Do you qualify for a reverse mortgage? While many home owners have heard of the government-insured reverse mortgage program, only a few may be conversant with the requirements to qualify for this scheme. This is especially true for first time home owners or those who may be inheriting mortgaged homes from their aging parents. This writer uncovers the key features and age requirement for reverse mortgage program.
What is reverse mortgage?
This is a government-insured mortgage loan that allows senior home owners to convert a portion of their home’s equity into cash. The scheme was founded in 1961 and has enabled thousands of home owners to cater for emergencies and secure a better life in their retirement.
Types of reverse mortgages
Home equity conversion
The product is insured by Federal Housing Administration and the amount payable is pegged on appraised value of the home and the borrower’s age. This product accounts for the bulk of reverse mortgages.
This is an action specific loan facility. The lender has a mandate to specify how the loan will be used. This kind of facility is mainly available through local government, state agencies and nonprofits.
Proprietary reverse mortgages
This mortgage facility allows home owners to retrieve their homes’ equity through a private lender. The facility isn’t insured by the federal government and lenders can dictate the terms for the facility.
Definitive features of a reverse mortgage
Reverse mortgage loans are insured by FHA
While it isn’t a requirement for the federal government to insure reverse mortgages, the FHA still insures 99 % of reverse mortgage loans through FHA-approved lenders. This protects homeowners from exploitation especially when the value of their homes dips below the mortgage value.
There are no monthly principal or interest payments
In contrast to home equity loans, you aren’t required to be making monthly payments once you take up reverse mortgage loan. You are, however, obliged to pay property taxes, flood and utility and hazard insurance premiums.
Reverse mortgage is tax free
Basically, a reverse mortgage is considered as loan advancement. As such, it doesn’t attract any tax. Likewise, a reverse mortgage loan doesn’t affect your Medicare or Social Security benefits.
Reverse mortgage are payable in 3 modes
Your reverse mortgage proceeds can be paid either as a lump sum, through your line of credit or trickle in monthly installments depending on your preferences.
The cap on the first loan
While your reverse mortgage loan is based on age, existing rates and the value of your home, HECMs caps the first loan at $625,500. Home owners can, however, access larger loans on subsequent borrowing depending on the valuation of their homes.
Do I qualify for a reverse mortgage loan?
There is a raft of conditions that home owners must meet so as to be eligible for reverse mortgage;
Age requirement for reverse mortgage
As reverse mortgages were designed to help elderly citizens improve on their lives and cater for emergencies, the facility is only available for citizens aged 62 years and above.
Only home owners are eligible
You must be the outright owner of the home that you are intending to reverse mortgage. Else, your mortgage balance must be low for you to qualify for a reverse mortgage. This means spouses and other people who reside in a home are not eligible for a reverse mortgage.
You must be living in the home.
You can only seek to reverse mortgage your home if it’s your primary residence. If yours is a 2-4 units home, you must be occupying one of the units to qualify.
While you aren’t under obligation to repay the mortgage on monthly basis, you are still responsible for paying off property taxes and maintenance fee of your home. As such, you must be financially capable of meeting these costs before you can be approved for this loan facility.
Undertake a HUD-approved counseling session
The fact that individuals seeking reverse mortgage are at an advanced age and out working of the working bracket, it’s paramount that they are guided on all available options and best ways to use the funds.
HUD dictates that before a citizen can access reverse mortgage facility, they must complete counseling sessions with a HUD approved agency to be enlightened on available opportunities and the best approach to take.
Reverse mortgage is an important tool that senior citizens can leverage on to cater for financial difficulties and improve their retirement life. Contact us for more information.