Reverse Mortgage Explained
The reverse mortgage is also known as Home Equity Conversion Mortgage (HECM). It is a mortgage type that gives homeowners the advantage of converting the equity in their homes to cash to meet their financial needs. A reverse mortgage can be an option to pay off your existing mortgage and provide you with monthly income. Having adequate knowledge about the reverse mortgage, its requirements, its effects, and benefits will help you to know if taking a reverse mortgage loan is right for you.
Meanwhile, there are different requirements to be met before you can be eligible for a reverse mortgage. Even though requirements may differ from states to states, there are basic and standard requirements that should be known to potential borrowers. Some requirements may be stated by the lender, but the lender is should disclose such additional requirements. Such additional requirements differ from one lender to another.
General Information about the Reverse Mortgage
- The minimum age requirement is 62 years of age.
- You must have a home and have a title over it.
- The home must be your primary residence.
- The older you are, the more the proceeds from the reverse mortgage are like to be.
- If you are eligible but have an existing mortgage on the home, you must pay off the mortgage with the money from the reverse mortgage before using the funds for other purposes.
- Not every type of home is qualified for this kind of loan.
- As a part of eligibility requirements, you must attend the Department of Housing and Urban Development approved financial counseling which costs between $100 and $125 per session.
- The reverse mortgage lending limit is $625,500; you cannot draw more this amount.
- The highest origination fee for a reverse mortgage is capped at $6,000.
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- After you have obtained the reverse mortgage, you will continue to pay property taxes, insurance premiums, and maintain the home.
- You cannot be absent from the home for more than twelve consecutive months.
- The loan becomes due as a result of one of the following reasons:
- the borrower’s demise
- the borrower’s absence from the home for more 12 months
- failure to maintain and renovate the home
- failure to pay the mandatory obligations such as property taxes and insurance
- breach of other terms of the mortgage loan contract
- If there the payouts received by the borrower are greater than the proceeds received from the sale of the home (a deficit balance for the lender), the lender will not ask your heirs to pay the balance.
- If any equity in the home remains after the term of the mortgage, the equity will be given to your heirs.
- The amount of proceeds that can be received from the reverse mortgage will be subject to other factors below:
- the current interest rate
- estimated value of the property
- existing liens on the property
- loan limit stipulated by the HUD.
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