Reverse Mortgage Option
A reverse mortgage is designed for older homeowners that are looking for their mortgage to pay some of the equity back to them for a change for whatever reason. You need to be 62 yrs old , your home needs to be your primary residence. There are other restrictions to consider to make sure that you are eligible to receive income from a reverse mortgage.
Other requirements for a reverse mortgage are: you home has to be a single family residence, a unit building with no more than 4 units, a federally approved condo or planned unit development. The property can not be a manufactured home unless it is attached to a foundation and is taxed as real estate, and meet other guidelines. You should not be past due on any federally insured loans, if you have liens on the property, they must be paid off 1st before getting a reverse mortgage. You may qualify for a cash advance from the company looking to do the reverse mortgage to pay of any incumbencies on the property. If you are approved for a reverse mortgage, you may take a lump sum cash advance, a line of credit, or take monthly payments for a set amount of time, or a combination. Your home’s equity and the lender are facilitating this transaction. This program is designed for anyone of the required age with large amounts of equity built up from years of mortgage payments. You are just reclaiming some of the equity without selling the home to do so. A good way to think of a reverse mortgage is like this, you have equity built but you want income; just like when you are buying a home, you have income but you want equity. A forward paying mortgage is opposite of a reverse mortgage, a forward paying mortgage builds equity while a reverse mortgage uses up equity. Your out of pocket is usually just the application fee which includes an appraisal of the property, and a credit check fee to see if you are past due on any federally insured loan(s).
You would pay back a reverse mortgage either when you sell the property, move away permanently, which is considered moving away for at least a year, or when the last surviving borrower dies, when you don‘t make your escrow payments(taxes and/or insurance), or if the property is condemned. The amount you will owe if you decide to pay it back is the payments you have received from the lender, the interest on the payments, the closing costs and fees to get the loan, or any early pay back penalties. This type of loan is common with older individuals with limited income, but yet they have a lot of equity in the property. If the last surviving mortgagee should pass away and the loan is not paid off by surviving relative(s) that are designated as executor of the homeowner’s estate, the property will be the instrument that would be used to reclaim the outstanding balance. If the borrower survives the loan term on the reverse mortgage, or if the borrower or their heirs decides to sell the house at the end of the loan term and the house is worth more than the amount that is owed on the loan; the borrower or their heir would keep the difference from the proceeds of the sale of the home. Likewise, if the home is sold at the end of the loan term, and there is a deficiency owed to the lender of the reverse mortgage, then that would need to be paid off at the end of the loan or when the property is sold.
Your social security or medicare benefits are not affected by a reverse mortgage; as long as any cash advances from the lender is spend during the calendar month received, then is not considered liquid asset in your account such as checking or savings; now if you don’t spend it or get it out of your account it can be seen as liquid asset. You may not have more that $2000 for a single person or $3000 for a couple in liquid asset, or you may loose your eligibility for benefits. Advances from the lender is not considered income to the IRS, and the interest charged for the loan is not considered deductible until it is paid.
A reverse mortgage can be a good source of income whenever income has slowed down or does not exist anymore for a homeowner. It can be a decent option for many older homeowners with equity in their property. Regardless, before signing up with a lender for a reverse mortgage, consider all of the requirements and potential down fall of a reverse mortgage 1st.
