Answers to common questions about reverse mortgages in the USA

As a small business owner who is thinking about retirement strategies, you may be considering IRA options, like a simple IRA or a SEP IRA, and reviewing 401 (k) options, like a Simple 401 (k) or a Solo 401 (k). Another strategy you might also want to consider is getting a reverse mortgage. Besides supplementing your retirement income, it can also be used to improve your monthly cash flow.

A reverse mortgage is an agreement you, as a homeowner, make with a lender to give up the equity in your home in return for regular payments. According to the information available on ReverseMortgages.com, a reverse mortgage can benefit your finances in a wide number of ways, including managing your healthcare costs, eliminating monthly mortgage payments for the life of your loan, and funding home-improvements.

However, you are free to use the money as you wish; for instance, you could also use it for more general life issues like easing your monthly financial pressures, resolving a financial emergency, or helping a family member who has fallen on hard times.

Naturally, you probably have plenty of questions about it, so here are some answers to frequently asked questions:

1. What types of homes qualify?

Apart from co-ops, most property types, like single family homes, townhouses, and condominiums, easily qualify. Even manufactured homes qualify, provided they were built after June 1976.

2. What does a person need to qualify?

You must be the homeowner, be 62 years or older, and have sufficient equity in your home.

3. What about medical requirements?

No medical criterion has to be met to qualify.

4. What due diligence steps do lenders take?

Lenders will assess whether you have the financial means to pay your mandatory housing obligation, like homeowner’s insurance and property taxes. If you are unable to meet these obligations, however, it does not automatically disqualify you. In many cases, the lender may be willing to set aside the necessary amount from the loan to cover future charges.

5. What if the house has not yet been fully paid off and there is still an existing mortgage?

You may still be able to get one of 3 types of reverse mortgages if you can place the reverse mortgage in a first lien position. One option is to pay off the existing mortgage using money borrowed from family, friends or some other source.

Here’s another way this situation might be resolved:

Suppose you owe $200,000 on your existing mortgage, but based on your age, the value of your home, and your interest rates, you could qualify for $255,000 under the reverse mortgage program. In this case, you could pay off your existing mortgage and pocket the $55,000 difference.

6. Under what circumstances would it not be advantageous to get a reverse loan?

Although there are many advantages to getting a home mortgage if you’re qualified, there are some circumstances when it’s not a good idea. Here are a few:

• You plan on leaving your home in less than 5 years. In this case, you might be better off with a no-interest county government loan or a home-equity home because you won’t have to deal with the upfront costs of a reverse mortgage.
• You want to leave your home to your children. In the event of your death, the home may be sold to pay back your reverse mortgage.

7. What payment options are available?

You can receive the money from your reverse mortgage in a number of ways:

• You can receive all of it in a lump sum.
• You can receive a fixed monthly payment. You can decide to receive this for a set term or you can decide to receive this for as long as you occupy your home.
• You can receive it as a line of credit.
• You can receive it as a combination of a lump sum, monthly payments and line of credit.

8. What is the maximum amount a person can get from a reverse mortgage?

According to an AOL Finance article on reverse mortgages, “The amount someone can borrow depends on their age and the amount of equity in the home, but the maximum is $625,500. (The loan limit was raised in 2009 as part of the federal stimulus law and is set to expire Dec. 31, after which it reverts to $417,000.)”