If you are 62+ or know someone who is, a reverse mortgage (or retirement loan) may be an excellent opportunity to save money. If you meet the criteria… here are a couple of reasons why this might be the best loan available for you:
· No payments for the entire life of the borrower
· Cash out at closing, with your choice of either a lump sum or cash every month
NOTE: The homeowner is still required to keep the property in shape, as well as pay property taxes and homeowner’s insurance.
They cannot. A reverse mortgage is a government-insured home loan; it’s considered a non-recourse loan, which means that only in the case of default can a lender can seize the loan collateral. It’s like a regular mortgage except you don’t make payments on the loan. The interest that you’re not paying is simply added to the principle.
The mortgage insurance that a reverse mortgage has ensures you will never owe more than the property is worth. No other assets can be leveraged to cover the home… and in no way (unless the heirs release the property) upon the borrowers passing does the home go back to the bank. Again – like a regular mortgage – if the borrower passes and the heirs fail to either refinance or sell the property, then the bank will foreclose and sell the property. The amount received on the sale over and above the loan balance will be given to the borrower or their heirs.
· They are FHA-insured, HUD loans (in fact HUD-approved counseling is required)
· Loan can be used to purchase, refinance, or cash out of primary residence
· You choose whether to have no mortgage payments or pay as you wish, and ask for the money back in the future (if or when needed)
· Credit score doesn’t matter - but willingness to pay your obligations do matter
· No debt-to-Income requirements
· Reserves are not required
· When/If the home is sold
· When/If the home is vacated or abandoned
· When/If the borrower leaves the home and does not plan to return for more than 12 consecutive months
· When/If the last surviving borrower passes away
The mortgage insurance gets the most conversation. The mortgage insurance premium (MIP) is both at closing and monthly. Upfront MIP is 2% of the loan amount; the annual, paid monthly (added to the loan balance) is 0.5% of the loan balance. For example, a $100,000 reverse mortgage loan will require upfront MIP of $2,000 at closing (added to the loan) and $500 annual or $41.66 monthly (added to the loan balance).
The initial amount is calculated using several factors, including max FHA county loan amount, age of the youngest borrower, expected interest rate, and the maximum claim amount.
There are costs which can be added to the loan amount like appraisal, title escrow, and your current loan balance (if any). But again, we can chat about those and other aspects when you/re ready.
There is much more to learn about reverse mortgages - but most of the other items are best discussed in reference to your personal goals. These are decisions such as choosing between an adjustable or fixed interest rate, whether you should get a line of creditor monthly check (or a combination of both), among others.
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