You hear a lot about reverse mortgages and there is a lot of misunderstanding surrounding them. There is a lot of focus on unscrupulous companies taking advantage of people, and it kind of casts a negative light on the whole product in general. But, it is a legitimate way to get cash you may need by tapping into the equity you have built up over years of home ownership.
When it comes to making any decision that affects your financials, it is crucial you have a full understanding of the path you are considering so you can move forth confidently, knowing this is the right way to accomplish your end. Here are some frequently asked questions about reverse mortgages to start you on your fact-finding mission.
What is a Reverse Mortgage?
Reverse mortgages are a kind of loan that allows you to take the equity in your home and turn it into cash. Over the many years of making mortgage payments, you have built up equity in your home, and this money can be paid out to you. There are different ways to receive the money—you can take a lump sum, have it paid out to you on a regular basis, or used as a supplement to income such as Social Security and retirement accounts.
Unlike a home equity loan or a second mortgage, you don’t have to pay back a reverse mortgage until your home is no longer used as your primary residence. And unlike these types of loans, eligibility is not based on income, credit rating and the like.
It is crucial you choose lenders carefully. Look for ones that have credentials that suggest professionalism and high standards.
Unfortunately, there are unscrupulous people out there who try to scam the elderly, and you have to protect yourself against it.
Do the proper research; seek out trusted source. For example, the twitter feed of AAG Reverse Mortgage company sends out all sorts of helpful information about this product and relevant news. This company has an A+ rating from the Better Business Bureau, is a U.S Department of Housing and Urban Development Approved Lender, and a member of the National Reverse Mortgage Lenders Association. suggesting it is a reputable source of information.Consult with a financial advisor who can answer your questions.
Are There Special Requirements to Apply for a Reverse Mortgage?
There are a few requirements you must meet to get a reverse mortgage; they include owning the home, being at least 62 and having sufficient equity.
There have been some recent changes in processing these loans. Lenders will now start taking a closer look at finances to determine whether an applicant has sufficient funds to cover financial obligations related to the home, such as property taxes or homeowner’s insurance. If a lender has concerns you may not be able to meet these obligations, they will be allowed to set aside a portion of the funds you receive to cover such expenses.
There are tools online to help you determine eligibility, such as the one found on the site of the American Advisors Group. Plug in some data and you can get an idea of whether this is something to consider pursuing.
Can I Get a Reverse Mortgage if I Have an Existing Mortgage?
Yes, you still may qualify for a reverse mortgage, but this debt must be in the first lien position. This basically means that if you become unable to pay back your debts for whatever reason, the lender is the first in line to get money. So, your first mortgage would have to be paid off through some means, whether it be the funds from the reverse mortgage or a loan from a family member.
Are There Conditions Where I Should Not Use a Reverse Mortgage?
If you plan on leaving your home in the next two to three years, the costs associated with getting a reverse mortgage may not be worth it. You might consider other options to get the money you need, like a standard home equity loan. If you wanted to use the money primarily for house repairs, for example, some local governments may offer no-interest loans.
If you plan on leaving your home to anyone, a reverse mortgage is probably not a good idea because in most cases, the home must be sold to repay the reverse mortgage to the lender.
How Much Money Can I Get?
The amount of money for which you qualify will depend on various factors. They include your age (if you are a couple, the age of the younger spouse), the value of your home, interest rates, if you are using the government program and the established lending limit (which is currently 625,500).
Within the first year of closing on the loan, you cannot receive more than 60 percent of the approved loan amount. After that time, you can access as much as you require. There are some exceptions to this rule. For example, if you are paying off an existing mortgage, you must use whatever amount required, plus an additional 10 percent.