Pros and Cons of Reverse Mortgages
A reverse mortgage is just what it sounds like – it is a lien on a home that works in reverse to a traditional mortgage. Instead of borrowing money to purchase a home, a homeowner starts off owning the home and takes out a reverse mortgage in order to release the equity from their property in the form of payments or as a lump sum payment. Due to the way a reverse mortgage works, they are only available to seniors.
The obligation of the homeowner to pay back their mortgage is deferred until the owner dies, sells the home, or moves to a nursing home or assisted living facility. Reverse mortgage lending limits are $625,500, regardless of how much the home is worth and the maximum amount that can be charged for a loan origination fee is $6,000.
Pros and Cons of Reverse MortgagesWho Qualifies for Reverse Mortgage?
In the United States, only borrowers who are 62 years or older qualify for reverse mortgages. Unlike other mortgage products, it doesn’t matter which credit score range you are in and there are no credit or minimum income requirements. If you have an existing mortgage when you apply for a reverse mortgage, you must pay it off with proceeds from a reverse mortgage. Not all homes will qualify for a reverse mortgage. Mobile homes qualify if they meet certain criteria, like having a permanent foundation and being built after 1976.
Anyone looking to get a reverse mortgage must first attend third party financial counseling by a provider who is approved by the Department of Housing and Urban Development (HUD). During the counseling, borrowers will learn exactly what a reverse mortgage is and how to obtain one before proceeding with the process. The counseling sessions cost around $125, although there are federal agencies which provide grants to enable people to attend counseling for free.
Advantages of Reverse Mortgages
Many people automatically assume a reverse mortgage seems “too good to be true,” but in the right circumstances a reverse mortgage creates a valuable financial resource for individuals during their retirement. Benefits and advantages of a reverse mortgage include:
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