Reverse Mortgage: The Ins and Outs of How One Works
A number of senior aged homeowners have found themselves in a unique position. They cannot qualify for a refinance because their retirement income is lower yet they have a ton of equity in their home. Thus, the reverse mortgage was born. With conventional lenders offering these types of loan FHA has now entered the market with a reverse loan.
Basic Premise of the Loan
A reverse mortgage works like its name implies. Instead of making payments to a lender, the homeowner receives money from the lender. This money can come in the form of a lump sum, a line of credit like a home equity loan or a series of regular payments sent to the lender. It is also possible to get a combo of these elements. For instance, homeowners could get a large amount up front, such as $10,000 and get the rest of the amount in equal payments over time.
Qualifying for the Loan
Qualifying for a reverse mortgage is actually quite simple. There is no credit check and no income requirements. As long as borrowers meet these few guidelines, they should be approved for the loan:
- The homeowner must be a minimum of 62 years old
- The person must currently live in the property as their primary home.
- The person must own the home free and clear or have very small balance on their current mortgage.
How is the Loan Repaid?
Most people wonder how the loan will be repaid. That part is also simple. If the home is ever sold, the sale amount will be used to pay off the mortgage. Likewise, if one of the heirs decides to refinance the loan and live in the home, then the new loan will pay off the reverse mortgage.