Is a Reverse Mortgage Right for You?
A Reverse Mortgage allows a homeowner to turn part of the equity he/she has invested in their home for cash. Since there is no repayment required until the homeowner moves or dies, there are no monthly payments to meet. Typically, then, your level of income has no bearing on your loan eligibility.
Here’s how it basically works: In order for your home to qualify, you must live in a single family house, two-to-four unit building, or in a townhouse. A condominium may qualify if it is FHA-approved. No matter what type of home you live in, its condition must meet HUD’s minimal property standards.
Next, you apply for a Reverse Mortgage from a lender. Where you will apply will depend on the type of mortgage you want. There are basically three types of Reverse Mortgages. They are single-purpose reverse mortgages, federally – insured reverse mortgages,
and proprietary reverse mortgages.
The single-purpose reverse mortgage is available from state and local government agencies, as well as from certain nonprofit organizations. As its name implies, it must be used for a specific purpose that is determined by the lender. This type of mortgage may pay for home repairs, property taxes, et cetera.
The federally – insured mortgage, (“Home Equity Conversion Mortgages (HECMs)”, is available from the U. S. Department of Housing and Urban Development (HUD). Before you can even apply for this type of loan, you must locate and talk to a counselor that’s been approved by HUD. Call 1-800-569-4287 to find a counselor you can ask questions and get advice from.
The proprietary reverse mortgage is available from the private companies who create them. This loan and the federally-insured loan typically have expensive upfront costs. However, unlike the single-purpose reverse mortgage, the money that is generated by using either of these two sources is not restricted. It can be used for any purpose you choose.
Once your reverse mortgage is approved, you’ll be able to receive the money you have borrowed
in basically four different ways. The amount of your loan will depend on how old you are; the interest rate; the amount that your home appraises for, or, the FHA mortgage limit that applies to your vicinity, and the closing and loan fees.
You can take your money in one lump sum payment. Or, you may choose monthly payments, as a line of credit, or as a combination of both.
Then, you owe the amount you borrowed, plus the interest, plus the fees the lender charged you.
When you no longer live in your home or you die, the loan will become due.
When you bought your home initially, you were approved for a loan. You had a large debt in the beginning, and you had no equity in your home. As you made payments on the loan, you lowered your debt and you accrued equity in your home. Once your home was paid off, you had one hundred percent equity in your home.
With a reverse mortgage, you are doing the opposite. You are borrowing money against the equity you have in your home. The amount of a reverse mortgage grows over time with additional borrowing of money and accruing interest. You can use up all of the equity you have in your home with a reverse mortgage.
If you think a reverse mortgage would be a good idea for you, be sure you check around to find the best loan terms. Make sure you understand the terms of the loan and read all of the paperwork thoroughly before you put your name on a dotted line. And remember, if you change your mind within three business days after signing the paperwork, you can cancel the deal in writing without incurring any costs.
