How a Reverse Mortgage Can Unlock a Home’s Value

Eligible homeowners can leverage the equity in their homes via a reverse mortgage to supplement their retirement income.

Most individuals often have a hard time making ends meet once they retire. According to a survey by Bankrate, about 65% of US citizens have little or nothing saved for their retirements. As a result, more than half struggle to have a comfortable life during retirement. A reverse mortgage is one of the ways seniors can make ends meet during retirement.

What is a Reverse Mortgage?

A reverse mortgage is a type of loan given to homeowners aged 62 and above, typically who are eligible for equity in their homes. These individuals can continue to reside in their homes and don’t have to make any payment on the loan. The reverse mortgage is only due when the homeowner dies or permanently moves out, or sells the home. Their family member can pay off the loan or sell the home to pay the reverse mortgage loan.

The most popular type of reverse mortgage is the Home Equity Conversion Mortgage (HECM) that’s backed by the government. Only lenders who have been approved by the Federal Housing Administration (FHA) can provide HECMs.

Reverse Mortgage Eligibility Requirement

To qualify for a reverse mortgage, you must meet some qualification requirements. According to the FHA, to be eligible for the loan, homeowners must be aged 62 and above. Other requirements include:

Homeowners must own their homes outright or have paid off most of their mortgage balances.
Seniors must not owe any delinquencies to the federal government and must reside in the property in which they want to obtain a reverse mortgage as their primary places of residence. As such, they cannot get a reverse mortgage on a vacation or second home.
You must keep your home in excellent condition.
You must take part in a consumer information session led by a HUD-approve counselor.
Qualifying properties include single-family homes, multi-unit properties with up to four units, a condominium, or a townhouse. Manufactured homes built after June 1976 can also qualify for the loan, that’s if they meet the FHA requirements.

How Much Money Can You Receive from a Reverse Mortgage?

The amount of money that you can receive from a reverse mortgage varies depending on various factors. For married individuals, the available amount might depend on how old their spouses are. Other factors include current interest rates, your home’s market value, and the type of reverse mortgage.

Furthermore, the amount you can get can also be affected if your home has any other liens or mortgages. If you have a home equity line of credit (HELOC) or home equity loan, for instance, judgments or tax liens. You must pay them first with the reverse mortgage proceeds.

According to the FHA guideline, homeowners with a HECM can receive a maximum percentage of 66% for their home value. Seniors can also borrow more than young people.

Finding the Right Reverse Mortgage

Taking a reverse mortgage is a major decision, that’s why you must find a reliable lender. The right lender will help you determine whether you can receive the best rates at lower fees. Nonetheless, he or she will help you secure a loan that will allow you to meet all your needs.

Most big banks do not offer reverse mortgages, meaning that companies that can offer you the loan may not be names you’re familiar with. Therefore, you should first make a list of the lenders who offer reverse mortgages.

Here’s a list of FHA-approved lenders that offer homeowners reverse mortgages:

Reverse Mortgage Funding
Finance of America Reverse
Quicken Loans
Rocket Mortgage
American Advisors Group
Ally Bank

Make sure you visit the National Reverse Mortgage Lenders Association’s website to check the list of FHA-approved HECM lenders. You can also use the search tool provided by the U. S Department of Housing and Urban Development to find approved HECM lenders.

Once you’ve compiled a list of lenders, start narrowing down your list. Don’t fear asking for recommendations from your financial advisor and don’t miss checking with the Consumer Financial Protection Bureau to confirm if there’s any lender on your list who have had complaints filed against them.

After narrowing down your list, contact some lenders and schedule an appointment. Even if a company is well-regarded, you must have a good idea or feeling of the loan officer with whom you might work with.

Only select a loan officer whom you’re comfortable working with or who does not pressure you to get the loan. Lastly, conduct some comparison shopping to determine which lender offers you the lowest interest rates and the lowest fees.

A reverse mortgage is ideal for those individuals without enough money to sustain their needs during retirement. Take your time to find the right lender. Research your local lenders carefully, so you can secure the best reverse mortgage.