Is A Revese Mortgage in Your Future?

I, along with the rest of us baby boomers, am getting close to retiring.  Some of us baby boomers already have retired.  The oldest of the 76 million baby boomers will be turning 62 in 2008.  I hope that a lot of us baby boomers have prepared for this event.  But, there are a lot of ways to stumble in our retirement years and we may need more income to survive.  What will our options be?

Well, one option is a reverse mortgage.  This option is not for all.  Before you can get a reverse mortgage, you are counseled on questions like, "Do you really need a reverse mortgage? Do you have less costly options? Can you afford a reverse mortgage? Can you afford to start using up your home equity now? Do you fully understand how these loans work? The older the homeowner and the greater the home value, the more cash that can be made available either as a lump sum, monthly payout or line of credit.

Currently, about one older homeowner in 100 has a reverse mortgage, but that number is increasing.  All of us should try to understand this option, because someday we may need or need to console someone in a reverse mortgage.  Below, I have answered some commonly asked questions about reverse mortgages.

• What is a reverse mortgage?
• Can I qualify for a HUD reverse mortgage?
• Can I apply if I didn't buy my present house with FHA mortgage insurance?
• What types of homes are eligible?
• What's the difference between a reverse mortgage and a bank home equity loan?
• Can the lender take my home away if I outlive the loan?
• Will I still have an estate that I can leave to my heirs?
• How much money can I get from my home?
• How do I receive my payments?
  

  What is a reverse mortgage?

A reverse mortgage is a loan that lets a homeowner convert a portion of the equity in his or her home into cash. The equity built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. HUD's reverse mortgage provides these benefits, and it is federally-insured as well.

Can I qualify for a HUD reverse mortgage?

To be eligible for a HUD reverse mortgage, HUD's Federal Housing Administration (FHA) requires that the borrower is a homeowner, 62 years of age or older; own your home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and must live in the home.

Can I apply if I didn't buy my present house with FHA mortgage insurance?

Yes. It doesn't matter if you didn't buy it with an FHA-insured mortgage. Your new HUD reverse mortgage will be a new FHA-insured mortgage loan.

What types of homes are eligible?

Your home must be a single family dwelling or a two-to-four unit property that you own and occupy. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved.

What's the difference between a reverse mortgage and a bank home equity loan?

With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. You don't make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes and other conventional payments like utilities, but with an FHA-insured HUD Reverse Mortgage, you cannot be foreclosed or forced to vacate your house because you "missed your mortgage payment."

Can the lender take my home away if I outlive the loan?

No! You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home's value.

Will I still have an estate that I can leave to my heirs?

When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs. None of your other assets will be affected by HUD's reverse mortgage loan. This debt will never be passed along to the estate or heirs.

How much money can I get from my home?

The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.

How do I receive my payments?

• Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
• Term - equal monthly payments for a fixed period of months selected.
• Line of Credit - unscheduled payments or in installments, at times and in amounts of borrower's choosing until the line of credit is exhausted.
• Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the home.
• Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.

FAQ:  See Chris Breck's Blog:  http://activerain.com/blogsview/376548/FAQ-s-of-Reverse 

Alan ‘AJ' Nisen, a Contra Costa California Mortgage Loan professional on ActiveRain.com