| Before
looking at a reverse mortgage,
you make sure you understand what it is, if you are eligible,
and what will be expected if you decide on one.
A reverse
mortgage is a home loan
that allows you to borrow against the equity you've built
up in your home over the years. The main differences between
a reverse mortgage and a more traditional mortgage are that
the loan is not repaid until you no longer live in the residence
or upon your death, and that you will never owe more than
the home's value. You can also use a reverse mortgage to buy
a different principal residence by using the cash available
after you pay off your current reverse mortgage.
A reverse
mortgage is not for everyone, and not everyone is eligible.
For a Home Equity Conversion Mortgage requirements include
that you must be at least 62 years of age, have no mortgage
or only a very small mortgage on the property, be current
on any debts and the property must be your primary residence.
They base
the mortgage amount on current interest rates, the age of
the youngest applicant and the lesser amount of the appraised
value of the home or FHA's mortgage limit for the HECM. Financial
requirements differ vastly from more traditional home loans
in that the applicant does not have to meet credit qualifications,
income is not considered and no repayment is required while
the borrower lives in the property. Closing costs may be included
in the home loan.
Stipulations
for the property require that it be a single-family dwelling,
a 1-4 unit property whereby the borrower occupies one of the
units, a condominium approved by HUD or a manufactured home.
Regardless of the type of dwelling, the property must meet
all FHA building standards and flood requirements.
HECM offers
five different payment plans in order for you to receive your
reverse mortgage loan amount - Tenure, Term, Line of Credit,
Modified Tenure and Modified Term. Tenure enables you to receive
equal monthly payments for the duration that at least one
borrower occupies the property as the primary residence. Term
allows equal monthly payments over an agreed-upon specified
number of months.
Line of
Credit enables you to take out sporadic amounts at your discretion
until the loan amount is reached. Modified Tenure is a combination
of monthly payments to you and a line of credit for the duration
you live in the home until the maximum loan amount is reached.
Modified Term enables a combination of monthly payments for
a specified number of months and a line of credit determined
by the borrower.
For a
charge, you can change your payment options.
Lenders
recover the cost of the loan and interest upon your death
or when you no longer live in the home and your home is sold.
You or your heirs receive what is left after the loan is repaid.
Since the FHA insures the loan, if the proceeds from the sale
of your home are not enough to cover the loan, FHA pays the
lender the difference. Keep in mind that the FHA charges borrowers
insurance to cover this provision.
The amount
you are allowed to borrow, along with interest rate charged,
depends on many factors, and all that is determined before
you submit your loan application.
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