Unfortunately, after working hard for all their lives, many senior citizens find themselves in a difficult financial position after their retirement. This could be because their social security income is inadequate to make ends meet, because they face steep medical bills, or need to be able to pay for expensive nursing care.
In these circumstances, taking out a reverse mortgage loan is a possible solution. But there are several criteria that must be met to qualify, and they are not a suitable solution for everyone. Our guide to the requirements for qualifying for a reverse mortgage is here to help you assess whether it might be the best solution for you.
What Is A Reverse Mortgage?
A reverse mortgage allows you to access your home’s equity without selling it. ‘Equity’ is simply the word used to describe the asset value of your home, so to access its equity while still living in it is a bit like being able to spend the money you’ve made on a sale while still using the item you’ve sold.
In contrast to a normal mortgage, instead of you paying the lender each month, the lender pays you until you sell the house or pass away (or if you have a spouse until the last surviving of you passes away). There are many types of reverse mortgages; some allow you to access more substantial funds than others. The funds which you receive through the loan can be paid to you in a fixed amount each month, paid to you in a lump sum, or distributed as a line of credit.
The loan is repaid when you sell the house and transfer the proceeds to the lender or when you pass away (your estate must sell the house within a certain period and transfer that portion of the proceeds which equates to the extent of the loan, to the lender). There are many advantages but also disadvantages to a reverse mortgage, so it is important that you seek the advice of a real estate attorney if you are considering applying for one.
Qualifying For A Reverse Mortgage
A Home Equity Conversion Mortgage (HECM) is the most common reverse mortgage. HECMs are insured by federal institutions, which makes them more accessible for people who are less well-off. It is the type of mortgage you will apply for if the equity you need or qualify for is below $679, 650. The requirements to qualify for a HECM frequently change, so it is important to confirm these requirements with your attorney. Currently, the main requirements are as follows:
- Age: you must be over the age of 62.
- Primary residence: you must live in your home for most of the year. Otherwise, you cannot use its equity to qualify for this kind of reverse mortgage. This means that you cannot, for example, apply for a HECM on your vacation home or investment property.
- Ownership or high equity in your home: this is the requirement that homeowners tend to have the most difficulty meeting. You will not qualify for an HECM unless you own your home outright (i.e. you have paid off your mortgage) or you have a low remaining balance on your existing mortgage. Any existing mortgage will need to be paid off with the proceeds of the HECM, which will be done at the time of the closing and funding of your new HECM loan.
- Debt-free: You must be free of federal debt, such as outstanding federal income tax or outstanding student loans.
- Residual funds to cover property-related expenses: you must demonstrate that you have sufficient funds to pay for ongoing property charges, such as association fees, taxes, and home insurance. You must also have enough funds to cover maintenance and repair costs. This is why HECMs are only suitable as a form of supplemental income: generally, people use their income from other sources to demonstrate that they can cover these ongoing property costs.
- Condition of the property: your home must be in a reasonable condition and must not need any major repair work for you to qualify.
- Counseling: it is a federal requirement that those applying for HECMs prove they have attended mortgage counseling at an approved counseling agency and received sound legal and financial advice about whether an HECM is suitable for them.
Requirements For Other Types Of Reverse Mortgage
Proprietary reverse mortgages are generally used by people who qualify for and seek access to equity greater than $679, 650. The lenders involved in this type of mortgage may be slightly more lenient on certain requirements, and to qualify, the main criteria that you will need to meet are the age limit and the ownership/equity requirement (point three above). You’ll also need to demonstrate proof of residual funds for these mortgages, and they have significant upfront costs, which you’ll need to be able to finance.
Seek The Advice Of An Experienced Real Estate Attorney Today To Discuss Your Options
Reverse mortgages aren’t for everyone, and they have several unique advantages and disadvantages which you need to consider before you decide to apply for one.
For quality legal advice and an attorney who will ensure that your best interests are taken care of as you make this decision, contact the Law Offices of Gary I. Handin, P.A. today – we have years of experience assisting senior citizens with reverse mortgages and will be glad to assist you.