Throughout our lives, we keep on working to fulfill our daily requirements, and along with that, we try to achieve our long-term human goals. The most essential and desirable human goal is to have our own home.
However, for most of us, buying our own home requires the savings of our whole life. Having our own home, whether small and huge, provides a next-level satisfaction in ourselves. But, in the process of fulfilling this big dream of ours, we sometimes invest all our savings and face financial instability in our old age.
Keeping this forthcoming instability in mind, a mortgage loan, other than the conventional ones but in the same journal, is driven into the picture known as Reverse Mortgage Loans, so that no one in their old age faces a financial crisis and can live their rest of the life to its the fullest.
Now, the questions must have started bombarding in your mind, what is a reverse mortgage, when we become eligible for applying, how can we apply for it, etc. So, let us jump into the fundamentals of Reverse Mortgage Loans.
What is a Reverse Mortgage Loan?
As the name indicates, reverse mortgage loans are the reverse of conventional mortgage loans. If we compare reverse mortgage loans with conventional mortgage loans, we will find a switch in the roles.
In the conventional mortgage loan, the lender lends the money to the borrower for buying a home, keeping the equity of the home to him or herself as collateral, however, in reverse mortgage loans, the borrower owns the home but applies for the loans for fulfilling his or her other necessities.
Eligibility for Reverse Mortgage Loan
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As this loan is meant for old-aged people, this loan is applicable for borrowers who are at least touching the age of 62 years old.
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The borrower must either own the property or have at least 50% of the equity on his or her property.
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The borrower can apply for a loan against his or her primary residence only.
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The property should have at most only one primary lien, the borrower should not have a second lien or second mortgage.
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If the borrower has some existing mortgage on his or her property then he or she has to pay off the existing mortgage with the funds he or she will receive from a reverse mortgage.
Properties Eligible under Reverse Mortgage Loan
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Multi-unit properties up to four units
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Condos or townhomes
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Homes for single families
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Manufactured homes that are built after June 1976
Types of Reverse Mortgage Loans
Single-Purpose Reverse Mortgage
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This type of loan is the least expensive one. These types of loans are generally led by non-profits and state or local governments. The criteria for getting this type of loan are decided by the lenders, it is only available for certain areas. These are generally provided for purposes like repairs renovations.
Home Equity Conversion Mortgage
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Home Equity Conversion Mortgages is also known by its abbreviation HECMs. This mortgage is backed up by the U.S Department of Housing and Urban Development. This type of mortgage is generally more expensive than conventional mortgages. However, this type of loan can be used for anything, unlike Single-Purpose Reverse Mortgage. This loan provides many different options to the borrowers to get their money in several different ways:
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lump sum
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fixed monthly payments
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a line of credit
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a combination of regular payments
Proprietary Reverse Mortgage
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These types of mortgages are not backed up by the government, these are private loans. The eligibility requirements may vary from lender to lender. These mortgages are easy to get and the fastest to fund. However, these loans are also famous for providing an opportunity to scam unsuspecting seniors out of their property’s equity.
Important Notices of Reverse Mortgage Loans
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It is applicable to only those old-aged people who either have considerable equity, preferably 50%, in their home or have paid it off completely.
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The borrower decides a specific loan program and finds the authentic lender with the help of a reverse mortgage counselor.
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After the borrower applies for the loan, the lender starts with:
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The credit check,
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Review of the borrower’s property,
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Property's title and its appraised value.
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As soon as the loan is approved, the lender funds the loan depending on the structure of what the borrower chooses, whether a lump sum, periodic annuity payments, or a line of credit.
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Some reverse mortgage loans have been kept under the restriction on how the funds will be used. These loans last until the borrower dies or till the heir of the property repays the amounts, either by submitting the money or by selling the property.
Borrowing Limits for Reverse Mortgages
For government-backed reverse mortgage loans
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Borrowers are prohibited from borrowing loans above the appraised value of their property.
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Other than the appraised value of the borrower's property, the FHA has also set a maximum claim limit amount for the reverse mortgage loans.
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Borrowers are only allowed to borrow a portion of their property’s value.
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Some parts of the borrower's property are kept with the lender as collateral.
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Borrowing limits may vary with borrowers according to the borrower’s age, credit, and also the loan’s interest rate.
For proprietary reverse mortgages
The borrower does not have to worry about the limits on how much he or she can borrow. There are no set limits as such in proprietary reverse mortgage loans, subject to lenders' approval.
Conclusion
A reverse Mortgage Loan leaves no burden on your old shoulders of the loan repayment, the government backs up the borrower's property, and when the borrower dies the loan is repaid by selling the property. Reverse Mortgage Loans are the support of all the old-aged people out there.