Mortgages can be an extremely complicated agreement, which unfortunately makes them prone to predatory behaviors. In fact, one of the earliest mortgage laws in human history comes from the ancient Hindu legal text known as the Code of Manu, which bans deceptive and fraudulent mortgage contracts. But even when everything is done above board and in accordance with best practices, mortgages can still be downright confusing.
And reverse mortgages are no exception. As a Chattanooga mortgage lender, we hear people asking about this type of mortgage all the time. We’ll try to answer some of the basic questions about this type of home equity loan on this page.
FAQ: What Is a Reverse Mortgage for Seniors? How Do I Know If I Am Eligible? And Other Common Questions…
In short, a reverse mortgage is a special type of loan for Americans ages 62 and older. Also known as a Home Equity Conversion Mortgage (HECM), these loans are insured by the Federal Housing Administration and allow older Americans to convert their home’s equity into cash while also eliminating monthly mortgage payments.
How Does an HECM Reverse Mortgage Loan Work?
In this type of loan, a borrower uses their home’s existing equity as collateral. It allows qualified borrowers to turn that equity into cash.
Why Do People Apply For Reverse Mortgages?
Most often, reverse mortgages are used to raise money for needed home renovations, debts, medical bills, or simply daily living expenses. Sometimes, homeowners use the reverse mortgage to pay off their existing mortgage, thus avoiding monthly mortgage payments. The amount of the loan will be based on your home’s value, your home mortgage rates, and maximum lending limit. In general, the Federal Housing Administration (FHA) requires a 620 credit score for home loans.
How Soon Can I Access My Equity As Cash?
Because of certain requirements on HECM loans, some borrowers may have their funds restricted for the first 12 months. If you’re interested in applying for this loan, contact mortgage lenders quickly to get the ball rolling. Typically, you can receive the equity as either a line of credit, a lump sum, or monthly payments.
Who Is Eligible For a Reverse Mortgage?
According to the FHA:
- All borrowers on the home title must be at least 62 years old
- Borrowers must also meet certain financial criteria
- The single-family home, condominium, townhouse, or other owner-occupied dwelling must meet FHA minimum property standards
- Borrowers must continue paying property taxes, insurance, and keep the home in good repair
When Is The Loan Due?
Usually, borrowers don’t have to repay the loan until six months after moving from the property. If the borrowers pass away, the estate will sell the home to repay the mortgage loan. If there is remaining equity, it returns to the estate. But remember: these are non-recourse loans, meaning the estate is NOT in liable for any outstanding debt leftover from the sale of the home.
If you have any more questions about applying or eligibility for a reverse home loan, contact Chattanooga home loan and reverse mortgage lenders for more information.