Pros Cons Reverse Mortgages

What Are the Requirements? Will I Qualify? Reverse mortgages have different requirements than traditional home loans. In order to qualify, you must be 62 years of age or older and own as well as reside in your home. There are no income, employment, asset or credit requirements.

Additionally, qualifying for a reverse mortgage means meeting with a Housing and Urban Development Department-approved loan counselor and lender such as mortgage lender in Fort Collins before receiving the proceeds. According to Los Angeles-based By Design Solutions, which provides loan counseling for reverse-mortgage clients, this is a chance for consumers to receive crucial information to make informed decisions while at the same time avoiding predatory lenders. Pros and Cons Since a reverse mortgage does not need to be paid back until you pass on, sell your home, or permanently move out of the property, it is a relatively low-risk endeavor. Those who own their home outright or who have very little left to repay on their mortgage will benefit most from a reverse mortgage, as will those who plan to remain in their home for the long term. Other benefits include: The qualification process, which is far simpler matter than trying to obtain a conventional loan

Since HUD will make up the difference if the home’s value is less than owed on the reverse mortgage, no debt will be passed to heirs or descendants upon the borrower’s death.

HUD-approved mortgages guarantee that a homeowner cannot be forced out of his or her own home.

Reverse mortgages are not taxable.

If a federally insured reverse mortgage is taken as a line of credit, the homeowner earns interest on any unused portion of the proceeds. However, a reverse mortgage can also have its disadvantages. Closing costs can sometimes be high, so you’ll want to make sure that you’re willing to put down that type of cash outlay before making the commitment. Other disadvantages include: The necessity for mortgage insurance to guarantee your lender receives full repayment. You’ll have to pay this in addition to conventional homeowners’ insurance, taxes, and home repairs.

  • Reverse mortgages are often not sufficient to let homeowners access most of their equity.
  • Interest on a reverse mortgage is tax deductible, but only upon repayment of the loan.

Low-income borrowers who receive Medicaid and Supplemental Social Security benefits must be careful not to receive more money than they will spend, since unused funds may disqualify them for these assistance programs. Economic Stimulus Effects As part of the Economic Recovery Bill, there is a provision to set the loan limit for reverse mortgages higher than the standard $417,000. Known as the HECM for Purchase Plan, this provision is temporary and will be valid only throughout 2009. This provision is beneficial to homeowners seeking to get more equity out of their homes than currently allowed by the standard limit. It can also be helpful to borrowers seeking to downsize to a new home and avoid making monthly payments. However, a representative from the All Reverse Mortgage Company recently told the media that two of his customers were told by builders that they could not finance their properties through the HECM for Purchase program since the provision is temporary and there is a fear of the unknown. Before taking advantage of this program, make sure that it won’t provide more trouble than it may be worth.