A reverse mortgage is a loan against your property. But, instead of you making payments to the lender as you do on a regular mortgage, the lender is paying you. The repayment of this mortgage takes place after you no longer live in your home. Here are some answers to common questions about reverse mortgages.
- How can a reverse mortgage benefit me?
The proceeds from this type of loan can be used for any purpose you want. You can use it to pay monthly bills, travel, improve your home or anything else you care to. And since it is a loan, it is not subject to income tax.
- Do I qualify for a reverse mortgage?
To qualify, you must be 62 years of age or older. You must own your home and use it as your primary residence. If you owe money on a current mortgage, back taxes, or insurance, you must clear these off the property by closing time of your new mortgage.
- What is the process for getting a reverse mortgage?
First, you will meet with a free reverse mortgage consultant.
Second, you will be counseled by a HUD-approved counselor to make sure you understand how this loan works.
Third, submit your application to the lender.
Fourth, have your home appraised.
Fifth, once all the documents are in order, the lender will issue final approval.
Sixth, funds will be available to you after all documents are signed and the closing is complete.
- How much money will I receive?
The amount of your loan proceeds will depend on you and your spouse’s ages and the value of the equity in your home.
- How much cash do I need to come up with?
The only expense you need to pay for is the property appraisal. All other fees can be paid for out of the loan proceeds. You should never pay anyone a fee to apply for a reverse mortgage, not beforehand and not at closing.
- What payments do I need to make during the life of this loan?
You are not required to make loan payments. However, as per your agreement, you must keep the real estate taxes and home insurance current. You must also pay for home repairs.
- How is this loan different from a regular mortgage?
On this loan, there are no monthly principal and interest payments. There are no credit scores or income requirements to secure this loan. And at the end of the loan, you are not liable for any loan amount over the value of the home.
- How long does it take before my funds will be available?
There is no fixed time table. In part, it will depend on the appraisal, the title report, and on other paperwork considerations. A typical loan should be done in less than two months.
- When do I need to pay this loan back?
As long as you meet the contract terms, nothing is due until you no longer live in the home. The home can then be sold and any money in excess of what the lender has coming is refunded to you or your estate. If the sales proceeds do not pay the lender in full, you are not required to pay the difference.
- How do I know if a reverse mortgage is a good idea?
Reverse mortgages are not for everyone. Your counselor will inform you of all the pluses and minuses. You should have enough information at that time to make a knowledgeable decision. You should compare all aspects of the reverse mortgage against a conventional home equity loan.