4 Things You Need to Be Eligible for a Reverse Mortgage

Many older Americans are taking advantage of a new type of FHA loan.  This new loan actually pays the borrower over time, as opposed to more traditional type of loans.  This new loan is called a Reverse Mortgage.  In the simplest of terms a reverse mortgage converts the equity of a borrower’s home into cash payments.  So how do you know if you qualify?  Listed below are the 4 things potential borrowers have to have in order to be eligible for a reverse mortgage.

1.    Potential borrowers must be at least 62 years old.  The age of the borrower is a critical factor in how large the loan can be, but that will be explained more after the requirements.

2.    Borrowers must actually own the home and use it as their primary residence.    Certain types of homes are ineligible; they include some manufactured homes, cooperatives and most mobile homes.

3.    The Department of Housing and Urban Development (HUD) has some basic property standards that have to be met in order to qualify for a reverse mortgage.

4.    The final requirement is that you take the time to discuss a reverse mortgage with a HUD approved counselor.  This counselor will provide more information and help you decide whether a reverse mortgage is right for you.  The will also help you find a lender and can determine whether your home meets HUD minimum standards.

Should you decide that a reverse mortgage is right for you, the mortgage loan amount will be determined be the age of the youngest borrower, current interest rates, and the appraised value of your home or insurance limits.  Typically, high age, low interest rates, and high home value will mean a larger loan.

The best part about a reverse mortgage is that it does not have to be repaid as long as the borrower still occupies the home as their primary residence.  When the home is sold, the mortgage lender will receive the principal of the loan as well as any interest accrued.  Any remaining funds will go to the borrower or their survivors, but it is important to note that borrowers will never owe more than the value of the home

Reverse Mortgage Costs

As with a new home or a refinance of a home, there are costs associated with obtaining a reverse mortgage. The following are some of the fees associated with a reverse mortgage loan. It is important to note that many times these fees are capped to avoid large costs to pay upfront:

• Origination fee

• Insurance premium

• Appraisal Fee

• Closing Costs

Origination Fee
Origination fees are charged so that the lender may cover operating costs associated with their business.

Mortgage Insurance Premium
The Mortgage Insurance Premium is charged to protector you if your lender should go out of business.

Appraisal Fee
An appraiser will inspect your home and generate an appraisal report. This report is used to assess the value of your home and equity. The appraiser charges a fee to evaluate your home and prepare the report for your lender.

Closing Costs
Closing costs include a variety of fees that are associated with many types of loans, including reverse mortgage loans. Some of the fees included in the closing costs are, credit reports, flood certification, and escrow.

New to Reverse Mortgages? Read this First

A reverse mortgage is a type of mortgage that allows for owners to quickly exchange the equity in their home for cash.  The mortgage does not have to be paid back until the home is sold, or the owner no longer lives in the home as their primary residence.

Typically reverse mortgages are ideal for elderly homeowners.  Since many mature homeowners on a fixed income, using the equity in a home can help with bills, unexpected expenses (such as medical costs) and the upkeep of a home.

The reverse mortgage loan has appeal to a homeowner that has been in their home a long period of time.  When considering a reverse mortgage, it is important to investigate the details of the mortgage.  Upfront costs can be high when the loan is very high, and the pay off time is over a long period of time as opposed to a shorter period of time.