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Who qualifies for reverse mortgage | Frequently asked questions of Reverse mortgages

BY: Swati | Category: Home Improvement | Post Date: 2009-06-12
 



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Welcome to the new generation of home mortgage, where the bank pays you instead you making monthly mortgage payments to the bank. This loan program is called "Reverse mortgage" and is generally designed for seniors over the age of 62 years and have a significantly large of equity in the home. Most seniors who are having difficulty in meeting their financial obligations or difficulty making their monthly payments apply for this program.


In short, A reverse mortgage is a home equity loan that does not require payments. As mentioned, the bank pays you money and is essentially making you a loan over time, while you can stay in that home during the term of the loan. There are several types of reverse mortgages so it is important to thoroughly discuss with an expert before making this decision. There are many sales agents who will try to sell you into this program without telling you all the details about this, so keep away from making a spontaneous decision, make sure you understand each and every aspect of your deal. You may also face some insurance premium and closing costs. Most brokers also say seniors are increasingly using reverse mortgages to pay off loans that have reset to higher payments. The proceeds from a Reverse Mortgage do not affect Social Security, Medicare or pension benefits. Reverse mortgages are backed by the U.S Government .

Below are a some frequently asked questions about reverse mortgages and who qualifies for it:

Q. Should I still be employed?
A. No, anyone is eligible for a reverse mortgage loan, even if they have no income.

Q. What is the maximum home value that will qualify under this program?
A. In February 2009, congress raised the maximum value of home that seniors can borrow against to $625,500 ( earlier it was $417,000). The reverse-mortgage origination fees is capped at 2% on the first $200,000 and 1% amounts over that. Total fee cannot exceed $6,000. A reverse mortgage is a loan against the property. The title remains in the name of the borrower(s) and the lender is only repaid the loan balance or home value; whichever is less.

Q. What types of home qualify?
A. Your house should be a single family residence unit or a condominium. Most mobile homes and cooperatives are often not eligible. Some types of manufactured home can also qualify. Vacation homes or other secondary residences, and rental properties of more than four units do not qualify.

Q. How do I get paid?
A. You have several options - get a fixed monthly amount, a lump sum payment or even as a line of credit.

Q. How much money will I get in a reverse mortgage?
A. It depends on several factors, like condition of your home, current appraised value, current interest rates, your age and the amount of equity in the home. While a 62-year-old borrower might qualify for a loan worth 57% of the home's value, a 94-year-old borrower could receive as much as 85% of the home value.

Q. Do banks make lot of money in this transaction?
A. Usually yes, but lenders (like banks) are always at risk because eventually when the time comes to sell the home, it will be worth less than the amount that have lent.

Q. If I take a reverse mortgage loan, when will I repay?
A. This loan is nor required to be repaid until you permanently move out, sell the home or pass away. If you allow the property to deteriorate even then your loan could also become due if you fail to pay hazard insurance, property taxes or if due to illness the last surviving borrower does not occupy the home for 12 months in a row.

Q. Is a reverse mortgage a good option for everyone.
A. No. Biggest reason being that these loans are expensive. These loans can cost up to 10% of a home's value over the life of the loan in fees. If the value of your home falls, you can be trouble too. The borrower will pay an origination fee, and actual closing costs, including charges by the title and escrow companies. All reverse mortgages have monthly servicing fees typically $35 per month added to the loan balance.


Q. To avoid probate, my children and I own the property in joint tenancy. Do we qualify?
A. Yes, if the children are age 62 and older and live in the property. Otherwise, they would need to be taken off the title for you to participate. Your children are entitled to all the equity in the home, just as you were.
Reverse mortgages are typically repaid from the proceeds of the sale of the home, with any remaining equity staying with the homeowner or their heirs. If a spouse passes away, the surviving spouse continues to receive the full benefits of the reverse mortgage, with no repayment until they decide to permanently leave the home.

Q What about tax liability?
Currently the IRS treats monies received from a reverse mortgage to be loan advances and not taxable income. But do consult a tax advisor for specific questions or if there have been any recent changes.

Q. Will I have to move if I outlive the mortgage loan?
A. No (in most cases), you will not have to move. You also will not have to repay the loan as long as you stay current on your taxes and insurance

Q. Who really owns my home?
A. You do.

Q. What if I owe more on the Reverse Mortgage than the home is worth now?
A. The Reverse Mortgage is usually a non-recourse loan. It is insured by FHA (Federal Housing Administration) by US Government. This means that you will never be required to pay back any portion of the loan amount that exceeds the fair market value of your home

I am not a mortgage expert so I cannot guarantee the accuracy of the above information, so make sure you do consult an expert. Please visit www.hud.gov for most up to date information.

Article Source: http://www.saching.com



About Author / Additional Info: Summary: Frequently asked questions and useful information about Reverse mortgages. Who qualifies for reverse mortgage and are they safe?

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