How to Prepare your Finances for a Reverse Mortgage
Many of us are familiar with what a mortgage is. Especially those who are homeowners have likely gone through the process of getting a mortgage. Basically, a mortgage is a loan in which a property is used as collateral. The borrower enters into an agreement with a lender (generally a bank) wherein the borrower gets cash upfront to purchase a property, and then makes payments over a set period of time until the lender is paid back in full. There are different types of mortgage loans and one of them is the reverse mortgage.
What is a reverse mortgage?
A reserve mortgage is a home loan that is tax exempt and allows a homeowner to receive cash using their existing home equity. The need for selling the home or making a monthly payment is also removed. Homeowners aged 62 years or older who are the principal owners of their residences are eligible to get a reverse mortgage. As the name suggests, a reverse mortgage works opposite to a traditional mortgage and allows homeowners with accrued equity in their home to get a monthly or lump sum cash-out. They can use this money for paying off existing bills, for home improvement, or any other expenses that they need to take care of. A reverse mortgage is approved only if certain requirements are met that would qualify a homeowner to get this mortgage.
Financial eligibility for a reverse mortgage
Your finances will be reviewed by lenders in order to make a decision about whether you can take advantage of a reverse mortgage or not. Lenders examine the borrowers’ sources of income such as pension, social security, and/or any investments. Documents such as tax returns and bank account statements must be provided by the borrowers.
Any credit trouble will need to be explained. All these financial assessments are conducted to ensure that the borrower has the means of paying property taxes, homeowner’s insurance, and other ongoing costs for the life of the loan. There are also some other costs associated with a reverse mortgage such as lender’s fees and mortgage insurance premium. Your lender should tell you about these costs. At Nationwide Home Loan, our professional staff will provide you all the guidance you need and answer all of your questions.
To be eligible for a reverse mortgage, you need to have available equity in your home. Equity is calculated by taking the value of your home minus any outstanding debts, taxes, or liens you may have against the home. The more equity that you have available in your home, the better off you are financially. In other words, the older you are and the more valuable your home, the more money you can get in a reverse mortgage.
The home that you are getting a reverse mortgage against should be your primary residence for you to qualify. Any investment properties or second homes that you have will not qualify for this loan option.
Make sure that you have not made any late payments or defaulted on any government debts/liens/taxes.
You may also need to evaluate your finances and subtract your income outflow (credit cards, utility bills, property maintenance, insurance, etc.) from the income inflow (social security, pension, salary, etc). Federal rule changes took effect in October 2017 that have tightened the amounts that can be borrowed. It is also now required for borrowers to have a financial assessment done, and based on that put aside part of the mortgage proceeds as payment for taxes and insurance. At NHL Lending, our professional staff stays on top of such changes to provide you with the most current and accurate information, so there are no unpleasant surprises for you during your loan process.
While a reverse mortgage might sound like a good idea, you should consider other possibilities if you are turning to home equity to get out of a financial emergency. Also if you do not have much regular income, a reverse mortgage might not be the best option for you.
For help, you can depend on your lending company for guidance. NHL Lending, the leading reverse mortgage lenders in Fort Lauderdale, Florida have a fantastic reputation for helping all clients with all their needs. Contact them today at 888-995-6624.