Many senior citizens are talking about Reverse Mortgages here in Orange County, CA. There is a lot of misunderstanding regarding Reverse Mortgages, so this article we will explain some of the basics and compare it to a more commonly understood conventional mortgage. A Reverse Mortgage is a Tax Free way for a Senior citizen to unlock the equity in their home without having to sell the home. With Reverse Mortgage you do not have to go through the difficulties of trying to qualify for a conventional loan for you do not need any income. And you do not have a risk of losing your home in foreclosure.
Reverse Mortgages have been around since 1989, but have only recently become popular. As the name suggests, a Reverse Mortgage is the opposite of a conventional mortgage. In a Reverse Mortgage the bank pays you a monthly stipend, while in a conventional mortgage, you pay the bank a monthly mortgage payment. For as long as you live in your home, you never have to pay the loan back, while in a conventional mortgage, you have to pay the loan back within a pre-determined period of time (ie: 15 years, 30 years). There are limits place on a Reverse Mortgage to protect senior citizens, so that you will never owe more then you home is worth.
There are three types of reverse mortgage products available in the USA, but by far the most popular one is the federally insured FHA Home Equity Conversion Mortgage (HECM). Over 90% of all Reverse Mortgages are the HECM type, and this FHA insured loan offers the largest loan balance and the most flexible terms. You can receive the money on a monthly basis, or in a lump some. You can pay-off a conventional mortgage that you are monthly making payments on, with a Reverse Mortgage which has no payments and is only due when you sell the home or move out of the home. Unlike a conventional mortgage, in which the lender can foreclose and take back the home if the borrower stops making monthly mortgage payments, a reverse mortgage lender rarely, if ever, takes title to the property.
To qualify for a Reverse Mortgage, you do not need a job, nor do you have to have good credit , or any credit at all for that matter. The amount you can borrow is solely based on your homes value, current interest rates, the number and age of the home owner(s) (you must be 62 years or older), and the county in which you live in. Here in Orange County, CA. the HECM FHA lending limit is just over $312,000.
A Reverse Mortgage is not for everyone. Here are some of the limitations and disadvantages are as follows: 1- You need to 62 year or older. 2- Your home needs to have a good amount of equity. 3- As the Senior citizen ages, there is less and less equity in the home to pass onto the children as inheritance. 4- There are upfront costs associated with a Reverse Mortgage so it would not be appropriate for short term use or to supply needed small sums of money.
AARP has a Reverse Mortgage Calculator to give one a rough idea how much one can borrow on their home. There are many more details to discuss regarding Reverse Mortgages, which we will do in subsequent articles. If you have any questions, or would like to find out if a Reverse Mortgage would be right for you, please call us at: 949-388-3396 or email us at: Info@SearchOCHomes.com
