There's a useful mortgage product that is available to many homeowners, over the age of 62, who need to get some cash out of their primary residence to use for investing in other properties or any other financial needs they have. It is called a reverse mortgage.
A reverse mortgage is a special type of home loan that lets a homeowner convert a portion of the equity in his or her home into cash. The equity built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence.
Here are the most commonly asked questions and answers about reverse mortgages.
When is a reverse mortgage paid?
A reverse mortgage is a loan against your home that you are not required to pay back as long as you live there. The loan is repaid from the borrower's estate or the eventual sale of the home when the last surviving borrower no longer lives in the home. Money can be received in a lump sum, monthly payments, or through a line of credit.
How do you qualify for a reverse mortgage?
You must be 62 years or older to qualify and there are no income or credit requirements for a reverse mortgage. The amount you can borrow in a reverse mortgage is determined by your age, your home's value and interest rates. The older you are, the more you can borrow.
Will I lose my home?
The bank never takes over the deed unless there is a default. Defaults can occur if the taxes and insurance are not paid current or the homeowner doesn't live in the home for a one-year period.
How you can benefit from a reverse mortgage?
Reverse mortgages can be used to eliminate larger payments, free-up cash in order to invest, travel, pay for college educations, and many other expenses.
Can I qualify for a HUD reverse mortgage?
To be eligible for a HUD reverse mortgage, HUD's Federal Housing Administration requires that the borrower is a homeowner, 62 years of age or older; own your home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and must live in the home. You are also required to receive consumer information from HUD-approved counseling sources prior to obtaining the loan.
What types of homes are eligible?
Your home must be a single family dwelling or a two-to-four unit property that you own and occupy. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved.
Can the lender take my home away if I outlive the loan?
No! You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home's value.
How much money can I get from my home?
The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.
A reverse mortgage may be the answer for you, but first make sure you meet with an expert who handles these types of loans. Be sure that the expert fully understands your specific needs and can identify if this is the best approach for you.
Denise J. Beard is a Real Estate Broker with Crye-Leike, Realtors in Nashville, serving the Middle
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