Reverse Mortgage Loans For Seniors
Reverse Mortgage Loans Explained
Retired homeowners who have little or no income who have equity in their homes and who need to do a cash out refinance are not able to do so. All mortgage loans these days are based on documented income and credit and there are caps on debt to income ratios. Many homeowners who have retired only make a fraction of what they used to make and rely on social security income, retirement income, and the money they have saved up over the years.
After the economic meltdown of 2008, many Americans, especially senior, have lost a large portion of their investments, whether it was their retirement accounts, securities accounts, or savings. Many homeowners have lost a large portion of their hard earned equity they have built up on their homes and a large percentage of homeowners have mortgage loan balances that are higher than the value of their homes. Many folks who have retired went back to the workforce with making a fraction of what they used to make to make ends meet. If retired homeowners with equity wanted to refinance their current home via a cash out refinance, they could not qualify because their retirement income was just a fraction of what they were making prior to retirement. Now retired homeowners who have equity in their homes can do a cash out refinance mortgage without income verification nor credit score requirements.
Basics On Reverse Mortgage Loans
If you are a homeowner who is at least 62 years old and have equity in your home, you can qualify for FHA reverse mortgage loans. Reverse Mortgage Loans are when a mortgage lender will advance you a lump sum of money at once or give you a line of credit based on the equity of your home. To qualify for reverse mortgage loans, the homeowner needs equity in their home. Reverse Mortgage Loans need to be in first position so if the homeowner has a current first lien on their property, the first lien needs to be paid off first and the balance will go to the reverse mortgage borrower in the form of one lump sum of cash or a line of credit.
Borrowers of Reverse Mortgage Loans do not have to worry about ever making a mortgage loan payment again. However, reverse mortgage loans borrowers are responsible to still pay property taxes and homeowners insurance payments as long as they have a balance on their reverse mortgage. Reverse mortgage loans are for primary owner occupant property owners only and not for second homeowners or investment homeowners.
More On Reverse Mortgage Loans
With Reverse Mortgages, the older the homeowners age is, the higher loan to value cash out refinance they will qualify for. For example, a 62 year old homeowner may only be able to cash out refinance on 50% loan to value whereas a 72 year homeowner may be able to cash out refinance 70% loan to value ( These figures are for illustration purposes and are not actual loan to value requirements with age factor ). The reverse mortgage loan borrower needs to occupy the property and is responsible for their own property taxes and insurance. The homeowner can sell their property at anytime and the reverse mortgage can be paid off without a pre-payment penalty.
How Reverse Mortgages Can Help You As A Retirement Tool
Homeowners with home equity in their homes can get a one lump sum cash payment, a monthly payment, or a home equity line of credit with reverse mortgages.
- The home equity line of credit option of a reverse mortgage can be used as a credit card where you can tap into it if you need cash
- A homeowner may want to do a property flip and buy a foreclosure and purchase that foreclosure from their line of credit of their reverse mortgage
- Once they purchase the foreclosure, they can tap into the reverse mortgage for the repairs needed
- Once the repairs are complete, they can sell the property and pay the reverse mortgage line of credit off with the proceeds from their sale
- You can also tap in to reverse mortgage line of credit as unexpected bills come up
If you take a one-time lump sum on a reverse mortgage, the lender will give you a one lump sum cash payment and you can do whatever you want to do with the proceeds.
- Whether it is for investments, purchase a second home, consolidate debts, buy a new auto, or help out family members, it is up to you on what you would like to use the reverse mortgage proceeds for
Reverse Mortgages Versus Home Equity Loans
Reverse Mortgages do not require borrowers to make any monthly mortgage payments, unlike home equity loans.
- With home equity loans, the borrower needs to make minimum monthly payments to their lender
- With reverse mortgages, you do not have to make any principal and interest payments on your reverse mortgage
But you are responsible to pay the property taxes and homeowners insurance as well as homeowners association fees if applicable.
Repayment Of Reverse Mortgages
As with any other loans, reverse mortgages need to get repaid to the reverse mortgage lender.
- Reverse mortgages are non-recourse mortgage loans
- This means borrowers or the heir of the borrower are not responsible for the repayment of the loan on more than what you can get from the sale of the property after the main borrower dies
- HUD, the parent of FHA, will be covering the shortage and difference when the property sells and if there are a deficit and shortage from the sales price and the loan balance
- The responsibility does not fall back on the heir’s of the property if the property sells at a lower value than the balance of the loan
If you are a homeowner with equity in your home and would like to explore reverse mortgages, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. Our team of reverse mortgage experts at Gustan Cho Associates are available 7 days a week, evenings, weekends, and holidays to take your calls and answer any questions you may have about reverse mortgages.
