A reverse mortgage may seem like a new type of loan program, but the reality is that these loans have been available to senior homeowners since 1961. Millions of homeowners have used reverse mortgages over the years to improve their financial situation in retirement, and you may be able to as well.
A reverse mortgage essentially gives you back the equity in your home through regular monthly payments made to you. The other options to obtain your home equity are to sell the home or to refinance it and take on debt. A reverse mortgage allows you to stay in the home and to generate income rather than debt from the loan. As you might imagine, there are a few requirements that you must meet in order to qualify for a reverse mortgage. After analyzing these requirements, you will be able to determine if you should apply for a reverse mortgage so that you can get paid to live in your home by tapping into your equity.
Common Borrower Requirements
There are specific requirements that borrowers or loan applicants must meet. The applicants should own the home, and each applicant should be at least 62 years old or older. The home must be your primary residence rather than a rental property or a vacation home. In addition, you should have lived in the home for the previous 12 consecutive months. As a homeowner, you will still be fully responsible for paying your property insurance and property taxes.
This means that you must prove that you have the financial means to do so during the loan application process. You also are still responsible for paying your homeowner’s’ association dues, and you will be required to continue to properly maintain the property for the entire time you live in the home. You also must not owe the federal government any money, such as back taxes on your federal income tax returns.
If you meet these borrower requirements for a reverse mortgage, you can then look at the property requirements to ensure that you comply with these before you apply for the loan. The good news is that reverse mortgages work with a wide range of property types. This includes single family homes as well as two to four-unit homes as long as your permanent residence is in one of the units. The property may also be a manufactured home, but the home must meet specific guidelines that your lender can review with you. Condo units are also permitted under this program, but the condo must be HUD-approved. Vacation homes as well as income-producing farms are not eligible for reverse mortgages.
Before you can obtain a reverse mortgage, you will be required to attend a counseling session to learn more about this type of loan. This session will be completed with a HUD-approved agency that is located close to your home. During the session, you will learn about the pros and cons associated with reverse mortgages, and you will have the opportunity to get all of your questions answered by a helpful and knowledgeable loan representative. Through this process, you will also be able to learn about any other financing options that may be available to help you meet your budgeting and financial needs.
Determining if a Reverse Mortgage Is Right for You
In order to determine if a reverse mortgage is right for you, you must fully understand how they work and how this type of loan will affect you and your dependents in the short-term as well as the long-term future. In the short-term, the loan may pay you a much-needed payment each month on a scheduled basis. The funds can even be automatically deposited into your account on a specific day each month. However, you should be aware that when the individual who is on title moves out of the home or passes away, anyone who wishes to remain in the home must repay the mortgage debt to remain in the home. In many cases, the home must be sold to repay the debt to the lender, and the dependents who were living in the home must relocate.
A reverse mortgage is a wonderful way to tap into the equity in your home now because it allows you to remain in the home while using the equity to pay bills and make ends meet. However, you do need to meet specific requirements to qualify for the loan, and you also need to fully understand how these loans work. You should think through all aspects of the loan, including how it will affect you and your loved ones now and in the future. If you decide to move ahead with a reverse mortgage, there are many lenders who offer this type of loan program and who can assist you with the loan application process.