Life Expectancy Set-Aside (LESA). It's like a dedicated account that holds this money until you need it for taxes or insurance.

Reverse Mortgage Borrower Responsibilities

These responsibilities, explained by your lender and HUD counselor, are super important for making sure your reverse mortgage goes smoothly. Let's check out what they involve.

Paying Property Charges

• If you have a reverse mortgage, you need to pay your property taxes and homeowners insurance on time.

• Before you get the loan, your lender will check if you can pay these charges.

• Depending on the loan date, you might pay the charges directly or use some of your loan money.

Maintaining Your Home in Good Condition

• After getting the loan, you must keep your home in good shape.

• Your lender might check your home's condition and tell you to fix anything that's broken.

• If you can't afford repairs, you can ask your local Area Agency on Aging for help.

Make Your Home a Primary Residence

• You must live in your home most of the time.

• If you're away for a while, you need to tell your lender.

• If you're away for too long, more than a year without a medical reason, you might have to pay back the loan or sell the house.

What Happens If You Fail to Pay?

Now, let's understand the implications of not meeting your property tax payments.

If you fail to pay your property taxes, it could trigger a default on your reverse mortgage. And trust me, you don't want to go down that rabbit hole.

Defaulting on your loan could lead to foreclosure, which means the lender could take possession of your home. Losing your home is a big deal, and it's something you definitely want to avoid. So, it's crucial to stay on top of those property tax payments to keep your home safe and sound.

Closing Thoughts on Reverse Mortgage Tax Clarifications

Wow, we've covered a bunch of stuff today, right? From figuring out property taxes to understanding what you need to do with your reverse mortgage, we've talked about it all.

Just remember, when it comes to dealing with property taxes in reverse mortgages, knowing your responsibility is really important. By staying in the loop and following your loan officer’s advice, you can handle all the ups and downs of owning a home like a champ.