9 things to know before seeking a reverse mortgage
What is a reverse mortgage? It is a special kind of home loan for persons age 62 or older. Unlike other home loans, this type does not have to be repaid as long as the home is the borrower’s principal residence.
1 -The borrower must own the property outright or have a substantial amount of home equity. He or she must not be delinquent on a federal debt.
2 - There are few income or credit requirements for the borrower. Since you don't have to make any loan payments, those things really don't matter. The loan is totally secured by your home equity. However, a reverse mortgage lender will want to ensure that you are financially able to maintain the home and keep up your property taxes and homeowner's insurance.
3 -The loan is designed to be repaid when the borrower(s) either dies or other vacates the home. This is typically done by selling the home and paying the loan with the proceeds. With most reverse mortgages, the amount to be repaid cannot exceed the price the home can command.
4 - There are reverse mortgage lenders who specialize in this type of loan. They are members of the National Reverse Mortgage Lenders Association and should be licensed to make this type of loan in the borrower’s state.
5 - There are more than one type of reverse mortgage loans. Privately sponsored ones mean higher costs, but may allow you to tap more of your home equity. Those backed by the Federal Housing Administration (FHA) reverse mortgage typically have lower interest rates and are insured by the federal government. Called Home Equity Conversion Mortgages (HECMs), these FHA-backed reverse mortgages ensure that the borrower will not owe more than the value of the loan, even if the loan exceeds the home’s value.
6 - One of the safeguards of HECM reverse mortgage loans is that potential borrowers must attend an approved consumer information counseling session led by well-experienced pros who help them understand and work through the process.
7 - Several varieties of homes qualify for reverse mortgages single-family homes, condominiums, townhouses, 2 – 4 unit properties with one unit occupied by the owner/borrower and manufactured homes that meet FHA requirements. Farm homes and most cooperative housing type homes are ineligible.
8 - You can choose from a variety of options for receiving your money from a reverse mortgage. Some borrowers select a single lump sum. Others may choose a line of credit to draw against as they wish. Still others prefer a tenure, an annuity-like product that provides regular payments for either a limited time or as long as they remain in the home. Or you may be able to get a combination of these.
9 - Fees and interest charges accumulate over the life of the reverse mortgage. These are eventually repaid along with the loan principle after the home is vacated.