What if a home loan could help you pay off your mortgage, settle your debts, and create cash flow so you can achieve your life goals? It may sound like a fantasy, but a reverse mortgage converts your home’s equity into money in your pocket. Interested in learning more? Let’s discuss what a reverse mortgage is, the three types available to choose from, and how they can best work for you.
What is a Reverse Mortgage?
Unlike a traditional mortgage where you pay the bank monthly for your home, a reverse mortgage is backed by using your home as a security. If you have any outstanding mortgage payments, the remainder of it will be paid off by the reverse mortgage. After that, the remaining funds go to the borrower. To attain a reverse mortgage, there are a few requirements to consider:
- The borrower must be aged 62 years or older (55 in some states).
- The home’s equity must be sufficient for the loan. Typically, 50% of accumulated equity is required.
- Property taxes, homeowners insurance, and basic home maintenance costs must be paid.
- The property in question must be the primary residence for the borrower for at least a year.
The 3 Types of Reverse Mortgages
The next step after determining if you are eligible to receive a reverse mortgage loan is choosing what kind to apply for. With three choices to choose from, each option has a unique set of advantages that can aid you in determining which will work best for you.
Home Equity Conversion Mortgage (HECM)
Home equity conversion purchase offers the most protection for borrowers because it is insured by the Federal Housing Administration (FHA). These loans are nonrecourse, meaning the borrower never owes more than what their home is worth, even if the value drops after receiving the loan. HECM loans also have slacker financial requirements than other loans such as not being dependent upon credit score. HECM’s offer the option of lump sum payments through a fixed rate or adjustable rates where equity can also be turned into lump sums, monthly distributions, a line of credit, or a combination of each. Money can then be used on anything the borrower chooses such as paying for school tuition or debt, taking care of medical expenses, supplementing income, and more.
Proprietary Reverse Mortgage
Proprietary reverse mortgages are similar to HECM loans in that they can be used for whatever expenses you wish. However, unlike the conventional institutions HECM loans use, proprietary reverse mortgages are provided by private lenders, meaning they are exempt from FHA regulations and paying mortgage insurance. Therefore, lenders can offer amounts higher than the federal limit, which is why these loans are also called jumbo reverse mortgages. For those who want autonomy over how they use their loan without having to deal with federal restrictions and insurance, higher loan limits, or a combination, a proprietary reverse mortgage may be the right choice.
Reverse for Purchase Mortgage
Also called a HECM for purchase, a reverse for purchase loan is unique in that its sole purpose is to be used to purchase a home through a single transaction. Once the borrower places a down payment of roughly 40-50% on the home they wish to buy, the reverse for purchase loan immediately resolves the payment by offering to loan up to 50-60% against the home equity. Thus, the slate is wiped clean, and the home is purchased in a single transaction. Those looking to move closer to family, downsize, or want to maximize on their purchasing power during homebuying would be well suited a reverse for purchase loan.
Take Advantage of Reverse Mortgages
Whatever reverse mortgage you think is right for you, we want to help find the resources you need to take advantage of the opportunity. Millennial Title is uniquely suited to assist you by offering a team of experienced professionals across the country that can help you navigate each step of the process. Want to learn more about our lending partners? Click here to learn more as well as discover Millennial Title’s other vast areas of expertise.