Things You should Know about Reverse Mortgage

A reverse mortgage or lifetime mortgage is a type of loan available to senior people, allowing them to transfer a portion of the home equity in to cash. This can be taken either in one go or multiple payments, which ever suits you. reverse mortgage

The money that you have built up in years, by paying the home mortgage payments is paid back to you. The repay of this loan continues till the home remains your principal residence.

Moreover, you can remain in your home, even if you live longer than the life of the loan. The lender cannot take your home away from you. You do not even need to repay the loan by the time you or one of the borrowers continues to live in the house, and keeps property taxes and insurance up to date.

If you decide to sell your home, then either you or your estate will repay the cash you received from the reverse mortgage plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs.

Unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. FHA’s HECM provides these benefits. You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.

Eligibility Requirements

Seniors with 62 years and above age can qualify for a reverse mortgage. There is absolutely no requirement of having a source of income to qualify for a reverse mortgage. However, there are other requirements and homeowners should make sure that they qualify for the loan before they invest significant time or money into the process.

Your home will be evaluated and the lender will determine the amount you are eligible to borrow. Some types of dwellings do not qualify, while others such as mobile homes; have special requirements in order to be approved.

Before borrowing, applicants must seek third party financial counseling from a source which is approved by the Department of Housing and Urban Development (HUD). The counseling is an important process to help the borrower completely understands reverse mortgage and what the borrower is getting into.

HUD Counseling for a Reverse Mortgage

To apply for an FHA/HUD reverse mortgage, a borrower is required to complete a counseling session with a HUD-approved counselor. The counselor will explain the legal and financial obligations of a reverse mortgage. After the counseling session, the borrower receives a “certificate of counseling” that is required before the loan application can be processed.

Are you qualify for FHA’s HECM reverse mortgage?

To be eligible for a FHA HECM, the FHA requires the compulsory age of 62 years for homeowner. Also you must be the sole owner of your home and must also be living in the home. You are further required to receive consumer information from an approved HECM counselor prior to obtaining the loan.

Difference between a reverse mortgage and a bank home equity loan

With a conventional second mortgage, or a home equity line of credit, you must have an adequate income versus debt ratio, to meet the criteria for the loan. Moreover you also need to make monthly mortgage payments.

Instead, the reverse mortgage pays you — regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA’s mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.

No monthly payments are required, as the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your property taxes, home insurance and other payments like utilities.

How much money can you get from your home?

The amount of money obtainable from reverse mortgage is determined by these principal factors:

  • The assessed value of the property or FHA’s mortgage limits for your area, whether any health or safety repairs need to be made to the house, and whether there are any existing liens on the house.
  • The interest rate, as determined by the U.S. Treasury 1 year T-Bill, the LIBOR index or 1 Year CMT.
  • The age of the senior (The older the senior is, the more money you will receive).
  • Whether the payment is taken as line of credit, lump sum, or monthly payments. Line of credit will maximize the money available, while lump sum provides the cash immediately, but the interest fees are the highest. Monthly payments are set up as a “Tenure” payment. Borrowers receive them for the rest of their lives no matter how long they live.

Reverse Mortgage Payment Options

Tenure: these are fixed monthly payments that continue to be paid by the time no borrower lives or occupy the property as a principal residence.

Term: these are equal monthly payments for a fixed period of months.

Line of Credit: These payments are not pre-scheduled and depend upon your choice regarding the figure of amounts, until the line of credit are exhausted.

Modified Tenure: It is the mixture of line of credit and the monthly payments till the time you remain in the home.

Modified Term: It is the amalgamation of line of credit and monthly payments for a predetermined period of months, selected by the borrower.

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