Moving Forward with a Reverse Mortgage
What have you heard about reverse mortgages? Are they bad? Are they good? Recently, to my surprise, a fellow loan officer did a reverse mortgage for himself and I wanted to know why.
Many Americans have a simple retirement plan — work hard, provide for their family, retire with the resources to meet basic needs, and leave a legacy to their family; often in the form of the home’s equity.
While a few have seen this dream fulfilled, many plans are derailed by unexpected life events, including the ever-rising cost of living and the devastating affects of the financial markets. These financial strains have left many seniors concerned, and looking for options.
A reverse mortgage enables you to withdraw a portion of your home’s equity and use it any way that you like, without any requirement to make monthly payments on the funds you have drawn.
You can stay in your home as long as you like, and it is when you are ready to sell your home or you have passed on, the loan is repaid. This loan is insured by the federal government, and you do not forfeit title to your home or lose any other rights as the owner. You or your heirs decide when or if the home is to be sold, and after repaying the loan balance, all remaining equity in the home belongs to you or your heirs.
You select the method for how you receive your funds. You can receive all your funds at closing, receive monthly installments, or use a line of credit to draw funds only as you need them.
There are no minimum income or credit score requirements to qualify for a reverse mortgage. The four basic requirements to qualify are as follows: The youngest homeowner must be 62 years of age or older; the home must be your primary residence; the type of home and condition of the property must meet standard FHA guidelines; and you must have the financial resources to keep your property taxes paid, your home insured, and, if applicable, HOA dues current.
In July 2008, Congress introduced new regulations that authorized senior homebuyers to use an FHA-insured reverse mortgage to purchase a home.
The Reverse Mortgage for Home Purchase program allows a senior homeowner to sell their current home, use some or all the proceeds from the sale as a down payment, and then use an FHA-insured reverse mortgage to finance the balance of the purchase price. And, as with any reverse mortgage, the homeowner will not be required to make a monthly mortgage payment.
Do these loans make sense for everyone? Of course not, but for many people it provides a method of staying on in their own home at a time when their income may not be sufficient to pay for a mortgage. It can provide an income stream to live on which last until they either die or cannot live in the home any longer.
Back to my friend. He views the equity in his home as a non-performing asset and feels it is better used while he is still alive. Instead of making a mortgage payment he receives a monthly distribution of his loan proceeds, which he then uses to enjoy his life.
For him it made sense. He is moving forward by reversing his mortgage.
Neil Funsch has been a mortgage broker for 18 years, the last five in Park Hill. He can be reached at 303-229-2684 or neil.funsch@gmail.com.