Reverse Mortgages: What They Are and How to Get One


 If you have significant home equity but little retirement income, a reverse mortgage may be beneficial. Homeowners 62 years or older can borrow against the equity in their home and receive funds from a lender through a reverse mortgage. This money can be utilized for living expenditures and home upgrades without requiring you to relocate or make monthly loan payments. 

 When you obtain a reverse mortgage, you retain ownership of your home and use the proceeds to pay off any remaining mortgage balance. A reverse mortgage is a term that refers to a loan that is reversed. Reverse mortgages are loans that give you access to your equity at home in the form of one-time payments, credit lines, or a series of monthly payments. 

 Unlike traditional mortgages (also known as  forward mortgages) and second mortgages, reverse mortgages do not require you to pay as long as  the home is your primary residence. However, you must repay your existing mortgage when you close or before you close your reverse mortgage. 

 If you die or move permanently, you will need to repay the loan. This is often achieved by selling a home. Alternatively, you or your heir can repay the loan or pay the lender 95% of the valuation of the house to maintain the house. 

 If the value of your home increases during the period of the reverse mortgage, the excess  will be returned to you or your property. This can also happen if you die, sell, or move before your loan equity is completely exhausted. If  your home loses value during a reverse mortgage period, neither you nor your property need to make up for the difference. This benefit is made possible by the reverse mortgage premium you  pay.  How to Equalize a Reverse Mortgage To qualify for a reverse mortgage, you must meet the following criteria: at least 62 years old 

 Own one of the following eligible property types: single-family homes, 2-4 units of homes (if 1 unit is occupied),  HUD or FHA certified condos, or FHA certified mobile homes. Please keep your accommodation as your primary residence. Has homeowners insurance, property taxes, maintenance, and financial means to maintain  flood insurance and membership fees of the Homeowners Association as needed. Fully own your home  or have at least 50% capital Participate in a HUD-approved reverse mortgage counseling session reverse mortgages that do not delinquent federal obligations (taxes, student loans, etc.) 

 There are three types of reverse mortgages that you can consider depending on your situation. 

 Home Equity Conversion Mortgage (HECM): The most common type of reverse mortgage, the HECM is insured by the Federal Housing Administration and available only through FHA approved reverse mortgage lenders. You can use these loans for any purpose.  Proprietary reverse mortgage: A less common type of reverse mortgage for owners of homes valued above the FHA`s limit, which is $765,600 in 2020. Sometimes called a jumbo reverse mortgage.  

Single purpose reverse mortgage: A less common type of reverse mortgage for low to moderate-income seniors who need funds for home repairs, home improvements, or property taxes. Unlike HECMs, these loans can only be used for one purpose specified by the lender.  How reverse mortgages work. A reverse mortgage gives you access to a portion of your home equity, called the initial principal limit. This limit depends on four factors: 

 Your age: Lenders factor in the age of the youngest borrower or eligible nonborrowing spouse. Younger borrowers receive less money due to their life expectancy being longer.  Current interest rates: Higher interest rates reduce borrowing power.  The value of your home: The amount you can borrow is partially based on the lesser of your home`s appraised value, the FHA limit, or the sales price. In 2020, the FHA limit is $765,600, and the sales price is only factored in if you`re using a HECM for purchase.  How much you owe on your current mortgage (if applicable): If you don`t own your home outright or have at least 50% equity in your home, you won`t be able to receive a reverse mortgage.  When a reverse mortgage might be for you 

 You want to age in place and your home can accommodate it.  Your home needs accessibility improvements for aging in place.  You don`t care about leaving your home to your heirs.  You want or need cash, and you can`t qualify for a mortgage refinance, home equity loan, or home equity line of credit, perhaps because you have bad credit.  You can afford to keep up indefinitely with homeowners insurance, taxes, and maintenance.  When a reverse mortgage might not be for you 

 You rely on certain government need based benefits, such as Medicaid or Supplemental Security Income (SSI), which may be disrupted if you take out a reverse mortgage.  You want someone to inherit your home free and clear of any debt when you die.  You think you may want to move. (A HECM for Purchase may be an option if you want to move and still be a homeowner.) 

 Your health might require you to move into an assisted living or nursing facility for more than 12 months.  Your spouse will not be a borrower. A nonborrowing spouse will not receive any further reverse mortgage proceeds after a borrowing spouse dies, and in some circumstances, they may not be able to keep living in the home. (Eligibility is determined when you apply.)

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