You’ve heard a reverse mortgage or home equity conversion loan can be a vital retirement tool, but how does it work? Is everyone in San Francisco eligible?
While reverse mortgage guidelines are simple, making it easy for retirees to access their home equity, there are certain qualifying requirements you should understand to maximize your chances of approval.
Here’s what you must know.
The Required Equity
First, you need home equity. A reverse mortgage uses your home’s equity, paying it to you now versus when you sell the home. This allows you to stay in your home but still have access to the money you’ve worked so hard to earn.
Without equity, there’s no reverse mortgage, but how much equity do you need? It varies by person, especially your age. It’s best if you own the home free and clear, but if you have at least 80% equity, you’re usually in good hands.
You will use some of the proceeds from the reverse mortgage to pay off the existing loan so the less money you owe when you apply for a reverse mortgage, the better.
Personal Reverse Mortgage Requirements
Besides the equity in the home, you must personally qualify for a reverse mortgage, just like you would for a traditional mortgage.
You must be at least 62 years old to qualify. If you’re married and both parties are on the loan, the youngest borrower must be at least 62 years old. A home equity conversion loan amount is based on the age of the youngest borrower. The older you are, the more money you can tap into because you have a shorter life expectancy than someone younger than you.
You must prove that you’ll live in the home in CA as your primary residence year-round. The HECM is for borrowers who want to stay in their homes full-time. If you leave the home to live in a retirement home or to live with family members, the loan becomes due right away.
Prove you can Afford the Home Maintenance, Taxes and Insurance
If you’ll remain in the home, you must prove you can keep it up. It’s your responsibility to maintain it, paying for or doing repairs as needed, and cover the cost of real estate taxes and homeowner’s insurance.
If your home is in an association in San Francisco, you must also prove you have the funds to keep up with the monthly or annual fees.
You can prove this with assets you set aside for this purpose or with regular monthly income including Social Security income, pension income, or retirement withdrawals.
Prove you aren’t Delinquent on any Federal Debt
If you have any federal debt, including federal loans or unpaid federal taxes, you must prove you either paid them in full or will use the reverse mortgage proceeds to pay them off. You can’t have unpaid and delinquent federal debts to qualify for an HECM.
Undergo Housing Counseling
Before you can take out a reverse mortgage, you must take a HUD-approved counseling session. The point of the class or session is to ensure you understand the reverse mortgage process as well as your other options. This is to make sure you make a clear decision and that you understand how it affects your future finances.
Home Requirements for a Home Equity Conversion Loan
Just like you must prove you personally qualify for the loan, we must make sure your home qualifies too.
Type of Home
Most property types qualify as long as they are a single-family unit or up to a 4-unit property and you live in one of them. Single-family homes, townhomes, condos, and 1-4 multi-unit properties are eligible.
Condos must be HUD Approved
If you live in a condo, it must be HUD-approved, just like if you took out an FHA loan. Most condos already have HUD approval if they’re an established community, but it’s important to ensure the development has HUD approval first.
How Does a Reverse Mortgage Work?
If you qualify for a reverse mortgage, it’s important to know how it works so you understand what you’ll receive and how it affects your estate.
The largest benefit of the program is the reverse mortgage repayment or lack thereof. As long as you live in the home, you don’t have to make payments. Instead, you receive money from the mortgage in the manner you chose either monthly, lump sum, or as a line of credit.
You can use the funds as you want. It’s a great way to supplement your retirement income so you don’t feel strapped or are forced to leave the home you’ve lived in for many years. The loan doesn’t become due and payable until you move out of the home or pass away.
If you move, you must repay the reverse mortgage from the proceeds of the sale. If you die, your beneficiaries have a few months to tidy up the estate and sell it or buy it from the estate (they can’t keep the reverse mortgage).
Rather than the interest accruing forward, it accrues backward. In other words, the balance accrues interest, increasing the balance that’s due when you or your beneficiaries sell the home. However, whoever sells the property will not owe more than the home is worth, even if the loan balance is higher at the time of the sale.
If you’re over 62-years old and have equity in your home, it could be one of the best tools for retirement planning especially if you need more money than you thought. Home equity conversion funds can be used for any purpose whether kept as an emergency fund, used for the daily cost of living, to cover large expenses, or to take the trip of a lifetime.
There aren’t any rules as to how you can use the funds. As long as you qualify for the loan and keep up with the home’s responsibilities, you can take advantage of this great program. If you’re looking for ways to supplement your retirement income, download my free book by visiting www.reversemortgagelive.com.
This offer is good only for a limited time and is an invaluable resource to help you understand everything there is to know about the reverse mortgage.
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