To those nearing their retirement age, it’s possible to leverage the equity in your home even if you think your net worth isn’t that much. The process is called a reverse mortgage and it’s for homeowners ages 62 and above. If you don’t know what the reverse mortgage process is and how it works, this guide is for you.
What is a Reverse Mortgage?
If you’re approaching retirement or are already retired and you’ve been a homeowner for many years, you can utilize the equity of your home that you’ve managed to build up to apply for a reverse mortgage.
Basically, a reverse mortgage is a type of loan that’s only applicable for senior individuals who have considerable home equity. That equity can be used to become eligible for the loan and receive funds as a lump sum, fixed monthly payment, or line of credit. Unlike a traditional forward mortgage used by people buying homes, a reverse mortgage doesn’t require homeowners to make any loan payments.
Instead, the remaining balance for the loan only becomes due and payable at the time of the borrower’s death or if they choose to move and sell the property. It’s almost like applying for a loan and getting the money without paying anything.
How Much Equity Do You Need to be Eligible for a Reverse Mortgage?
There are a couple of types of a reverse mortgage, but the most common one is the Home Equity Conversion Mortgage (HECM) that is backed by the Federal Housing Administration (FHA). However, regardless of the type of reverse mortgage, they all don’t have a firm equity requirement. For HECM, in particular, you need to own the property you are leveraging outright, or at least you have paid a considerable amount on your original mortgage.
Every lender has their own approval process for this type of mortgage based on your particular financial situation along with other factors. In general, though, you need to have at least 50% equity or more in your home to qualify for a reverse mortgage. If you haven’t paid off at least 50% of your existing home loan, your reverse mortgage won’t be able to cover the gap.
What are the Requirements for a Reverse Mortgage?
Aside from the equity requirements, there are also a few things that lenders will look into before they can consider you eligible for the loan:
- You must be at least 62 years of age.
- The property must be your primary residence.
- You cannot have outstanding federal debt.
- You must also demonstrate the ability to pay on-going property taxes, insurance, and homeowners association fees.
A reverse mortgage is an excellent option for homeowners looking for an additional source of income during their retirement years. Senior individuals who apply for this type of mortgage use the money they get to supplement their pension and their income, pay for medical bills, and support their daily expenses.
When it comes to reverse mortgages, Michael Harrell Group is here to help you facilitate the process. As the Dallas branch of Nationwide Equities, our team is dedicated to helping seniors find the best solutions and loan programs for their needs. Contact us today at (214) 269-3593 for a reverse mortgage consultation.