Reverse Mortgage
There are different types of loan in the market. One of which is what we call reverse mortgage. Some people might think that this is similar to a traditional mortgage or home loan. The only similarity is that both are loans against a borrower's home. To understand this type of loan further, let us first discuss what a reverse mortgage really is.
What is a Reverse Mortgage Loan?
A borrower of this type of loan does not actually need to pay back the lending company as long as he/she still lives at the residence used as collateral. The loan amount will be based upon the home's equity and the age of the borrower. A borrower has the options to receive the funds in different terms - monthly payments, a lump sum, a line of credit, or a combination of these methods. You must take note that in reverse mortgage, you are not required to pay the loan back unless you sell your home, move out or die. One of the many advantages of having this kind of loan is that you can use the loan money without having to move out, rent or repay the loan each month.
Who can Apply?
You can apply if:
1. You are and any co-owner must be at least 62 years old.
2. You must own a home (this home should also be your primary residence).
One of the good things about a reverse mortgage is that you don't need to have an income to qualify. Your home must meet the U.S. Department of Housing and Urban Development (HUD) standards to qualify. If you own a trailer home or cooperative house, you can't apply for this kind of loan. Only single-family home, a one-unit to four-unit dwelling, a condominium unit or some other HUD-recognized dwelling unit are the only types of homes accepted.
How to Apply?
Let us now talk about how you can start applying for this specific loan.
1. Shop and Compare. You can use the internet to look for loan companies and compare their rates and fees. It is always a wise move to shop around so you can weigh your possible options. You can also ask people you know like your family members, friends, relatives and co-workers what they know about this type of loan or read reviews. Choosing a legitimate and reliable lending institution can be a difficult task though, since a lot of scams have evolved in the market. This is the main reason why extensive research should be done before making a final choice.
2. After you have chosen a local lending institution, you can now fill out and submit the application form. Be sure to have the necessary documents such as your credit report, proof of your identity, etc. Requirements may vary depending on your chosen lender.
3. You might need to present a property appraisal.
4. Once approved, make sure that you have read and understood everything before finally signing any contract or document.
As with other financial transaction, reverse mortgage has its own share of urban legends and myths that aim to discourage prospective borrowers from proceeding with their application. These common misconceptions dare to overshadow the benefits of taking out this kind of mortgage. But let us zero in on the benefits of reverse mortgage.
This type of mortgage is designed and insured by the US Government for the senior borrowers. Your security is backed up federally, so you know that all transactions are balanced and transparent. In fact, in the unfortunate instance that your loan obligation exceeds the value of your home, you will not be liable to pay the excess amount. The insurance company who has underwritten your closing deal will handle the repayment of the loss. Additionally, the proceeds of your cash amortization whether released monthly or lump sum is tax free. The manner of release of payment is entirely up to you. The tax is applied to the future repayment of the loan.
Unlike other mortgage or loan applications, reverse mortgage has no credit or income requirements. You only need to be 62 years or older and the property title owner to qualify. This mortgage is designed to provide financial support to the senior community; therefore, they do not impose stringent requirements in order to accommodate prospective borrowers.
The borrower is under no obligation to repay the loan while they occupy the primary residence. You continue to retain ownership of your home because the property title will not be taken away from you, nor would it be amended to the lender’s name. It provides you with two important benefits, continuous tax free financing and a comfortable shelter. When the loan has been repaid, all remaining equity will go to you or to your estate, in case of your passing. If the loan obligation is higher than the full home equity, you are at an advantage because of the mortgage’s non-recourse feature. It means that no other property will be involved in repaying the excess debt.
Most borrowers use their cash to fund their daily expenses. Reverse mortgage lenders do not require you to make big ticket expenses to justify your loan. How you spend it is for you to decide, it can be for medical maintenance, groceries, shopping, home repair or travel. Reverse mortgage will supplement your Social Security and Medicare benefits. It will not affect the payments you receive from these institutions and you will continue receiving the same amount as before.
The benefits of a reverse mortgage outweigh the urban legends that surround it. It is a great response to the present trend of families who have older adults that live longer and actively on their own. In today’s culture, children live apart from their parents to pursue their goals in different states. Family homes are seldom passed on to the next generation due to higher maintenance costs and real estate taxes. Besides, homeowners would just prefer to possess and manage a single real estate property.
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