A few things you should know about getting a reverse mortgage.
The reverse mortgage is, like the name suggests, a reverse of an ordinary mortgage. Rather than the borrower paying interest on the loan from the lender and consequently increasing the amount of equity in the home, the borrower receives cash paid out of the balance of the current equity in the home. This decreases the equity in the home while providing immediate cash for the borrower’s needs.
How To Qualify For A Reverse Mortgage
To qualify for a reverse mortgage there are three specifications that have to be met. First, the borrower or borrowers must be at least sixty-two years old. Second, they must own their home or be in the process of purchasing a home and third, the home they are considering taking the loan out on must be their primary residence.
Types of Reverse Mortgages
There are three types of reverse mortgages. The first one is called a single-purpose reverse mortgage. This type is loaned by state and local governments as well as not-for-profit organizations. The second kind is called a federally-insured reverse mortgage. These are also known as “Home Equity Conversion Mortgages” loaned by the federal government through the Department of Housing and Urban Development. The third type is called a proprietary reverse mortgage. These loans are made by private developers who financially back the homes that they build.
Home Equity Loans Do Not Affect Reverse Mortgages
Unlike a home equity loan, a reverse mortgage ends only when the home it is placed on is no longer the borrower’s primary residence. No repayment of the mortgage is required until this event occurs. A home equity loan does not affect a borrower’s qualification for this type of mortgage. Indeed, some borrowers take out advances on their equity expressly for the purpose of paying off a traditional mortgage. The equity in a home can be used in both ways.
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