As you get older, you’ll notice a lot of plans and programs you can sign up for. This could be for your health, your retirement, or your home. One of these plans you may hear about is a reverse mortgage, designed for seniors who are 62 and older who have quite a bit of equity associated with their homes.
What is a reverse mortgage?
If you need a quick refresher, let’s start with the basic concept: a reverse mortgage is a plan that is made for seniors. It allows seniors to pull from their home equity to fund other retirement needs that they may have. This allows those who qualify to convert their home equity into cash.
First, know it’s not for everyone. If you plan on moving and/or selling your house to your children, then this is not for you. However, if you’ve run out of outside savings and/or no longer have a source of income, this helps you get the money you need. You may also want to consider a reverse mortgage if you want more flexibility within your income.
There are a lot of advantages that come with a reverse mortgage. The most obvious advantage? You can stay in your home. Having a reverse mortgage ensures that you have complete ownership over your home, no matter what the circumstances are or how old you are.
Other advantages include:
Qualifying for a reverse mortgage is not dependent upon whether you have good credit or a job. Generally speaking, if you have sufficient equity on your home (at least 50%-60%), and you meet the other criteria that is required to have a reverse mortgage, then you don’t need to worry about your credit score or employment status.
It helps secure your retirement. If you don’t have a lot of money in savings, but you do have accumulating wealth on your home, then the reverse mortgage is appropriate for you.
It is federally insured. Because your reverse mortgage is federally insured, you will be receiving the payments as agreed on your loan terms no matter what. This means that, even if your loan becomes more than what the value of your house was when it sold, government insurance will cover the difference.
No points necessary. In a traditional mortgage, points come into play. A point is a fee that the lender charges that is equal to 1% of the loan amount. But, because this is a reverse mortgage we are talking about, points don’t come into play. The only fee that your lender could charge you is the origination fee, which can be negotiated with the FHA because the FHA is what regulates it.
Put it toward whatever you want. Believe it or not, a reverse mortgage doesn’t just cover your housing expenses. Your reverse mortgage can also go toward electricity, heat, vacation funds and other retirement necessities, in addition to many more things.
The reverse mortgage will never go “upside down.” This simply means that your heirs to the home will never have to repay more than what the house is valued at.
You don’t need to repay the loan. We saved one of the best perks for last. As long as you are living in the home as your primary residence, you will not have to repay the loan. Once you pass away, your heirs have the option to buy your home back or sell it. If they purchase it, however, there is a chance they will be expected to satisfy the remaining loan balance. In this event, they will want to contact the HECM lender as soon as they can to determine their next steps.
Although the advantages of reverse mortgages are hard to pass up, reverse mortgages are not invincible to having some disadvantages, and you deserve to know what they are. The disadvantages to consider are the expensive closing costs that come with it and the interest it will accumulate. Not to mention, it is a very confusing concept to grasp. It will take time before you completely understand the obstacles you will have to face when you are trying to qualify.
What happens if you pass away?
You may be asking yourself, “What happens if I am living in my house when I pass on? Does that mean I’m no longer living there?” Well, technically, yes. Once the owners pass away or move out of their house, the loan needs to be repaid. If you have an heir that wants to keep the house, he or she can pay off the HECM or take out a separate mortgage that could cover the remaining payments of the reverse mortgage.
However, your heir will want to consider applying for a new mortgage immediately following your passing. This is because the Federal Housing Administration (FHA) will only allow your heir six months to pay off the HECM. In this instance, interest on the reverse mortgage will still be accumulating in those six months.
How to get a reverse mortgage
If you’re still reading, it’s likely you’re interested in getting a reverse mortgage for your home so that you can fund the other things that are necessary for your retirement. Before you can get a reverse mortgage, there are a couple of things you will want to do first:
Calculate your eligibility. You can calculate your eligibility online by filling out information about the age of the homeowners (you and your spouse), your home value and your mortgage debt. Depending on where you look, you will be able to determine your home equity percentage, the amount in which you are eligible for and the property value search on your home. We can save you a step. Call us or visit our website to get into touch with a qualified agent who will calculate your eligibility for you.
Know your rights as an owner. If you’re married, this is important. The loan does not have to be repaid until both you and your spouse are no longer living in the house. That means if one of you must move into a senior care facility, the loan does not have to be repaid until the other passes away or moves. However, this only applies if both you and your spouse are co-borrowers. If not, then your spouse will be expected to pay back the loan if you pass away.
Understand what works best for you and your loved ones. If you decide a reverse mortgage is appropriate for you, you will want to take steps in the best interest of your family. This can be exercised two ways: creating a will and deciding the best payment method. Creating a will ensures that the needed payments will go toward the correct person. Deciding the best way to repay the loan is up to you, but options include selling your home to your heirs while you’re living, letting your heir sell the home when you pass to pay off the loan, letting your heir pay back the lender, and more. Make sure you speak with your family to make sure everyone agrees on what should be done. Otherwise, there will be confusion and tension that could have been avoided.
Speak with a licensed expert. When you do this, he or she will be able to go over a review of the reverse mortgage at no-obligation. He or she will also be able to go over the application process if you decide that this is the right move for you.
You must receive counseling from a Housing and Urban Development (HUD) counselor. This is a certified and trained representative who will assess your financial situation and appraise your home. Before you can begin the application process, you must meet with a HUD expert.
If you still have questions on what to do, or where to turn, to get a reverse mortgage, then you’re in luck. The answer is easier than you may think. It starts with visiting us, The Best Senior Services, to get into contact with a registered professional who can help you decide whether a reverse mortgage is the best move for you and how you can acquire one. Get started today on our website, or by calling us at 855.979.8277.
The Best Senior Services – P.O. 1170, Owasso, OK 74055