For some senior citizens, as the years progress, they find themselves in a difficult financial situation. More so after retirement, when there is no additional income coming into the household. This could be due to a range of factors such as debt, medical or caregiver bills, insufficient social security income, and more.
There are solutions to resolve this issue, but keep in mind that some solutions may not be suitable for your circumstances. One such solution is a reverse mortgage. However certain criteria must be met to qualify for a reverse mortgage and legal considerations you need to know before considering taking out a reverse mortgage on your home.
What Is A Reverse Mortgage?
Before delving deeper into the legal considerations you should know for a reverse mortgage, it’s better to refresh your understanding of what it is. It’s a form of mortgage that enables you to access the equity (or value) of your home, without actually having to sell your home. In simpler terms, you’ll gain access to money you’ve made “selling” your home without having sold your home. With a standard mortgage, you pay the lender each month but, in a reverse mortgage the lender pays you until you either sell the home or pass away. The loan will be repaid with the proceeds of the sale of the house when you do decide to sell.
There are different types of reverse mortgages which you can discuss with a reputable broker or a real estate attorney. Keep in mind that discussing this type of mortgage with a reliable and experienced professional can help you make a more informed decision. You don’t want to fall victim to a scam, nor do you want to run into even more financial difficulties and possible foreclosure.
What Is The Eligibility Criteria For A Reverse Mortgage?
In the same way that you need to meet certain eligibility criteria for a traditional mortgage, there is a list of factors that must be met for a reverse mortgage.
- Age: These types of mortgages are only available to those 62 years or older.
- Primary Residence: The home that the mortgage is taken out on must be the primary place of residence. That means that the mortgage holder must remain residing in the same property. To qualify, you cannot move in with an adult child at a different address nor can you reside at an assisted living or nursing facility. You would need to pay back the mortgage immediately in this case.
- Type of Property: There can be eligibility restrictions based on the type of property as well as its age. All approved properties must meet the standards set by the Federal Housing Administration (FHA)
What Are The Legal Considerations For A Reverse Mortgage?
There are a few legal considerations involved in obtaining this specific type of mortgage. These include matters related to the repayment of the loan, interests accrued, and general maintenance and insurance.
- Loan Repayment: This type of loan must be repaid once the owner sells the home, moves out for over a 12-month period, or passes away. Keep in mind that the repayment amount cannot exceed the value of the home.
- Interests and Fees: These are always accumulating and can add to the overall loan balance.
- Household Maintenance and Insurance: It is your responsibility to ensure that the property is kept in good condition including any regular preventative maintenance, repairs, or replacements to things around the property. You need to also ensure that the appropriate property taxes are paid each year and that your homeowners insurance remains current.
- Counseling: Before you can access a reverse mortgage, you are required to undergo a form of counseling from an HUD-approved agency. This means that the organization has been approved by the U.S. Department of Housing and Urban Development (HUD). This is not only to ensure that the individuals understand the rights and responsibilities of a reverse mortgage but also the implications should things not work out as planned.
- Inheritance Impact: If you have family or an individual that could potentially inherit your home. Keep in mind that your beneficiary must repay the loan if they’d like to keep the house. If they sell the property, they can keep any excess proceeds from the sale once the loan is repaid.
- Tax Benefits & Implications: While the loan itself is not generally considered as taxable income, it may impact your eligibility for governmental assistance such as your supplemental security income (SSI).
What Should I Keep In Mind Before Getting A Reverse Mortgage?
1. Have additional income streams.
While you may be retired, this type of mortgage can aid you in covering unforeseen costs throughout your retirement. It shouldn’t form the backbone of your retirement financial strategy. Supplement your retirement costs with your social security, stock investments, your 401K, and more. If your home allows for it, make use of additional space in your home by renting out rooms for additional rental income or even consider a part-time job.
2. It isn’t free money.
Reverse mortgages are just like any other loan, and you will need to repay it. Unlike more traditional loans where you can make monthly payments, a reverse mortgage loan will need to be paid in a single lump sum. This is generally repaid with the sale of the home, but it a factor to keep in mind.
Get Professional Advice From An Experienced Real Estate Attorney Today
Reverse mortgages require a lot of forethought before starting the process. This is why it is a federal requirement to get counseling from a HUD-approved agency. There are advantages and disadvantages to consider before you begin the application process. Your real estate attorneys at Gary I. Handin, P.A. can help you understand the process as well as all of the legal considerations you should know before getting one. For more information, contact the Law Offices of Gary I. Handin, P.A today!