By retirement age, most people will have gone through the mortgage process at one point or another. The mortgage obtained would have been either to obtain a new home, lower a current mortgage rate, take out cash as a result of home equity, or to reduce the term of an old mortgage. At retirement age, a person is finally eligible for a reverse mortgage. Read on to discover the advantages of a reverse mortgage and how to get one.
Advantages of a Reverse Mortgage
- Tax free cash. A reverse mortgage is not a lump sum or additional income. A reverse mortgage borrower therefore enjoys tax-free cash.
- No default risk. Unlike other mortgage loans where you risk losing your home and other assets by virtue of default, you could only lose your home if you default on the home equity loan. The lender has no right whatsoever over your assets.
- Federal insurance cover. The most common reverse mortgage is the Home Equity Conversion Mortgage (HECM). It is federally insured; you still continue to receive your cash payments even if your lender defaults.
- Home ownership is retained. Unlike other mortgages where the lender maintains the ownership title, you retain the ownership title yourself. You can therefore live there all the time, make changes to the home’s appearance and structures or even sublet some rooms depending on the terms of the lender.
- Flexible payment options. Depending on your cash needs and financial circumstances, you get to choose how you would like to receive cash payments. You can receive the cash as a lump sum, as a credit line, as an annuity or a combination of the last two methods.
The Steps to a Reverse Mortgage
Basically, the major step towards a reverse mortgage is deciding whether you need one or not. If the advantages it offers are attractive to you, then don’t procrastinate further. These are the steps to a reverse mortgage:
- Conduct detailed research on reverse mortgages. Obtain thorough information related to reverse mortgages on the web. If you receive unsolicited invitations, then don’t respond to them because they could be scams. Look to your friends, family members and acquaintances for tips who may have taken reverse mortgages before.
- Compare quotes. There are several lenders who will definitely make attractive offers. Compare all of the quotes from these lenders. With the help of a mortgage calculator, find out how much you need to repay monthly without straining your income sources. Pick the lenders with the most competitive rates.
- Consult potential lenders. Once you’ve narrowed down the list of potential lenders further, consult necessary resources so that you are sure about the most appropriate lender. For instance, you could find out whether they are registered by the National Reverse Mortgage Lender Association (NRMLA) or the Better Business Bureau (BBB) and whether they are approved by the FHA. Don’t forget to check the testimonials from previous borrowers.
- Inquire about all terms and conditions. If you want a HECM reverse mortgage then you should opt for the best terms and conditions because these vary from lender to lender. These include interest rates, credit score qualifications and closing costs, among others. Narrow down to a single lender with the most suitable terms and conditions.
- Apply for reverse mortgage. Furnish the lender with your application done in person. The documents which may be required include proof of age (ID card or Driver’s License), proof of your Social Security Number and a copy of your homeowners’ insurance cover. Where applicable, you may also be asked for a complete copy of the family trust, a copy of the power of attorney, an original death certificate and a statement of any mortgages on property. Review your application forms carefully before submitting them.
- Get counseled. One of the requirements of HUD is that any reverse mortgage applicant be counseled by a HUD-approved third party. You can choose to attend the counseling session via phone or in person. Loan processing will not commence until you’ve obtained a signed certificate from the counselor. You may attend the training session in advance even before applying for the loan.
- Inspect and obtain an appraisal report of the home. With your application forms and counseling certificate, you can now have an appraisal done on your home. The lender will refer you to an FHA-approved appraiser to furnish you with a detailed appraisal report. It is advisable that you are available during the appraisal process so that you make any inquiries and answer any questions from the certified appraiser.
- Loan underwriting. Your loan must be underwritten by an underwriter who is approved by FHA. The lender will refer you to an underwriter.
- Close the deal. Once underwriting is done, you will arrange a meeting with the lender to finalize the deal. It is important at this stage to review all your application forms once again in order to confirm that all the information you submitted is correct. Confirm all the terms and conditions once again just to be sure of what you are committing to. You can then sign the papers and close the deal. You have three business days after signing the deal to change your mind if you think otherwise—referred to as the rescission period.
- Obtain the funds. Once the deal is sealed you will receive the funds. You can choose to receive the funds as a lump sum, a monthly fixed payment, a line of credit or a combination of the last two methods as you deem fit. You can use the cash to pay off your mortgage and any other existing loans as it suits you.
The maximum lending period for a reverse mortgage is 15 years. Re-evaluation of your property will also be taken once every 5 years of the term of the loan. Compared to other loans, this is one you should almost certainly take advantage of!