What is a Reverse Mortgage? Is It Right for You?
This loan program is known as a HECM Reverse Mortgage (Home Equity Conversion Mortgage). This program is an insured loan program from the Federal Housing Administration (FHA). It is a type of loan product designed specifically for senior homeowners. It allows them to convert a portion of their home’s equity into tax-free funds for the purpose of supplementing their retirement income. Its main benefit allows senior homeowners the ability to remain in their home while providing additional retirement income.
There are no limitations on how the loan proceeds can be used—traveling, remodeling their home, pursuing new activities, or just enjoying having more discretionary income. What’s more, social security and medical benefits will not be affected by receiving additional income from a reverse mortgage.
How is a reverse mortgage different from a home equity line of credit?
This is a unique feature of the reverse mortgage. Home equity lines of credit require that you make monthly mortgage payments to your lender in addition to your regular mortgage payment. Funds received from a reverse mortgage don’t need to be paid back in monthly payments.
How does the reverse mortgage work?
If you have a current mortgage on your home, as most people do, the existing mortgage will be paid off with the new reverse mortgage. This eliminates a mortgage payment for life. However, you must continue to pay
In the event of your death, your heirs would inherit the home and keep any remaining equity after the balance of the reverse mortgage is paid off. The good news is, however, the mortgage can never go in the red, so your heirs will never be liable for more than what the home is sold for, should they decide to sell—rather than retain—the property.
What are the requirements to participate in a reverse mortgage?
• You must live in the property as your primary residence.
• Either you or your spouse must be a least 62 years old.
• Whoever will be on title must meet the minimum equity, credit and income requirements set forth by the lender.
• You must continue to pay required property taxes, homeowner’s insurance, and maintain the home according to FHA requirements.
What is the process to get a reverse mortgage.
There are certain guidelines that apply to those who want to to take advantage of a reverse mortgage. First and foremost, borrowers are required to undergo counseling with an independent third-party HECM counselor. The HECM counselor will go over the features of the reverse mortgage loan and the borrower’s responsibilities to ensure a complete and thorough understanding of how the program works.
If you meet the above guidelines, your lender will provide you with a list of third-party HECM counselors and start the loan qualifying process. Keep in mind, you must also meet the lender’s minimum equity, credit, and income requirements in order to qualify for the loan.
To get started with a Reverse Mortgage, contact Randy at 707-888-3000 or email us at randy@randy4realestate.com