Advice on qualifications for a reverse mortgage and how to choose the right loan from your lender.
If you are over the age of 62 and have significant equity in your home, you can take out a reverse mortgage to help with supplemental retirement income. Unlike a conventional mortgage with month payments, a reverse mortgage allows you to modify part of your mortgage into available cash. So long as you stay in your home, you will not have to pay your bank back the cash you take out.
What Type of Reverse Mortgages are Available?
You have the option of three different reverse mortgages:
Single purpose reverse mortgage: though they are the least expensive, they are not always available. These are mortgages backed by government agencies and nonprofit organizations. Essentially, you may only use the mortgage for one purpose specified by the agency providing the loan. You must also meet income qualifications.
Home equity conversion mortgage (HECM): this is a reverse mortgage backed by the Department of Housing and Urban Development. They are commonly available in all areas, and require no income limitations. When thinking about a HECM, please note that they loans are more expensive than a traditional mortgage loan and have high upfront fees.
Proprietary reverse mortgage: these are loans that are backed by private lenders. If your home is worth more than $850,000, you may consider taking out this type of loan.
Payment can come in a lump sum, through a line of credit, or in small monthly advances.
How Do I Know if I Qualify for a Reverse Mortgage?
Reverse mortgages require that you be at least 62 years of age. You also must have paid off almost all or all of your mortgage. Unless you are applying for a single purpose mortgage, age and medical conditions generally are not a factor. If you seek a HECM loan or a proprietary reverse mortgage, you will likely need to go through counseling or homeowner’s education courses.
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