Reverse Mortgage Explained in Easy to Understand Language

Reverse Mortgage Explained in Easy to Understand Language

Many seniors today are finding that a reverse mortgage has become their ticket to a satisfactory retirement. It may not be exactly what they had dreamed of, but they have discovered that it has worked well for them. A mortgage of this type may also help you to enjoy a better retirement. If you are considering this excellent option, here are some details you should know as this article presents reverse mortgage explained in simple language.

Eligibility for Reverse Mortgages

A reverse mortgage from the FHA, also called a Home Equity Conversion Mortgage (HECM), is not eligible for everyone. One of the primary requirements is that both spouses have to be at least 62 years old.

Another requirement is that you must own the home. There may be a mortgage still on the house, but there needs to be enough equity in the home that it could pay off the balance owed and still leave enough money to live on for years to come. There must also be enough money available to pay for taxes and insurance.

Three Kinds of Reverse Mortgages

Reverse mortgages are available from different sources. They can be obtained from three different sources:

  • Proprietary Reverse Mortgages – Private Loans
  • Single Purpose Reverse Mortgages – from State and Local Government Agencies – available in some states
  • Single Purpose Reverse Mortgages – from State and Local Government Agencies – available in some states
  • FHA Federally-insured reverse mortgages – Home Equity Conversion Mortgage (HECM).

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Contact one of our reverse mortgage professional to talk about your specific needs.  We would be happy to help answer any questions that you may have.

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Eligible Homes

Many types of homes are eligible, enabling more people to get a reverse mortgage. They include:

  • Homes with one-to-four units, must be owner-occupied
  • Approved townhouses, condominiums, and manufactured homes.
  • Homes that were not purchased with an FHA mortgage are still eligible to apply for an FHA HECM, says HUD.

Limits on the Loan Size

The size of the reverse mortgage loan that you can get is determined by four factors: These are:

  • Your current age
  • The current interest rate
  • The appraised value of the house
  • Federal imposed lending limits.

The Reverse Mortgage Payments

When you get approved for the reverse mortgage, you will let them know how you want to receive the money. It is quite flexible to suit your needs, and the choices you may have would include:

  • A lump sum – Given at loan closing.
  • Tenure – equal payments every month as long as you live in the house
  • Term – equal payments for a set period of time
  • Line of Credit – Money is available to be drawn at any time until it runs out
  • A combination of any of the above.

Homeowners can determine roughly the amount of money that they are eligible for by getting a reverse mortgage quote. These can be obtained by using an online calculator, or by contacting a reverse mortgage lender.

When getting an HECM, the FTC says that government has placed some limitations on the amount of money that can be obtained the first year. The amount is based on several factors, including your age, your home’s value, and an assessment of your financial condition. This limit is called the “initial principal limit” and it allows you to be able to get up to 60 percent of the loan. Some exceptions may apply.

Comparisons of Reverse Mortgages and a Home Equity Loan

With a Home Equity Loan, the homeowner is still required to make regular payments. The borrower will also need to have good credit and enough income to make the payments. It is also possible to lose the home if the payments are not made.

A reverse mortgage, however, eliminates payments of any kind on the money borrowed. In fact, instead of paying the lender, the lender is paying you monthly, or according to the terms you selected. This reduces your bills, and since the mortgage is completely paid, gives you more spending money each month to live on and enjoy.

Living in Your Home

A reverse mortgage generally allows spouses to live in the home as long as it is needed – unless a limited time period is chosen. After one dies, the other may live there as long as it is needed, too. Some conditions will apply, though, such as the home must be maintained and taxes and insurance kept in force. In some cases, if neither spouse lives in the home for more than one year, the house will be sold for payment.

Paying Back the Loan

No money needs to be paid as long as one person is living in the home. The money will be repaid after it is no longer needed. This will be done through:

  • Selling the house
  • Be repaid from the estate
  • A relative may choose to buy it.

After the home has been sold and the loan paid off, the remaining money (if any) will go to the named beneficiaries. If for some reason, the sale of the house does not bring in enough money, the lender will take a loss, but they may apply to the FHA for repayment. Other assets of the estate will not be affected if the sale of the home falls short.

If after reading the reverse mortgage explained article, you still have questions you need answered, you can contact one of our professionals today who will gladly answer them. You may also want to get a reverse mortgage quote, and we can help you with that, too.

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