It can be rough getting older. Not just physically but financially as well. Yet there’s more advantages to being a senior citizen than a discount on the early bird special at your local diner. Reverse mortgages are exclusively for seniors—people younger than 62 won’t be approved. Additionally, there are no credit or income requirements.
Another perk is that the older you are, the more money you are likely to get from your lender. Lenders like the Department of Housing and Urban Development (HUD), Fannie Mae, and Financial Freedom figure that the older the borrower is, the less likely they’ll service your loan for a long time. An 82 year old will likely get a much higher loan than a 62 year old. Before you take the plunge and talk to a professional, it’s important to know what a reverse mortgage is, and what it can do for you.
Myths about Reverse Mortgages
Reverse mortgage loans can get a bad wrap, but this reputation has been improving over the past 30 years. Understanding what the loan can do, and what it can’t do for you can shed some light on the subject. Below we have some myths about reverse mortgages:
Reverse mortgages are only for desperate situations
In the past this could have been true, but today’s average borrow is likely to take out a reverse mortgage for other reasons than desperation. Many choose to go on trips, pay off bills, or use it for financial security. A growing number of people are taking out reverse mortgages because they want to, not out of need. If you could use a few thousand dollars to do as you wish with, wouldn’t you take it? Don’t let myths about reverse mortgages stop you from considering it as an option.
You won’t qualify because of bad credit scores
Many people are discouraged, especially if you have been denied a loan in the past because of your credit score. Reverse mortgages work much differently than traditional loans – and you can still be approved even with bad credit. Your originator may run a credit report, but it won’t affect your eligibility for a reverse mortgage. It’s usually done to make sure you are current on your taxes.
You won’t have an estate left
Many borrowers are worried that they won’t have anything left to give to their heirs. It’s up to you whether you have anything left, or you spend all of your money. The manner in which you pay
back your loan is up to you and your loved ones. There are many different options when it comes to paying back the loan.
Your house belongs to the lender
This is one of the biggest myths about reverse mortgages for most people. You are still the owner of your home, even when you are receiving payments. As long as you are current with your taxes and homeowners insurance, you keep the home. That being said, many reverse mortgage borrowers choose to sell their home to pay off the loan when they move out. And don’t forget, if you choose to sell you will be selling to another buyer, not the bank.
You have to be free of debt
You do have to own your home to get a reverse mortgage, but you do not have to be debt free on the home. In fact, you can use a reverse mortgage to pay off the remainder of your current mortgage. That way you can pay off your house while you receive payments. How? The lender will figure out how much you can borrow, then deducts the amount needed to pay off your mortgage. That way you pay off your current mortgage, and the rest goes into your pocket.
Types of Reverse Mortgages in California
There are three main types of reverse mortgages in California on the market today. The most common is the Home Equity Conversion Mortgage. Below is a rundown of the three types of mortgages.
Home Equity Conversion Mortgage (HECM)
This is the most popular choice among the three main types of reverse mortgages in California. The Home Equity Conversion (HECM). This is also by far the most flexible option—providing borrowers with a number of payment plans, and low interest rates. It’s also insured by the Department of Housing and Urban Development (HUD).
The loan is based on the youngest qualified borrower in the home. To be eligible, you must own a single family home, condo, townhome, or manufactured home built after 1976. The lending limit “floor” and “ceiling” are $331,760 and $765,600 (based on 2020 lending limits). Interest rates can be adjusted annually, or monthly. The payments will add up during the life of the loan, while you can enjoy easy access to your funds.
The largest lender in the United States, Fannie Mae, has two types of reverse mortgages in California: The Home Keeper, and the Home Keeper for purchase. It has similar features to the HECM, but there are some extras that make these loans standout. You can use the Home Keeper to buy a new home. This is a great option for single folks since the amount of the loan is
calculated on the sum of the ages of qualifying borrowers. Naturally married couples will get less.
The Home Keeper may bring in less than a HECM, but it has the added perk of helping you buy a home. Lending limits are based on adjusted property values just like the HECM. If you are looking to move to a single family home, condo, or planned development, the Home Keeper can help.
Jumbo Cash Account
If you have a lot of equity built-up in your home, at least $700,000, a Jumbo Cash Account from Financial Freedom is made for you. While it doesn’t feature the same amount of flexibility as the previous two loans, it has bigger payouts. Enjoy bundles of money that HECM and Home Keepers just can’t provide.
Just about any home will qualify. Interest rates and fees will be higher, and there will be high costs involved for each type of Jumbo Cash Account. This loan is reserved for those with wealth, and there will be some restrictions on how the money is spent. If you are asset rich, contact your counselor about Cash Accounts today.
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