Reverse Mortgages

Can anyone take out a reverse mortgage loan? No. Home Equity Conversion Mortgages (HECMs), the most common type of reverse mortgage loan, are a special type of home loan only for homeowners who are 62 and older.

Aside from age, there are a few other requirements for taking out a reverse mortgage, including:

  • Your home must be your principal residence, meaning it must be where you spend the majority of the year
  • You must either own your home outright or have a low mortgage balance. Owning your home outright means you do not have a mortgage on it anymore.  If you have a mortgage balance, you must be able to pay it off when you close on the reverse mortgage. You can use your own funds or money from the reverse mortgage to pay off your existing mortgage balance
  • You may not be delinquent on any federal debt, such as federal income taxes or federal student loans.  You may, however, use funds from the reverse mortgage to pay off this debt
  • You must agree to set aside a portion of the reverse mortgage funds at your loan closing or have enough of your own money to pay ongoing property charges, including taxes and insurance, as well as maintenance and repair costs
  • Your home has to be in good shape. If your house does not meet the required property standards, the lender will tell you what repairs need to be made before you can get a reverse mortgage loan
  • You must receive counseling from a HUD-approved reverse mortgage counseling agency  to discuss your eligibility, the financial implications of the loan, and other alternatives

Before taking out a reverse mortgage loan you may want to look at all of your borrowing and housing options such as:

Waiting
If you take out a reverse mortgage loan when you are too young, you may run out of money when you’re older and more likely to have less income and higher health care bills.

Other home equity options
A home equity loan or a home equity line of credit might be a cheaper way to borrow cash against your equity. However, these loans carry their own risks and usually have monthly payments. Qualifying for these loans also depends on your income and credit.

Refinancing
By refinancing your current mortgage with a new traditional mortgage, you may be able to lower your monthly mortgage payments. Pay attention to the length of time you’ll have to repay your new mortgage as it can affect your retirement plan. For example, taking on a new 30-year mortgage when you are nearing retirement can become a hardship later. Consider choosing a shorter-term mortgage, such as a 10 or 15 year loan.

Downsizing
Consider selling your home. Moving to a more affordable home may be your best option to reduce your overall expenses.

Lowering your expenses
There are state and local programs that may provide assistance with utilities and fuel payments as well as home repairs. Many localities also have programs to help with property taxes: check with your county or town tax office. Information about these and other benefit programs is available through the Administration for Community Living .

Note: This information only applies to Home Equity Conversion Mortgages (HECMs), which are the most common type of reverse mortgage loans.


Source: Consumer Financial Protection Bureau
Website: https://www.consumerfinance.gov/

Additional Resources

Contact your local Area Agency on Aging and 2-1-1 and they may know of additional resources on this topic.

Area Agency on Aging (AAA)
An Area Agency on Aging (AAA) is a public nonprofit agency designated by a state to address the needs and concerns of all older persons at the regional and local levels. AAAs are primarily responsible for a geographic area, also known as a planning and service area (PSA), that is either a city, a single county, or a multi-county district. AAAs coordinate and offer services that help older adults remain in their homes, if that is their preference, aided by services such as home-delivered meals, homemaker assistance, and whatever else it may take to make independent living a viable option.
Find your local AAA by visiting their website or calling 1-800-677-1116.
Website: https://eldercare.acl.gov/Public/Index.aspx

2-1-1 Colorado
2-1-1 is a confidential and multilingual service connecting people to vital resources across the state. No matter where you live in Colorado, you can find information about resources in your local community. Dial 2-1-1 from your phone or visit their website.
Website: https://www.211colorado.org/

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