Question: I feel like I watch TV ads and hear radio ads for reverse mortgages on a daily basis. How do I know if my father is a good candidate for one?
answers: Before I answer your question, let me give you a brief introduction to reverse mortgages.
A reverse mortgage is a loan secured by the equity in your property. It allows you to borrow for the value of your home if you are 62 or older and have significant equity. You can receive cash as a lump sum, monthly installments or as a credit line. Unlike a traditional mortgage used to buy a home, you make no monthly payments to the lender. If instead you die, sell the house, or leave the house permanently, the entire debt becomes due for payment.
You can use reverse mortgages in a number of ways. You can use it pay off credit card debtConsolidate payday loans, renovate your home, etc. It’s up to you.
Now back to your main question: your father must meet the criteria to qualify for a reverse mortgage. The two most important considerations are your father’s age and the amount of equity he has in his estate.
How old is your father?
Reverse mortgages are designed to help older homeowners who have no other options to fund their retirement by allowing them to tap into the equity they have built up in their property. So, to apply for a reverse mortgage, your father must be at least 62 years old. If your father wants your mother to be a joint debtor, she must also be at least 62 years old.
Your father should also have a significant amount of equity in his home – usually at least 50%. In addition, he should live in the house before and after the conclusion of the reverse mortgage. The home must also be built on or after June 15, 1976.
creditworthiness and income
There are no income or credit rating restrictions on reverse mortgages. This is one of the ways reverse mortgages differ from a home equity loan or line of credit (HELOC). HELOCs allow homeowners to borrow money against the value of their home. Home equity loans and HELOCs, unlike reverse mortgages, require borrowers to make payments and they must have good credit to qualify. On the other hand, they can have lower costs and be a less expensive option than a reverse mortgage.
HUD approved advice
According to the U.S. Department of Housing and Urban Development (HUD), all prospective reverse mortgage borrowers must attend a HUD-approved counseling session. This $125 consultation session should last at least 90 minutes and will examine the pros and cons of a reverse mortgage in light of his specific financial and personal situation.
The counselor will go through how a reverse mortgage could affect your father’s Medicaid and Supplemental Security Income (SSI) eligibility and how he can receive your reverse mortgage income.
Setting up a reverse mortgage comes with a price tag. Borrowers must pay a processing fee and a mortgage insurance premium upfront. The loan often covers these costs, so your father may not need the money to get a reverse mortgage. It’s important to remember that reverse mortgages involve significant upfront payments, whether your dad is paying for them from his wallet or the equity he owns.
While property taxes and homeowners insurance aren’t strictly required to get a reverse mortgage, once your father gets the loan, they’re responsible for them. If your father fails to make these payments or is away from home for more than a year – even if he is in a nursing facility for medical reasons – he will have to repay the debt, which is usually done by selling the property.