If you are looking to finance your home, you have come to the right place. In the past we have discussed, veterans affairs loan, conventional loan, and federal housing loan. If those didn’t seem like the right fits, a reverse mortgage may be the right choice for you.
Define Reverse Mortgage
Reverse mortgages are often used as a last-resort, but are most frequently used as a planning tool for retirement. Also known as home equity conversion mortgage (HECM), was first created in 1989, and allows people who are above the age of 62 to use a portion of the home equity. A reverse mortgage is typically reserved for older homeowners. Rather than having monthly mortgage payments the loan is repaid once the homeowner either moves or passes away.
Who is the best option for a reverse mortgage?
A reverse mortgage is the best option for those who:
- Are not planning to move
- Can manage the cost of the house’s upkeep
- Wants to obtain the equity in their home
Those who use a reverse mortgage often forgo their existing mortgage in order to have more working capital to supplement their income. Other people who decide on a reverse mortgage are those who are looking to pay off debt or have unplanned expenses.
If you are not able to keep up with the maintenance or additional costs of your home, excluding the mortgage, a reverse mortgage may not be the best option for you.
Reverse Mortgage Qualifications and Loan Amount
The basic requirement to obtain a reverse mortgage loan is to be above the age of 62 years old. Additionally the homeowner need to wither own the house or have a very low balance on existing mortgage loans.
There are a few factors that will influence how much your reverse mortgage will be:
- Age of the youngest homeowner
- Value of the home
- Interest rate
- Federal Housing Administration’s HECM mortgage limit of $679,650.
In general, the more valuable the house and the older the homeowner, the more money the borrower will receive.
Reverse Mortgage Costs
With a reverse mortgage, the closing costs as well as the interest rate are higher than what it would be compared to a traditional mortgage. While a reverse mortgage relieves you from paying a monthly mortgage fee, you are still responsible for paying property taxes, insurance, and general maintenance.
If you fail to to keep up with the maintenance of your home and have to move, the loan then has to paid back, meaning you either have to put your up for sale or you have repay the loan yourself.
If you think a reverse mortgage is the right option for you, vist HUD’s online locator to find a federal housing authority-approved lender of HUD approved counseling agency near you.