How a Reverse Mortgage Can Unlock Your Home's Value
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When people retire, they may have trouble making ends meet. According to a survey by Bankrate that was reported by CNBC, 65 percent of Americans have very little or nothing saved for their retirements, leading more than half to struggle during retirement.
One option that many older adults might have available to them to help them to make ends meet during their retirement years is a reverse mortgage. Eligible homeowners may be able to use the equity in their homes to supplement their retirement incomes.
What is a Reverse Mortgage?
A reverse mortgage is a loan that is given to eligible homeowners for the equity in their homes. They are able to continue living in their homes and do not have to make any payments on the loan. When they either move out or pass away, the reverse mortgage will be due. Their loved ones can either pay off the reverse mortgage or place the home on the market to satisfy the reverse mortgage loan amount.
The Federal Housing Administration insures a type of reverse mortgage called the home equity conversion mortgage, or HECM. A HECM is the only type of reverse mortgage that is backed by the government, and only lenders who have been approved by the FHA are able to offer HECMs.
Who is Eligible for a Reverse Mortgage?
In order to get a reverse mortgage, you must first meet the qualification requirements. The Federal Housing Administration requires that applicants must be age 62 or older. They must also have paid down most of their mortgage balances or own their homes outright to qualify. Older adults must also not owe any delinquencies to the federal government and must live in the homes which they want to get reverse mortgages as their principal places of residence. This means that you cannot get a reverse mortgage on a second home or a vacation property.
Eligible properties include single-family homes and homes with up to four units as long as the homeowner applicant lives in one of the units. Condominiums that have been approved by HUD are also eligible. Finally, manufactured homes may be eligible if they meet the requirements of the FHA.
How Much Money Can You Get with a Reverse Mortgage?
The amount of money that you can borrow with a reverse mortgage will vary depending on a few different factors. If you are married, the amount that may be available to you will depend on how old the younger spouse is. The amount will also vary depending on the interest rate. Finally, the amount that you can borrow will be limited by the lesser amount between your home's current appraised value or the HECM limit of $679,650.
The guidelines of the FHA indicate that the maximum percentage available to homeowners with a HECM is 66 percent of the home's value. However, this amount will vary based on the outlined factors. If interest rates go up, the maximum amount that homeowners can borrow is reduced. Younger borrowers will also not be able to borrow as much as borrowers who are older.
How to Find the Right Reverse Mortgage
Borrowing money with a reverse mortgage is a major decision, and it is important that you find the right lender. The lender that you choose will determine whether you receive the best rates and the lowest fees. A good lender will also help you to secure the loan that will meet your needs the best.
Many big banks no longer participate in the reverse mortgage industry, meaning that the various companies that do offer reverse mortgages may not be names with which you are familiar. You should start by making a list of the lenders who do offer reverse mortgages.
Some of the FHA-approved lenders that do offer reverse mortgages include the following:
- American Advisers Group
- Ally Bank
- Reverse Mortgage Funding
- Finance of America Reverse
- Rocket Mortgage
- Quicken Loans
You can also search the National Reverse Mortgage Lenders Association's website for a list of FHA-approved HECM lenders. The U.S. Department of Housing and Urban Development also offers a search tool so that you can locate HECM lenders that are approved and that operate in your state.
After you have compiled your list of lenders, you should then try to narrow down your list. You can ask for recommendations from your financial adviser and check with the Consumer Financial Protection Bureau to see if any lenders on your list have had complaints filed against them.
After you have narrowed down your list, contact a couple of the companies and schedule an appointment. Regardless of how well-regarded the company might be, it is important for you to have a good feeling about the loan officer with whom you will work. You should only choose a loan officer with whom you feel comfortable and who does not engage in high-pressure tactics. Finally, do some comparison shopping so that you can find the lender that offers the lowest interest rates and the lowest fees.
Getting a reverse mortgage may be a good option for you if you do not have enough money in retirement to meet your needs. To find the lender that is right for you, make certain to take time to carefully research the lenders that are available in your area, so you can get the best loan for you.
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