A Reverse Mortgage is a type of home loan designed to help seniors. With this type of home loan, seniors are able to make use of the equity they have in their homes. In a reverse mortgage loan, seniors won’t have to make payments on the loan right away. Payments will be deferred. It is only when they move out of their home that they will start paying for the loan. The loan will also be due once the borrower passes away or has sold his home.
How Does a Reverse Mortgage Work?
The term “reverse” mortgage simply means that the lender will be the one making regular payments on behalf of the senior who acts as the borrower. This is contrary to the traditional loan where the borrower is the one making payments to the lending institution. In a reverse mortgage, as your loaned amount increases, your home equity will decrease. Reverse mortgages will not be paid until the borrower dies, moves out of his home or sell it. This is why interest continues to accrue.
Is a Reverse Mortgage Suitable for You?
If you are a senior who does not have plans of moving out of your home, a reverse mortgage could be right for you. A Reverse mortgage loan is also suitable for seniors who still can afford other maintenance costs of their home. If you think you have gained a significant amount of home equity, a reverse mortgage may also be a good option for you. A reverse mortgage loan can supply supplement income. It is also a good source of funding in times of dire need. Many seniors apply for a reverse mortgage loan in order to fund their medical bills and other health needs. While others use it to fund their daily basic expenses.
What if the Homeowner Dies or Moves to an Assisted Living Facility?
Once the borrower dies, the heirs will be sent a letter. This is to inform them about the reverse mortgage. Some options will then be presented to the heirs. The heirs may have the option to sell the house. This is if the loan balance is less than the amount of home equity. If the heirs successfully sold the house, they will pay the loan and then keep the remaining money. But, if the loan is more than the worth of home equity they may give the house to the lender. Or, they can keep the house provided that they continue paying the loan.
But, if the borrower moves out of his home, into an assisted living facility for example, the lender will have to sell the house. This way, the lenders can ensure payment for the loan.
It is important to note that the senior remains the legal owner of the house. This is even if its equity is used in reverse mortgage. In other words, the senior will still be the one paying for the homeowner’s fee, property tax and home insurance. Failure to comply with these fees will make your home subject to foreclosure.
How do Seniors Apply for Reverse Mortgage Loan?
The minimum age requirement for reverse mortgage loan is 62 years old. Make sure that the home that will be declared is the senior’s primary residence. The home’s title must have the name of the senior in it. It must have enough home equity. It is also important to meet the eligibility requirements from the HUD or Housing and Urban Development.
What are the Home Qualifications for Reverse Mortgage?
Seniors living in a single unit, family home are most likely to be approved for reverse mortgage. Manufactured homes and condominiums may also qualify. But, homeowners must check whether it passess the FHA or HUD standards. If a senior is residing in a multiple unit home, they have to own at least one of the units to qualify. Vacation houses and those built in income-producing lands are not eligible.
Financial assessments are done before the senior gets approved for reverse mortgage loan. Seniors found to be delinquent of any federal debt will not be eligible for it. Those who did not pay their taxes and insurance are also not qualified. Borrowers will have to undergo a consumer awareness session before approval of the loan. This is to ensure that seniors are aware of the pros and cons of reverse mortgage.