How does a reverse mortgage work? The reverse mortgage is a fairly newer national program that allows individuals to take the cash out of their home for personal use. Because this is home equity you already own, the program allows you to take this money out of your home while never having to make a house payment ever again!
The program is mostly available to senior citizens who are 62 years or older, but private banks and lenders are now offering their own reverse mortgage program. Many of these private programs have made them available to younger groups of people as well.
How Does a Reverse Mortgage Work?
In a nutshell, the reverse mortgage program works like this…
- The homeowner is interested in accessing the cash they have being held up in their home
- The homeowner applies for a reverse mortgage to take the equity out of their home
- Once approved, decide how to accept payments: all at once in a lump-sum, in monthly installments, or a credit line
- The funds obtained don’t have to be repaid until you sell your home, at which point you’ll most likely have the cash to repay the loan from the sale of your house.
Qualifying for a Reverse Mortgage – Requirements
Qualifying does not have high credit score or income standards. Even if you have a bankruptcy on your record or your home is in foreclosure, you may still be able to qualify for a reverse mortgage. This is because the cash being acquired is taken from the equity that you already own in your home. It’s like borrowing against yourself, and a reverse mortgage is tax free!
In order to qualify for a reverse mortgage and maintain a good record, you must keep you home in good condition and keep your real estate taxes and homeowners insurance payments current. This also includes any assessments that may be due, particularly if you are a condo owner. Lastly, you must continue to live in the dwelling, otherwise you will likely be expected to repay the loan.
In order to get approved for a reverse mortgage, you must not have any liens on your home. If you do, just be sure to pay those off before closing on the loan.
It is also not necessary to own your house free and clear in order to qualify for a reverse mortgage. Any outstanding balance of your mortgage can be paid off with your loan, but if the funds are inadequate you can use additional funds from any other account you own. That way you will still be able to take advantage of the program, get the cash equity out of your home, and never have to make another house payment again.
What Can Money From a Reverse Mortgage Be Used For?
One of the greatest benefits of this program is that there are very few limitations on what the funds of your loan can be used for. Here are some of the common uses for a reverse mortgage:
- Pay off your existing mortgage
- Supplement your retirement income
- Pay for home improvements and remodeling
- Take the vacations you’ve always wanted
- Pay off medical bills
- Buy a new car
- Put it into a savings or investment account
- Pay off taxes
- Pay off student loans or school expenses
Applying for a reverse mortgage loan is easy. Typically the information you need is just your personal information (DOB, SSN, address, etc), the value approximate value of your home, the location of your home, the amount you owe on your current mortgage (if any). That is typically it to get started!
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