Reverse
Mortgages are a special kind of home loan that is only available
to older Americans, and they follow special advantageous reverse
mortgages rules that have been established by the U.S. Federal
government.
Someone that meets the qualifications of the
reverse mortgage rules can pick up an additional income source,
not have to worry about qualification, repayment of the mortgage,
and essentially obtain double personal value for their equity.
A
reverse mortgage is a financial arrangement that allow the owner
to sell their home to the bank over time, have the bank make
payments to the homeowner instead of the other way around, and
still retain ownership. The net effect is that a reverse mortgage
can offer you a substantial source of regular income, yet you can
live in your home for the rest of your life regardless of how old
you live.
Prior
to the idea of reverse mortgages, there were only two ways that
anyone could leverage their equity. The first was to obtain
a traditional mortgage that had to be repaid with monthly mortgage
payments.
The second was
to sell the house and live elsewhere.
Many people without
any income didn't qualify for the traditional mortgage because
they had no way to pay it back. Those that chose to sell the
house had to give up there home.
Reverse
mortgages are the combination of all of the positives with none of
the negatives. There are no payments that are required, you
don't have to income-qualify, and
it is the bank that takes the financial risks.
Reverse
Mortgage Proceeds
The
first question most people ask about reverse mortgages relates to
how much money they can get. This varies depending of course
on how much your home is worth, what your equity in that home is,
and how old you are. However, there is a formula to
determine this so one bank isn't going to offer you any more than
any other bank.
There
may be some instances when going through the reverse mortgage
process isn't worth it to the bank. If you might only be
able to access a couple of thousand dollars, most financial
institutions just aren't interested in this small of a deal.
Most have limits and may not write any loans less than $5,000 -
$10,000. This isn't so much a qualification of the reverse
mortgage process as it is meeting the minimum standards set by the
financial institution.
Your
home must have market value. If it is in such a state of
disrepair that it can't be sold, don't expect the financial
institution to give you the reverse mortgage unless you plan to
put that money back into the house and increase its value and
ability to be sold.
Because
you are allowed to stay in your home for the rest of your life,
the time value that is associated with money means the
younger you are, the less money that you will receive for your
home. Where a 62 year old person may receive only 30% of the
value of their home, someone who is 95 could receive as much as
80% of the value of their home.
You
must also have substantial equity in your home to obtain a reverse
mortgage. The minimum equity in the home would be defined
according to the above factors. If you are 62 and only have 20%
equity, a reverse mortgage probably isn't in your immediate
future.
Reverse
Mortgage Qualifications
Not
everyone can qualify for a second mortgage. Any of these is
a deal-breaker and there's just not much that can be done to make
you qualify if you don't.
1)
You must own your home and have substantial equity in it. A
reverse mortgage is a delayed process of selling your home where
the buyer doesn't take possession until you move out or die.
As such, you of course cannot sell something you don't own and
nobody will give you a loan if you already owe too much on it.
2)
You can only obtain a reverse mortgage on your primary residence
where you live. Vacation homes, land, timeshares, and
business property do not qualify for the reverse mortgage
program.
3)
You must be 62 or older. The older you are, the more you can
get on your reverse mortgage.
4)
You must meet with a HUD agent before you can apply. That
way you will have all the answers to make an informed decision
5)
You may stay in your home as long as you can or wish to and never
make a payment against the reverse mortage. If you sell your
home however, the loan
must be repaid from the proceeds.
Important
Facts About Reverse Mortgages
1)
You will never have to make a payment on a reverse
mortgage.
2)
You can take the money in a variety of ways including a one lump
sum settlement, a standard amount annuity payment for life, a
fixed amount for a 10 year period, or as a credit line so that you
can choose what to take and when. You may also select
various combinations of these options.
3)
Your income has no bearing on your ability to qualify.
Whether you are working full-time, living on substantial savings
and investments, living only on Social Security, or have no income
at all, your income is irrelevant to your qualifications to
getting a loan.
4)
You will not pay income tax on the proceeds of your loan no matter
how much it is. This is non-taxable income. It can
however, be added to your income for qualifications for other
things such as to apply for a different kind of loan or credit
card.
5)
You can use the money in any way you want. It's your money
and if you want to go on vacation, use it for medical expenses,
give it away, or just live on it, that's up to you.
6)You will never be forced to move out of your house because of
anything to do with a reverse mortgage. If you retire at age
62 and live in your home into your 100's, you may still live in
your home.
7)
You are still responsible for the taxes, insurance, maintenance,
and repairs on the house. You still own the home just as you
did when you had your house purchase mortgage. Ownership
does not transfer to the financial institution until you and your
spouse die or you sell the house. Selling your house is
still entirely up to you and you can do it whenever you want.
8)
If you die before you receive all your benefits, only the mortgage
and accrued interest will be subtracted from the proceeds from the
sale of the residence out of your estate. In effect, you
don't gamble away your rights to ownership if you die early.
9)
Proceeds from the reverse mortgage will not affect your Social
Security, Medicare, retirement packages, or anything else.
You are simply accessing cash that is tied up in the value of your
home.
10)
Interest rates can vary, but this does not affect your monthly
payments from the bank.
11)
There is zero to minimal out of pocket expenses to you because
closing costs can be incorporated right into the loan.
No
other generation before this has had the opportunity to
participate in anything like a reverse mortgage. If you own
your house or even just have substantial equity in it, there's
just no reason for you to be house rich and money poor, or to have
to decide between selling your home to have enough to live
on.
