With the instability of the housing market, and in fact the economy in general, many people are looking into reverse mortgages. But before you decide whether a reverse mortgage is right for you, you should know what it is. Simply put, a reverse mortgage is a type of home loan that allows you to convert a portion of the equity in your home into cash. This means that the equity you have built up in your real estate can be paid to you. The best part is that, unlike traditional home loans, no repayment is required of the homeowner until and unless the home you’re in no longer becomes your primary residence. Sounds great…right? One of the places you can go to for a reverse mortgage is HUD. Here are some answers to frequently asked questions, so you can decide if this type of deal is right for you.
The first thing you want to find out is if you are eligible for a reverse mortgage. Right off the bat, you should know that this type of mortgage, at least through HUD, is only for people 62-years-old and older. You also must own your home, or real estate, outright, or have a mortgage balance that is low enough to be paid off with part of the reverse loan. You can see why this type of loan isn’t for everybody. But, if you are one of those in the housing market who qualify, read on.
If you go through HUD for your reverse mortgage, your new loan will be insured through FHA, which is a good thing because this means your loan will be more secure than those that are floating around the housing market right now. But there are restrictions on the types of homes that qualify as well. For example; your home must be a single family dwelling or a two-to-four unit property that you own and occupy. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible as well.
Now, you may be asking yourself what the difference is between a reverse mortgage and a home equity loan. With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA’s mortgage limits for your area, whichever is less.
On to the important question…how will you receive the payments from your reverse mortgage? There are several options for payments. You can choose tenure, which is an equal monthly payment for as long as at least one of the signed borrowers lives, term, which is an equal monthly payment for a fixed period of time, a line of credit, which is installment payments that the borrower chooses, modified tenure, which is a combination of a line of credit with monthly payments or modified term, which is a combination of a line of credit with monthly payments for a fixed period of time.
So you can see a reverse mortgage isn’t for everybody, but can be a good option for those who qualify. For more information check out HUD’s website or contact a HUD adviser.
If you are thinking about buying a home, selling a home, refinancing a home or just want to know the current value of your home, please visit us at Mahler & Associates for all your appraisal needs.