With Social Security funds being so low, Senior Citizens had to find a way to gain more money. The answer would be Reverse Mortgages. A Reverse Mortgage in Maryland is a loan that allows senior homeowners, age 62 and older, to convert part of their equity in their house into tax free income-without having to sell their home, give up title to it, or make monthly mortgage payments. The loan only becomes due when the last borrower(s) permanently leaves the house. Reverse Mortgages enables senior homeowners to alleviate the stress of a mortgage payment. You will find financial representatives out there, which believe reverse mortgages are negative for senior homeowners. “Reverse Mortgages should be last resorts for senior homeowners” (Flint-Budde). In my paper I am going to show you the benefits to Reverse Mortgages.
How does a Reverse Mortgage work? A Reverse Mortgage is like a Home Equity Loan. A Home Equity Loan allows a borrower to obtain a loan against the equity in their house. Both a Reverse Mortgage and Home Equity Loan use the equity in the house to provide you with available cash. A Reverse Mortgage differs in which there is no monthly mortgage payment for as long as you live in the house. Also with a Reverse Mortgage your current income does not influence the ability to obtain the loan. Your credit or your income is used; however there are stipulations if you are currently in bankruptcy. Bankruptcy may result in the denial of your Reverse Mortgage. Lenders look at consumer bankruptcies on a case by case basis. Also with a Reverse Mortgage you do not need to repay the loan as long as the borrower continues to live in the house. Therefore, your house can not be taken from you since there is no payment.
Reverse Mortgages have requirements and or restrictions in order to obtain this type of loan. In order to be eligible all borrowers have to be 62 years or older in order to qualify. There are no income, health or credit requirements. You may only obtain a Reverse Mortgage on your primary residence, no second homes or investment properties. A borrower’s home must be a single family dwelling or a two to four unit house that they occupy. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved. If you owe money for an existing mortgage, do not worry; you may pay off all mortgages on the house and owe no payment.
Reverse Mortgages have many benefits to a senior homeowner. A Reverse Mortgage allows you to remain in your home and retain home ownership. Since a Reverse Mortgage has no monthly mortgage payment, a senior homeowner can feel secure with their finances. All of the money a senior homeowner receives from a Reverse Mortgage is not considered income and is tax free. This income will not affect Social Security or Medicare benefits. If the borrower receives social security, Medicaid, or other public assistance, the Reverse Mortgage loan advances are only counted as “liquid assets” if you keep them in an account past the end of the calendar month in with you received them. A borrower must also be careful not to let their total assets become greater than the Reverse Mortgage programs allow. It may be wise to consult with your tax consultant also. Another fact is that a Reverse Mortgage is not tax deductible on your income tax returns until the loan is paid in full. But, remember your largest benefit to a Reverse Mortgage is no payment. Most of all, the money you get from a Reverse Mortgage can be used in anyway a senior homeowners sees fit. If you are not sure what type of loan you are interested in, it may make sense to start with a lender first and figure out which is the best for you situation. The lender will, upon request, provide you with a list of counselors in your area. Note that lenders may not recommend any specific counselor or agency. This is known as “steering” and is not allowed by HUD. Similarly, counselors are not allowed to “steer” customers to any particular lender either. They are required, if asked, to provide you with a list of lenders to choose from, and are not allowed to make any specific recommendations. (Pokorny 107)
The amount you may get from a Reverse Mortgage is determined by many factors, including age, the type of Reverse Mortgage you select, current interest rates, the location of your home, and the appraised value of your home. Along with a Reverse Mortgage, there are FHA (Federal Housing Agency) guidelines. These guidelines have lending limits per county in each state. In many cases, the older the senior homeowner is, the more value in your home, and the less you owe on your home, the more money a senior homeowner will receive from a Reverse Mortgage.
Not all Reverse Mortgages are the same. There are basic types of Reverse Mortgages to accommodate each senior homeowner. First there is the Federally Insured loan better known as the Home Equity Conversion Mortgage (HECM). These loans are insured by the U.S. Department of Housing and Urban Development (HUD). They have no income requirements and can be used for any purpose. Second there is Government-sponsored Reverse Mortgages, which are called A Home Keeper. This is a conventional alternative to the HECM loan. It is a Government sponsored program and works like a HECM in many ways. However, a Home Keeper Reverse Mortgage addresses a few needs that are not met by HECM loans, such as individuals with higher property values, condominium owners, and senior homeowners wishing to use a Reverse Mortgage to purchase a new home. Third, you have Proprietary Reverse Mortgages. These are private loans with many different features that appeal to only certain types of senior borrowers. These mortgages are not available in all states and are used by senior homeowners will substantial amounts of equity in their home.
With most Reverse Mortgages you have a wide range of payment options, one of which should be ideal to meet your financial needs. A senior homeowner can choose to receive money all at once, as a lump sum. They can also elect to receive equal monthly payments as long as the senior borrower lives and continues to occupy the property as a primary residence. They may also choose to obtain a line of credit and pull money from that line when they need arises. Or, finally, a senior homeowner can choose to receive a combination of the above.
A Reverse Mortgage comes due and must be paid in full when one or more of the following conditions come into play: (a) the last surviving borrower passes away or sells the home; (b) all borrowers permanently move out of the home; (c) the last surviving borrower fails to live in the home for 12 months due to physical or mental illness; (d) the borrower fails to pay property taxes or insurance; (e) the borrower lets the property deteriorate, beyond what is considered reasonable wear and tern, and do not correct the problems. When a Reverse Mortgage comes due, the borrower owes the Reverse Mortgage principal, interest charges, and service fees are paid from the sale of the house or from a refinance.
With a Reverse Mortgage you are required to obtain an Appraisal and Home Inspection. Unlike, other loans a Reverse Mortgages appraisal and inspection have greater detail since the borrower will have no payment. The lender wants to make sure the house is in excellent condition and has no major defects. The Appraisal is an evaluation of the borrowers’ home value, which is determined by a licensed, trained third party. The appraisal is the major key to the loan transaction, because it is the security for the loan. The appraisal is considered a third party charge and the borrower will be responsible for this transaction. The cost may be included in the lenders application fee. If they lender does not collect the appraisal fee, the borrower will be expected to pay the money when the appraiser comes. Usually, the appraisal will be delivered to the lender with 5 business days. The value of the borrowers’ house is determined by the appraisal and it will also identify any conditions that might be an issue. The FHA appraisal contains a “Notice to Homebuyer” which details the conditions for the loan, which must be signed and returned to the lender.
Before you obtain a Reverse Mortgage you are required to meet with an unbiased counselor before completing the Reverse Mortgage application. The counseling is for the borrowers’ protection. Meeting with a counselor is a federally mandated feature of the Reverse Mortgage process and is designed for the borrower’s protection. The counselor, who is from an independent government-approved housing counseling agency, explains in detail the pros and cons of all of your Reverse Mortgage alternatives. (Financial Freedom) The counselor will go over the costs and implications and will tell you about any government or nonprofit programs the borrower may qualify for. They will also advise you on any other Reverse Mortgages available in the borrower’s area.
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