Understanding the Reverse Mortgage Process

By
Real Estate Technology with Husky Marketing

Reverse mortgages are a new type of loan available to people with the right qualifications. The reverse mortgage works by looking at the equity of your home and giving you a sum of money that can be spent. The best part? It doesn’t need to be paid back until you sell or leave the home permanently. Here is a look at the most important parts of the reverse mortgage process. 


Reverse Mortgage Requirements

Before the process can begin, there are a few requirements that should be completed before heading off to talk to a provider. Consider these major requirements:

  • The primary homeowner must be at least 62
  • The primary homeowner must also live in the residence
  • You should own your home or have a single mortgage on it
  • You should be up to date with all property taxes, insurances, and legal obligations
  • You’ll need to experience an information session led by a HUD HECM counselor
  • The property must be maintained in good condition
  • Your house should be a single-family home, a less than four multi-unit property, a condo, or a townhouse

Planning and Picking

If you believe you would qualify for a reverse mortgage, the first thing you should look at is a reverse mortgage calculator like this: https://reversemortgagereviews.org/reverse-mortgage-calculator. Depending on the information put into the calculator, you can get an estimate of how much your home may give you. 

 

There are different types of reverse mortgages, of course—and depending on which one you choose, there are different benefits. The benefits will change between plans, but they will also change depending on other factors, like the market value of your home, your age, interest ratees, and whatever associated costs come from the transaction. Reverse mortgages come with fees for taking out the money, but they are usually capped at the top. Some of these will include the servicing fee or any third-party fees—these costs will end up being a tiny fraction of what you can get from the reverse mortgage as a whole. 

 

The three most common reverse mortgages are Home Equity Conversion Mortgages (HECM), proprietary reverse mortgages, or single-purpose reverse mortgages. HECM are the most common of them, while single purpose are not used as often. HECMs will give you funds that are able to be used for anything, and they are government backed by the Federal Housing Administration. Proprietary reverse mortgages are private loans, usually this are able to give you more money for your home. Single-purpose reverse mortgages are loans used to cover single-purpose stuff. Things like doing a remodel of your kitchen or another needed change. 


What are the Advantages of a Reverse Mortgage?

Depending on your needs, your financial goals, and your plans, there are a huge amount of advantages to taking on a reverse mortgage, especially over other options like a second mortgage. Second mortgages will let you borrow from your equity, but they require a list of immediate payback requirements, leaving you paying for essentially two mortgages at once. Further, if you miss one of these double payments, you could end up having your home foreclosed, a situation that no one wants. Here are some great advantages to having a reverse mortgage, over other options:

 

  • You remain the owner of the home: there is no pressure to sign away the family home.
  • Access the money you’ve put into the home without the loss that comes with selling.
  • Credit history will make an impact in your qualifications but getting a reverse mortgage and paying it back early could result in a better credit score later on. 
  • Some reverse mortgages are protected against the economy: as the economy ebbs and flows, you may be nervous to do a reverse mortgage, but don’t worry—most plans will protect you from fees and costs if your home lowers significantly in value. 
  • In the case of the HECMs, you can use the money on whatever you want or need. From paying for your grandkids’ horse-riding lessons to buying those horses, you have no obligations with your money. 
  • If you were to die while having a reverse mortgage, you’d assume that the mortgage needs to be repaid in order for your family to stay in the home. However, spouses not listed in the reverse mortgage may still be able to live and stay in the home. Further, since the home would be ‘owned’ by the bank, your family would have the option to get the home back before it becomes available for outside purchase. 

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