A reverse mortgage loan helps homeowners who are at least 62 years old access the equity they have built up in their homes. Retirees benefit most from a reverse mortgage, but other reverse mortgage candidates can also benefit from this type of loan, even if they do not need funds immediately.
If you are considering applying for a reverse mortgage loan, it’s essential to know what makes you eligible for the loan, how it works and what to look for in a reverse mortgage funding company.
The 3 Ideal Candidates for Reverse Mortgages
Who is best suited for a reverse mortgage? Many reverse mortgage borrowers use the proceeds to pay off other debts, cover monthly expenses or renovate their homes. Others use a reverse mortgage to protect or maintain their lifestyle in retirement. There are three main types of candidates for which reverse mortgage loans are ideal.
1. Homeowner With Sufficient Equity
The first ideal candidate for a reverse mortgage is a homeowner with several years left to pay off their mortgage yet still has sufficient equity in the home. A reverse mortgage is a beneficial option for this candidate because instead of making monthly payments to a traditional mortgage loan, they receive funds through a reverse mortgage to supplement the money they need for retirement. Here’s why this person might consider a reverse mortgage:
- Pay for monthly expenses: Once you’ve refinanced with a reverse mortgage, the money that usually goes to a mortgage can go towards monthly living expenses and bills. It gives you the financial flexibility to enjoy retirement instead of paying off a substantial mortgage loan.
- Get better loan terms: Refinancing may be your best option for achieving lower interest rates, and you can defer the loan repayment for years.
2. Homeowner Who Has Substantially Paid or Has Paid Off Their Mortgage
This second candidate is a homeowner who has substantially or completely paid off their mortgage and does not need immediate cash. The structure of a reverse mortgage works well for this person for the following reasons:
- Have a tax-free cash reserve: The Internal Revenue Service (IRS) considers payments from a reverse mortgage as a loan advance, not income. You can draw cash from your reserve when you need it without the tax implications.
- Grow your retirement income: If you choose a reverse mortgage with a line of credit, you may be able to grow your retirement income. The longer you have the loan, the more funds you can access later as long as your home equity keeps increasing.
3. Affluent Retiree
The third person who is a great candidate for a reverse mortgage is an affluent retiree. These retirees generally have $500,000 to $1.5 million worth of investable assets and have no mortgage against their homes. These retirees can benefit from a reverse mortgage for the following reasons:
- Reduced investment risk: Stock markets change regularly. A reverse mortgage offers protection against risks associated with market volatility. Instead of panic selling when the market is in down years, you can use your reverse mortgage as a buffer. You can minimize exposure while still growing your portfolio.
- Cost-effective income source: Instead of tapping into your other investments, such as your dividends, royalty incomes or other passive income, a reverse mortgage offers a more accessible, non-taxable alternative.
Things You Should Know About a Reverse Mortgage
If you consider yourself a candidate for a reverse mortgage loan, you need information to make the right decision. Understanding what makes you eligible for a reverse mortgage, the costs involved and the borrowing limit will help you determine if it’s a good option for you.
Reverse Mortgage Eligibility
To get a reverse mortgage loan, you must meet a few requirements. The most critical conditions are your age and the amount of equity you have in your home.
- Age: At least one of the homeowners must be 62 years old.
- Home equity: A lender will also require you to have sufficient equity in your home or own it outright, meaning you have no mortgage.
- Primary residence: You must also live on the property you are taking a reverse mortgage on for the duration of the loan. You pay off the loan when you move or sell your home. Rental properties and vacation homes do not qualify.
- Income and debts: A reverse mortgage has no credit score requirements, making it a more accessible option to many retirees. However, you cannot owe any federal debt, such as federal student loans or federal income taxes.
- Counseling: All reverse mortgage borrowers must complete a counseling session approved by the Federal Housing Administration (FHA). In the counseling session, the counselor explains the benefits and drawbacks of a reverse mortgage, specifically in your financial situation. The counselor also explains how you can receive the money from your reverse mortgage and how it affects your qualification for Medicaid and your eligibility for Supplemental Security Income (SSI).
- Costs: All closing cost associated with a reverse mortgage can be financed and included in a new reverse mortgage.
Reverse Mortgage Borrowing Limits
The principal limit is the term that refers to the borrowing limit on a reverse mortgage. To determine this limit, mortgage companies consider your age, loan interest rate and home value. Generally, the older you are the higher the principal limit. If you are married or are co-borrowing with someone, the younger person’s age will determine the principal limit.
There is a limit on how much you can borrow on a reverse mortgage loan based on a percentage of the appraised value of your home. In the case of the government-insured Home Equity Conversion Mortage (HECM), the limit is $1,089,300, regardless of whether your home is valued higher than this amount.
You have three options to receive the funds you borrow:
- Monthly payout: You have two choices of monthly payouts. You can receive fixed monthly payouts for a set number of years, known as the term. The other option is tenure, where you receive fixed monthly payouts if you maintain the reverse mortgage and the payouts don’t exceed the amount in the mortgage agreement. You pay fees and interest on the amount your draw.
- Lump sum: This is a choice to withdraw all the funds at once. A lump sum is more costly because you pay interest and fees on the entire loan amount you draw at signing.
- Line of credit: This option has a lower interest rate than a lump sum because you only pay interest and fees on the money you use. You can access some funds immediately and allow your line of credit to grow to the maximum amount stated in your mortgage agreement.
Choose Senior Lending Corporation for Your Reverse Mortgage Loan
If you are an ideal candidate for a reverse mortgage loan, this option can help you take better control over your mortgage loan and enjoy your retirement.As Florida’s # 1 reverse mortgage company, we are here to serve your financial needs. You can count on us to work with honesty and integrity throughout the process from beginning to closing.
Our licensed advisors are here to find the best program for you. To enjoy a stress-free retirement, get in touch with a specialist today! You can call and get your Free reverse mortgage analysis by calling 800-822-1190.
