Signed in as:
A Reverse Mortgage converts equity in your home into cash. You can receive a large sum all at once, establish a line of credit to draw on as you please, or get paid in monthly installments.
Retirement can pose a host of financial challenges for seniors, particularly those whose monthly income primarily consists of Social Security. Historically, those benefits have done a poor job of keeping pace with inflation, and when we throw in rising healthcare costs, it's easy to see why so many older Americans are struggling.
But many seniors have one major asset at their disposal -- their homes. Zillow estimates that roughly 34% of owner-occupied homes in the U.S. are owned by someone 60 or older. If you're part of that statistic, it means you're sitting on a potential cash source. All you need to do is to sell your home and use the proceeds of that sale to pay your living expenses.
Of course, the problem with that solution is obvious, and it's that you'll still need a place to live. But actually, there is a product that could give you immediate access to money while allowing you to stay in the home you're comfortable living in. It's called a reverse mortgage, and here’s how it works: Rather than pay a lender money every month, you get paid money based on the equity you have in your home.
You can qualify for a reverse mortgage as long as you're at least 62, use the home in question as your primary residence, and are able and willing to keep up with your homeownership costs -- meaning, continue paying your property taxes, retain homeowners insurance, and maintain your property.
A reverse mortgage converts equity in your home into cash. You can receive a large sum all at once, establish a line of credit to draw on as you please, or get paid in monthly installments. If you wish you can pay it back the same as you would any loan. And if you have chosen monthly disbursements, you could continue to collect those for the rest of your life (as long as you're in your home).
Therefore, the four most important borrower rules for reverse mortgages are as follows:
since its introduction in 1961 and only grows stronger and safer with each year. This is primarily due to rules and regulations set by the Federal Housing Administration (FHA).
The FHA continually updates and regulates reverse mortgages with new guidelines to protect you as a borrower. So what exactly are the current rules and requirements of the reverse mortgage loan product
Once you satisfy these eligibility requirements and after you obtain a reverse mortgage, you still have obligations to uphold. In order to enjoy all the features of a reverse mortgage loan, and ensure that you do not default on the loan, you are responsible for:
The regulations about loan payback are quite important as well. Luckily, the popular government insured reverse mortgage loan, also called a Home Equity Conversion Mortgage (HECM), is non-recourse. This means that:
In addition, the FHA has set some additional safeguards to protect borrowers and encourage responsible reverse mortgage loan use.
Two new rules were implemented in 2014 and 2015 for the reverse mortgage loan program. Still in effect for 2017, these rules regarding non-borrowing spouses and the borrower’s financial assessment add new layers of protection for all borrowers.
This rule makes it easier for the non-borrowing spouse to continue living in the home following the death of a borrower. The non-borrowing spouse will inherit the responsibility for the reverse mortgage loan as well as the home’s ownership. Borrowers should be aware, the age of the non-borrowing spouse may affect some loan terms such as the amount available to borrow.
This rule mandates that lenders financially assess all reverse mortgage loan applicants. Borrowers are required to submit documentation regarding income, taxes, assets, payment history, and other debt to lenders. The purpose of this rule is to ensure that borrowers have the financial capability to fulfill their loan obligations, such as continuing to pay property taxes and home insurance.
Although the FHA’s rules and regulations for the reverse mortgage loan may seem stringent to some, they are designed with the borrower’s best interests in mind and are truly beneficial to you as a borrower. These regulations and rules are meant to encourage borrowers to use this great financial tool as part of an intelligent retirement planning strategy, which in turn solidifies the overall strength of the reverse mortgage loan product.