Do You Qualify?
I think you’ll agree with me when I say…
Finding the perfect financial package for yourself can be one of the most challenging tasks today, especially with the numerous options in the market.
It doesn’t also help that there are several unscrupulous lenders and advisers out there so you might not know whom to trust when it comes to the specific requirements needed for you to qualify for a financial plan.
Well, lucky for you, this guide will assist you in navigating the world of reverse mortgages and give you unbiased information on what is required of you so that you can start putting your retirement plans in play.
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Reverse Mortgage Eligibility
The reverse mortgage industry has continued to evolve since its establishment in 1961 and has only grown sturdier and safer with each year – due to rules and regulations set by the Federal Housing Administration (FHA).
Need more info about a reverse mortgages? Have a look at ‘What is Reverse Mortgage?’
The FHA frequently updates and controls reverse mortgages with new guiding principles to safeguard you as a borrower. So what exactly are the existing rules and requirements of the reverse mortgage product?
Well, the four most significant borrower rules for reverse mortgages are:
#01. Age Qualification
All the borrowers listed on the title must be 62 years old. If one spouse is below the age of 62, it might be probable to get a reverse mortgage. However, your plan provider will need to collect additional information upfront to determine eligibility.
#02. It Must Be the Primary Lien
As stipulated by the federal law, a reverse mortgage must be the primary lien on your estate. If you have any existing mortgage, you must ensure that you have it paid off using the proceeds from the reverse mortgage.
#03. Occupancy Requirements
It would be best if you reside in your current estate as the principal residence. Vacation homes and investor properties do not qualify.
#04. Taxes and Insurance
As a homeowner, you must ensure that you remain current on real estate taxes, homeowners insurance, and other mandatory obligations, including condominium fees.
05. The Estate’s Condition
You are responsible, as per the agreed contract, to complete the necessary repairs and maintaining the pristine condition of your home.
If not, then your plan provider is liable to take action as they see fit, which at most times ends up in the foreclosure of your home.
#06. Conveyance of Your Mortgaged Estate by Will or Operation of Law to the Property or Heir After the Borrower’s Death
When a reverse mortgage scheme becomes due and payable upon the death of the last surviving homeowner, and the estate is conveyed by will or via operation of law; the estate or your family (or parties if you have several heirs) may gratify the HECM balance by paying the lesser of the loan balance or 95% of the existing appraised value of the manor.
Further Information – the Homeowner’s Obligations
Once you gratify these eligibility requirements and you’ve obtained a reverse mortgage, you still have responsibilities to uphold. To enjoy all the elements of a reverse mortgage loan, and make sure that you do not default on the mortgage, you are accountable for:
- If you have an existing mortgage, you have to ensure that you immediately use the reverse mortgage loan funds to pay it off
- You have to ensure that you continue making the needed payments on your home insurance, property taxes, and essential home maintenance
Favourable Reverse Mortgage Loan Rules
The regulations about loan payback are imperative as well. Luckily, the Home Equity Conversion Mortgage (HECM) is non-recourse, meaning that:
- If you don’t pay the loan after maturity, no assets other than the estate can be taken to pay off the reverse mortgage plan
- If the mortgage debt exceeds the value of the home, you will not owe more than the estate value at the time of borrowing
HECM Government Regulations
In addition to the rules above, the FHA has set some additional precautions to safeguard homeowners and encourage responsible reverse mortgage funds usage:
- Before your lender approves your loan, part of the process is to have you complete a counselling session with an FHA-approved counselor. The counselor will ensure that you have the reverse mortgage information you require on your fingertips. They will also ensure that you know your options and make an informed decision on whether the plan is right for you
- In the first year of taking out a reverse mortgage, you can only access 60% of your approved loan amount (or the amount needed to pay off your existing mortgage plus 10%, whichever is higher). After the first year, you can then have access to the remaining amount – this is to motivate you not to pull away from your equity too soon
- Reverse mortgage plan providers are not allowed to have you purchase other loans or financial products, as a condition of your mortgage
- All plan providers have to complete a financial assessment of prospective mortgagors and analyse income against expenses. If the percentage shows that you may have some issues when it comes to paying recurring taxes, insurance, or other mortgage obligations, you may have to set aside cash from your mortgage to settle your financial commitments
- Moreover, the federal law offers you three business days after loan closing to change your mind and cancel your reverse mortgage. Lenders are not permitted to charge you interest during this period
Even though the FHA’s rules and regulations for the reverse mortgage schemes may seem stringent to some, they are intended to have your best interests in mind and are genuinely beneficial to you as a borrower. They’re meant to encourage you to use this incredible financial tool as part of an intelligent retirement planning policy, which in turn coagulates the overall strength of the reverse mortgage.
If you need to know more about reverse mortgages and weigh your options, be sure to click here and see how much equity you can release and chat with an expert for free.
How much money could you release?
A reverse mortgage plan allows you to access the value of your home, tax-free without having to sell up, so that you can have money to spend on whatever you want or need.