Reverse Mortgage

A home is the most valuable asset most people own. Seniors with a home who need money for unexpected expenses or to make their budget a little more flexible should consider a reverse mortgage. It benefits those who want to stay in their home but want to avoid the additional expense of refinancing a mortgage or taking out a second mortgage.

Understand Reverse Mortgages

With a reverse mortgage, the homeowner receives the equity in their home through an agreement that does not require them to repay the money they receive. The owner can have a line of credit, receive a lump sum, or get regular payments until reaching the principal limit of their available equity. Regardless of how long they remain, they will not have to repay the money paid to them. Anyone considering a reverse mortgage should learn if they qualify and what the loan will involve.

Determine Basic Eligibility

People can only be approved for a reverse mortgage if they own their home, have an adequate amount of equity, and it is their primary residence. The borrower must be 62 or over. Couples that include someone under 62 can apply, but the younger partner is considered a non-borrowing spouse. A non-borrowing spouse can continue to live in the home if their partner dies or moves into a nursing facility, but they will not have access to the principal limit and will not receive payments.

Know Other Restrictions

Reverse mortgages require the borrower to have a reliable credit history. Companies that offer these payments do not set a minimum credit score but want to ensure the client has a history of meeting their obligations. The home must also meet FHA standards. Some homeowners may need to perform home repairs or improvements to qualify for a reverse mortgage. The borrower must also have an adequate income, either from employment, retirement funds, or social security payments, to cover expenses and care for the home.

Learn Homeowner Responsibilities

People can remain in the home after accepting a reverse mortgage, but they must continue to care for the house as they always have. The borrower must make all insurance and tax payments on the home and keep the house in good repair. If they fail to meet these standards, the company can order the loan due, and the borrower will have a limited amount of time to repay the loan or lose the home.

Determine Estate Plans

After the borrower and co-borrower (if there is one) vacate the home, either by moving out or passing away, the company paying the reverse mortgage payments will have ownership of the property. If the heirs want to take over the property, they will have 30 days from the receipt of the due and payable notice from the lender to pay the debt. If able, the heirs can pay the debt to end the contract and keep the home. They can also sell the house, pay the debt, and keep any remaining balance from the sale. A final option is to turn the home over to the lender.

Reverse mortgages may not offer the best option for all homeowners, but many people find them beneficial. People with a lot of equity but a limited amount of cash can continue to stay in the home they love while receiving payments that make their monthly budget a little more flexible.