Ideal Candidates for a Reverse Mortgage

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 into retirement. There are three main types of candidates for which reverse mortgage loans are ideal.

1. Homeowner With Sufficient Equity

The third 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 first 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 second 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.

Reverse Mortgage Costs

The costs for a reverse mortgage loan vary depending on the type of loan. You can expect to incur three main types of expenses — counseling, upfront and ongoing costs.

Counseling is a prerequisite for all reverse mortgage borrowers. The housing counseling agency determines your financial situation and whether you can pay the loan. The FHA charges a reasonable fee for the counseling session and explains all costs upfront.

Just as with traditional loans, you pay some upfront costs when you take out your reverse mortgage loan. These one-off costs include:

• Origination fee: This fee can be at most $6,000, which you pay to the mortgage company.
• Real estate closing costs: Borrowers pay these costs to third parties for services such as title search, appraisal, inspections, surveys, mortgage taxes, credit checks and recording fees, among other services.
• Initial mortgage insurance premium: This insurance is separate from homeowners insurance. You pay an initial amount, followed by annual premiums. The insurance premium goes to the FHA to ensure you receive your loan payouts.

You can pay these costs using cash or out of your reverse mortgage loan. If you choose the latter option, the money you receive from the mortgage loan will be less.

The ongoing costs of a reverse mortgage loan are added to your balance each month. The longer you have your loan and the more you borrow, the higher your ongoing costs will be. These ongoing costs may include:

• Interest: The interest rate when you take out your loan determines the amount of interest you pay on your reverse mortgage.
• Service fees: These fees go to the mortgage company to cover costs of services such as loan distribution, sending account statements and ensuring you maintain your loan repayments.
• Insurance mortgage premium: After your initial payment, you’ll pay an annual insurance premium of 0.5% of the balance amount on your loan.
• Property fees: You’ll pay a few additional property charges, such as property taxes, home insurance and, if applicable, flood insurance. Your lender, municipality or state may also require other fees.

Avoiding Reverse Mortgage Scams

A reverse mortgage helps you enjoy your retirement, but some crooked people want to take advantage of your proceeds. Spotting reverse mortgage scammers will help you avoid falling into their trap and keep your money and home safe.

Scammers approach retirees through advertising, community organizations, investment seminars and in person. The following are the most common types of scams:

• Foreclosure fraud: This scam targets retirees on the brink of losing their homes to foreclosure. The scammers promise financial relief through a reverse mortgage. While this loan can help homeowners access money, it’s essential to understand that costs are still involved.
• Power of attorney scam: To gain exclusive access to the reverse mortgage loan funds, a con artist convinces the borrower to sign their power of attorney over to them. The scammer handles all the documents and takes the proceeds for themselves.
• Fraud by relatives: In some cases, the relatives and people closest to an older adult coerce them into taking out a reverse mortgage loan to take the funds for themselves.
• Financial advisors fraud: Some deceptive financial planners convince retirees to take out a reverse mortgage even if they don’t want or need one. They convince older adults that they will invest the proceeds but then use the money for their financial gain.
• House flipping scam: In this fraud, a crooked person makes retirees believe that flipping a property is the best use of the money from their reverse mortgage loan. The scammers buy and fix the property, making it appear like an excellent investment. Only once the borrower has paid for the flip do they realize that the property is substandard.
• House repairs fraud: Contractors may approach homeowners about doing repairs or renovations using a reverse mortgage. Sometimes these repairs or renovations aren’t necessary. The contractors usually charge inflated prices, and many do shoddy work that leaves the home in a worse state.

Knowing the common scams is essential, but retirees often realize the con when it’s too late. These tips can help you pickup on fraud before you lose your money:

• Get advice from trusted experts in the industry, including your attorney and financial advisor, if you have one.
• Do your research and choose a reputable company if you want to take out a reverse mortgage loan. Go through their website and social pages and read online reviews from clients. Ask a trusted family member or friend to help you if you need assistance.
• Avoid getting a reverse mortgage because a person or contractor persuades you that it’s the best way to pay for repairs or renovations.
• Note that the FHA prohibits loan officers from selling investments or additional investment options to reverse mortgage borrowers.
• Ask the mortgage company questions and ensure you understand everything in the agreement before you sign. Working with an attorney can help you better understand the terms of the contract.
• Avoid companies that use unsolicited phone calls, messages, emails or in-person contact to approach and pressure you into a reverse mortgage loan.
• Note that if a loan officer tells you they are the only one you should talk to and tells you not to speak to anyone else, they are most likely a scammer.
• Avoid companies that want to charge you a fee to access information about their reverse mortgage loans.

If you feel a mortgage company is trying to scam you, report them to the HUD’s Office of Inspector General.

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.