Reverse mortgage loans can be a helpful financial option for senior homeowners struggling to make ends meet, but they are not appropriate for everyone. We have highlighted five things potential borrowers should know when considering a reverse mortgage loan.
1. Who are reverse mortgage loans right for? Reverse mortgage loan borrowers must be at least 62 years old, have significant equity in their home, and not be delinquent on any federal debt. They also must own a single family home, a two to four unit home with the owner living in one unit, or a HUD-approved condominium or manufactured home.
2. Who are reverse mortgages wrong for? Linda Sands, branch manager for Luxury Mortgage in Stamford, Connecticut says, “If the money you’d get from a reverse mortgage still wouldn’t be enough to ensure you can pay your bills every month, it’s not right for you. If you take out a reverse mortgage and use it to pay off your existing mortgage so you don’t have that payment, that’s great. But if you still can’t pay your monthly utilities or car payment, it just doesn’t make sense.”1 In addition, borrowers are also required to continue paying property taxes and insurance, as well as maintain the home. There is also concern if the borrower only intends to live in the home for a few years as they may not realize the full benefit of a reverse mortgage loan. A reverse mortgage is designed for homeowners that plan to live in their home long term.
3. Do I have to participate in the counseling session? Yes. The counseling session is required for all reverse mortgage borrowers. The session lasts between an hour and an hour and a half and is provided by a third-party reverse mortgage counselor who is not connected with the lender or broker. During this session, you are encouraged to ask questions about your specific financial situation and the requirements of the reverse mortgage loan. Because reverse mortgage loans can be confusing, borrowers may bring along family or friends to ask questions about the process as well.
4. What should I bring to the counseling session? Come prepared with documents that show the value of your home, your income, your current debt, and your expenses. The counselor won’t need to see tax returns, but you should bring everything you have that will give the counselor a good idea of your financial situation. Also, be prepared to ask questions. This is a good opportunity to go through your finances to see if a reverse mortgage loan is the best option for you. Remember, the counselor is there to answer questions and make sure you are informed about the loan. The lender will underwrite the loan to determine whether you’re eligible and whether your loan is approved.
5. How long do I plan to live in the house? This may be one of the most important questions you should ask yourself before getting a reverse mortgage loan. Because of the cost associated with obtaining the loan, only living in the home for a couple years after getting a reverse mortgage might not be the best financial option. However, if you plan to live in the home for many years and can afford to continue paying property taxes, insurance, utilities, and home repairs, then a reverse mortgage may be right for you.
A reverse mortgage loan may not be suitable for everyone. However, for many it can offer a supplemental source of income and provide a financial safety net throughout your retirement years. For more information about reverse mortgage loans, call a reverse mortgage loan advisor at 866.751.6105.