A reverse mortgage allows you to get funds in the form of a loan from your home appraisal value while you continue to live there. The loan is only due when the homeowner moves out, sells the home, or dies.
It is called a reverse mortgage because instead of paying back regularly, say monthly, as with other loan facilities, you only repay once. With Reverse Mortgages, your loan balance increases over time rather than decreases, compared to forward mortgages.
If you are considering opting for this financial product but do not know how it works exactly and wants to avoid going into it without understanding its intricacies, then this post would guide you. Learn all the details concerning who is eligible for it and the eligibility criteria.
Types of Reverse Mortgage
There are three types of reverse mortgages. First is the Home Equity Conversion Mortgage (HECM). This type of reverse mortgage is insured by the Federal Housing Administration (FHA) and usually has a loan limit of $1,089,300.
Next is the Proprietary Reverse Mortgage. Private loan companies offer this reverse mortgage. It is suitable for people with high home values who want more money than they can access through HECM.
Finally, there is the Single Purpose Reverse Mortgages. With this, you can only use the loan for the purpose specified by the lender.
Who is Qualified for a Reverse Mortgage
This loan type is only available to older homeowners 62 years and above. Homeowners below this age do not have access to a reverse mortgage. Older homeowners use it to augment their retirement income for making payments, sorting expenses, or even repaying an earlier borrowed loan.
Your Primary Residence May Affect Your Loan Application
The house with which you are accessing the loan must be your primary residence. Once you move out, the loan is due. You must live in the home while maintaining the expenses, such as repairs, property tax, and insurance.
Home Equity and Reverse Mortgages
Read more: Options to Unlock Your Home Equity.
Beyond your age, another thing that qualifies you for a reverse mortgage is that you must have a certain equity level on the property. Equity is the difference between your home’s worth and your loan balance. Having an existing loan on the house will reduce the chances of getting a reverse mortgage. Some ways to boost your home equity are through proper maintenance, renovations, and of course, paying off existing loans.
How to Source a Reliable Reverse Mortgage Company
To avoid getting into the hands of illegitimate agents, you should look out for a licensed reverse mortgage company. They would ensure that you take the necessary steps to secure the loan.
The Loan Application Process
You will need to tender an application before securing the loan. This allows the lender and the borrower to discuss necessary details such as the payments involved, interest rates, and accessible loan value.
Seeking Proper Counsel
This is a critical aspect of the application process. You need the service of a HUD-approved counselor to help evaluate your current financial capacity and consider different sides of the coin for a successful mortgage decision. This will help you to understand what you are getting into and how exactly to go about it.
Processing and Approval
After the application and counsel, your lender will review your application to determine its authenticity. At this point, an FHA-approved agent will appraise the value of your property. Also, the ownership of the house is confirmed, and checks relating to former debts are carried out to ensure loan worthiness. You must also sign the necessary documents after establishing agreements between the parties involved. A successful property appraisal and application processing will then lead to approval.
Depending on the agreement and choice, the loan fund can be received monthly, as a lump sum, or as a line of credit. The amount also depends on certain factors, such as the appraisal value of the property (equity, loan balance, etc.), the interest rate, and your location.
Upon receipt, the loan lasts and is due whenever the homeowner either moves out of the house, wants to sell the house, or even passes away. Pending this time, the property must be maintained properly. That is why one of the things considered in the application process is the financial capacity of the homeowner to pay bills and utilities and carry out repairs.
As said earlier, unlike the forward mortgage, which is repaid regularly, the reverse mortgage is usually repaid all at once when due. The loan must be settled if the homeowner decides to move out or sell the home. Also, if the homeowner dies, the children or relatives can sell the home to service the loan on the house.
You can make an informed decision with adequate information about how to qualify for a reverse mortgage, the eligibility criteria, and the process involved in securing one.