A reverse mortgage is a loan that can help older Americans age in place during retirement. The loan can be a lifesaver for many seniors who are retired and live on a fixed income.
In a nutshell, a reverse mortgage allows borrowers to access the equity in their homes and unlike other loans, they’re not required to repay the loan until the borrower moves, sells the home, or passes away.
Reverse Mortgage Requirements
Before you take out a reverse mortgage, it’s important to understand the requirements of the loan. Available to those 62 and over, the loan must be taken out on a borrower’s primary residence.
At this time, borrowers are not required to meet any income or credit requirements to qualify.
These requirement that are in place apply to all Home Equity Conversion Mortgage (HECM) loans, which are insured by the Federal Housing Administration (FHA) and comprise the majority of all reverse mortgages available today.
Because the loans are insured by the FHA, the insurance borrowers pay for guarantees that they will continue to receive funds for the entire loan period and will never be required to repay more than the home is worth when the loan becomes due.
To ensure that borrowers understand how a reverse mortgage will impact their financial situation, the government requires that seniors attend a counseling session with a HUD-approved counselor. During the session, the HECM counselor works with the borrower to ensure he or she understands the requirements of a reverse mortgage and the other options that are available.
Upon receiving a reverse mortgage, certain requirements must be met throughout the loan duration. For example, the borrower must continue to pay property taxes and maintain homeowner’s insurance. The borrower is also required to continue the upkeep and maintenance of the home.
Multiple Reverse Mortgage Options
A reverse mortgage also offers several different options in terms of the types of products and the ways a borrower can receive payments.
Through the FHA, borrowers have access to the HECM Standard, HECM Saver and HECM for Purchase. The Standard requires borrowers to pay higher fees, but also provides a larger amount of proceeds.
The Saver, a relatively new product, offers borrowers a low-cost option that provides less in proceeds as well. Finally, borrowers also have access to the HECM for Purchase, which allows consumers to purchase a home and take out a reverse mortgage in one transaction.
Borrowers also have several different ways of receiving payments through a reverse mortgage. Loan proceeds can be received in a lump sum, tenure payments, term payments, as a line of credit, or in some combination of the payment types.
The amount of money received from a reverse mortgage varies but is based on the age of the youngest borrower, the value of the home, and current interest rates.
Obtaining a reverse mortgage is a major decision as it involves borrowing against equity already built in your home. Before deciding regarding a reverse mortgage, you should take the time to consider which option will best suit your financial needs.
There are several ways to make sure the lender you choose is safe to work with online.
While there are plenty of consumer protections that have been put into place by the government to safeguard consumers from reverse mortgage scams, it’s still good to do a few checks on your lender before you move forward.
National Mortgage Licensing System
Before you work with a reverse mortgage lender, it’s important to make sure they’re licensed to originate loans for consumers.
The National Mortgage Licensing System publishes a Consumer Access website that allows you to search for individual loan officers and companies. If a lender or originator is licensed, all of their company information will show in the system.
The system will also show you whether or the company has had any regulatory actions taken against it in the past.
Better Business Bureau
Another great website to visit in checking up on the reputation of your reverse mortgage lender is the Better Business Bureau. The non-profit organization has a website that shows the ratings of companies who have earned BBB accreditation. It’s important to remember that not every business is eligible for such an accreditation.
“All BBB accredited businesses have agreed to live up to our Principles for Trust,” says the BBB on its website. “Our Principles for Trust are a comprehensive set of policies, procedures and best practices focused on how businesses should treat the public – fairly and honestly in all circumstances.”
Some people might not think reverse mortgage customers are online, but a recent study shows that’s not true. As of April 2012, 53% of American adults over the age of 65 are using the Internet or email, according to a survey conducted by Pew Research.
The Internet is a great resource to do some checking on what other consumers are saying about companies, and the BBB is a great place to start.