How can a reverse mortgage program help me with my finances?
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A reverse mortgage is a special type of private home loan that allows homeowners to convert the equity in a home into cash. While most of us are familiar with the monthly payment formats of conventional mortgages, the reverse mortgage allows eligible homeowners (typically those 62 years of age or older) to borrow against the value of their home. Under a reverse mortgage program, the equity built up over many years is paid by the lender in a stream of payments (or possibly in a lump sum). Unlike a traditional home equity loan or second mortgage, no repayment is due under most plans until the sale of the home, the death of the owner, or the date when the home is no longer used as a principal residence.
Types of Reverse Mortgage
There are three types of reverse mortgages, each with a different purpose. The Home Equity Conversion Mortgage (HECM) is the most common reverse mortgage type. This mortgage is federally insured with set fees and interest rates that are backed by the government. The Single-Purpose Reverse Mortgage is offered by state and local agencies and is not federally insured. This loan has lower interest rates and signing costs, but its uses are limited to property improvements and property taxes. The third type of reverse mortgage is the Proprietary Reverse Mortgage; this mortgage is funded entirely through private organizations. While it is federally mandated, it will have higher interest rates and higher closing costs, but it will not have any age or medical requirements attached.
Requirements for a Reverse Mortgage
In order to qualify for a reverse mortgage, your home must be completely paid off (or considerably paid down) with no outstanding debts. Additionally, you cannot be engaged in bankruptcy at the time of your reverse mortgage application. You must have a freestanding home or a mobile home built onto a permanent structure that was constructed no earlier than 1976. Any older mobile homes or mobile homes that are still mobile will not qualify. Anyone who applies for a reverse mortgage loan must first receive counseling with HUD. The counseling session is meant to fully explain the reverse mortgage process and review all the fees that will be taken by the bank. Finally, some banks may require a medical exam or medical transcripts when considering the loan.
Reverse mortgages are designed to allow elderly people to utilize the equity of their home without actually selling the home. The money can be used for paying bills such as home repairs, home improvements, outstanding debt, taxes, medical expenses, or living expenses, depending on the loan you select.
Before considering a reverse mortgage loan to help you with your finances, consult with an elder law lawyer to discuss your options. There are many alternative discounts and forms of assistance available for elderly citizens, widows, veterans, or disabled individuals, and an elder law attorney can help you make the right choice that will best protect your assets and equity.