The older we get, the closer we get to retirement. While it would be great to plan well in advance and come up with the funds that we need for post-retirement, it doesn’t always work that way. Reverse mortgages provide a great way to get the funds that we need for post-retirement. But what are the requirements to qualify for a reverse mortgage?
Just as importantly, knowing how reverse mortgages work, their benefits, and what to ask a lender are key. When you meet the requirements for a reverse mortgage, it is the first step towards getting the funds that you need.
Before we begin, understanding exactly what a reverse mortgage is and who it is for is essential. A reverse mortgage is the kind of loan that lets you borrow equity against your home. Even better, you don’t have to sell the home as you may otherwise have.
The reverse mortgage, also known as an “equity release” dictates that borrowers can get up to 55% of the currently appraised value of their home. No regular payments are required on a reverse mortgage. The loan and interest will come due in the event of a sale, move, or death of the titleholders.
Another benefit of applying for a reverse mortgage is that you really only need a few things. The first requirement is that the homeowner or owners must be at least 55 years old. So, if you and a spouse are on the title, both must be at least 55 years old.
The second requirement is that the home being used for the reverse mortgage be the primary residence. In most instances, this means at least six months are spent in the home. Vacation homes cannot be used for reverse mortgage purposes.
When you apply for a reverse mortgage, the lender will generally look at a few things. Your age and the age of any others registered on the home’s title is first. If you are under 55, you cannot qualify for a reverse mortgage.
The lender will also take into account the area that you live in as well as the type of home, the condition of the home, and the current appraised value. The latter is particularly important. Even if you’ve had an appraisal done in the past, a new one must be conducted when applying for a reverse mortgage.
One of the major selling points for a reverse mortgage is that there are no monthly payments required. You are given the option to repay both the principal and interest at any given time. It is important to note that you may want to check with your lender first, though. Depending on the repayment requirements for a reverse mortgage with specific lenders, there may be a fee for paying it off early.
The principal and interest will need to be paid under one of a few circumstances. When you sell the home or move out, when the last of the borrowers on the title passes away, and when there is a default on the loan.
Depending on the lender involved, there are certain default requirements for a reverse mortgage. You could default by being dishonest during the application process or failing to follow the conditions of the contract. You would also be in default if the money from the reverse mortgage were to be used for anything illegal. Lastly, you would be in default if the condition of the home fell into such a state of disrepair that the value was impacted.
When you pass away, the estate will be required to pay the owed amount. Should multiple people be on the loan, it will need to be repaid when the last person passes away.
The amount of time required for the estate to pay can vary based on area and lender. In some cases, it will be 180 days. In others, though, it could be more or less. Checking with the lender first is important.
While it may seem like reverse mortgages are all sunshine and roses, that isn’t the case. There are some negatives to reverse mortgages that can give you more to consider than the requirements.
For one, the interest rates on a reverse mortgage will likely be higher than any type of traditional mortgage. It is also possible that the equity that you hold in the home could go down over time. Additionally, you would also accrue interest on that loan during the same duration.
Finally, it is possible that you may be left with less money for the estate. If you plan on leaving money for children or other potential beneficiaries, that is one thing to consider. The requirements for a reverse mortgage are one thing, but the real-life impacts are quite another.
While you are free to spend the money on just about anything that you choose, doing so smartly is important. Not only that, you need to be certain that repaying the loan is possible for yourself or the estate.
The first place that you need to start when inquiring about reverse mortgages is with the team here at Lotus Income. We have years of experience that can get you the answers that you need. The most important thing when it comes to finding a reverse mortgage is knowledge. Being armed with the answers to your questions can mean the difference between a favorable loan and one that you regret.
Reverse mortgages have their own unique set of pros and cons and definitely are not suitable for anyone who qualifies. Discussing with a professional is a great first step and will at least give you a better understanding of this type of loan.
Call our team today or check out our FAQ page to find the answers to your questions. We can get you started down the path to a reverse mortgage today.