How to Qualify for a Reverse Mortgage and How Much You Can Borrow
These are the most common questions that will linger in your mind once you consider a reverse mortgage.
How to Qualify for a Reverse Mortgage and How Much You Can Borrow.
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Lenders are looking into several factors that will tell them if you are worth the risk and how much can they lend you.
Out of the three types of reverse mortgage, HECM or Home Equity Conversion Mortgage is widely used.
The required age for a borrower to qualify for this mortgage is 62 and above even if you are disabled or have already retired.
You must be living in the house and that it is your primary residence. After taking your reverse mortgage, other than medical reasons, you are not allowed to live elsewhere for more than six months and no more than 12 consecutive months for medical reasons. Otherwise, you need to repay the loan.
Your home must have a low mortgage balance or is already paid off. It is to ensure that the reverse mortgage has a first-lien position as what the government requires.
Borrowers of this type of mortgage should have the capacity to pay for future housing costs like property taxes, insurance, and maintenance. Failure to make payments might lead to foreclosure.
It is also required for a borrower to be free of delinquent federal debts. You need to settle any federal debts if there are any. Otherwise, you cannot take out a reverse mortgage.
Not all property is eligible for a reverse mortgage. If you have a multifamily property, it should be no more than four housing units and you should live in at least one of the units. Single-family houses are eligible for a Reverse Mortgage Rating.
Condominiums and manufactured homes can be eligible for a reverse mortgage if they meet the HUD requirements.
Lastly, you need to meet with a HUD-approved counselor. It is to talk about the financial consequences of getting a reverse mortgage, analyze your situation and consider other alternatives to a reverse mortgage.
According to Peter H. Bell, president and CEO of the National Reverse Mortgage Lenders Association, your HUD counselor needs to seek any government helps if your income is below 200 percent of the poverty line. Even if the borrower’s income is above the poverty line, the HUD counselor needs to check it on your behalf because they won’t do it automatically.
Borrowers above the poverty line might be eligible for benefits like Veterans Affairs. The HUD counselor needs to check this.
If the borrower is married, the spouse should be listed as a co-borrowers. If the borrower dies or has to move out for medical reasons, the spouse could continue to live in the house and receive money from the reverse mortgage.
However, if the spouse is below 62 years of age, he/she cannot be listed as a co-borrower.
In a reverses mortgage, lenders typically allow up to 60% of your home equity. However, the actual amount depends on a few factors.
Your age is one of the factors that will determine how much you can borrow. The older you are, the higher will be the amount of money you can borrow. It is because the lender predicts that the loan can be paid more quicker.
The lender is also looking at the value of your home. The more valuable it is, the more money you can potentially borrow.
The current interest rates could also affect the amount the lender can lend you. The higher the interest rates, the less money you will receive.
Though your credit score and income do not determine how much you can borrow, lenders need them for financial analysis. They want to make sure you can still cover homeowner’s insurance, property taxes, and other housing costs after receiving the loan.
After the financial analysis and the lender determines that your income is not enough to cover future housing costs, they may require part of the proceeds to go toward LESA or Life Expectancy Set Aside. It will result in a smaller payout because part of your money goes to LESA. How to Qualify for a Reverse Mortgage and How Much You Can Borrow.
According to Nicholas Maningas, a reverse mortgage loan originator from Gateway Mortgage Group LLC, even if borrowers have income but have not been making tax and debt payments, they might be required to use LESA.
However, exemptions are given if the borrower experiences some financial difficulties because of illness or had just recently lost a spouse.
Before applying for a reverse mortgage, it is wise that you will have some basic knowledge of the qualifications and the calculation of the funds. It will also help avoid false expectations.
Does your age pass the reverse mortgage age requirement? Is your house eligible for a reverse mortgage? Do you have delinquent federal debts that need to be settled? Does your credit history give an impression of a bad debt payer? These questions are just a few that might need your attention.
How to Qualify for a Reverse Mortgage and How Much You Can Borrow
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Thanks to the wonderful guide
Hi,Octavia,
Thanks for your reading! Keep reading on other articles that might be interesting and helpful for you.
Regards