One of the strengths of the home equity conversion mortgage (HECM) loan program is that there are not overly restrictive requirements, making these loans easier to qualify for than other financial products such as a mortgage refinance, home equity loan, or home equity line of credit (HELOC).
You are eligible for a reverse mortgage if:
• You are 62 or older.
• You own your home and use it as your primary residence.
• The house is single family, multi-family (up to 4-units), or an approved condominium or manufactured home.
• You own your own home free and clear or an existing mortgage with enough equity.
• Your home is in good condition prior to taking out the loan.
You must meet with a HUD-approved counselor before obtaining a reverse mortgage to determine if the product is suitable for your needs. The counseling session will help you understand how the loan works and the different alternatives that are available to you.
All prospective borrowers also must undergo a financial assessment to make sure that the borrower can pay for:
• Property taxes
• Homeowner’s insurance
• Basic home maintenance
• HOA fees if applicable
When you own a home with a traditional mortgage, you gain equity over time as you pay down the loan. Home equity is the difference between what your home is worth, its appraised value, and any debt that you have from mortgages against the home. Let’s say, for example, that you own a home worth $300,000, and you only owe $50,000 on the mortgage balance, having paid down the rest. You have valuable home equity worth $250,000, which is calculated by taking the $300,000 value and subtracting the $50,000 still owed. If you are like most Americans, the chances are high that this $250,000 worth of equity represents a substantial portion of your net worth, and as you reach retirement age, you may want or need to tap into this wealth to supplement your fixed income.
There are a few options for tapping into your home equity that you may be familiar with—selling the home, taking out a home equity loan, or obtaining a home equity line of credit. However, these options may not be suitable for you. Selling your home doesn’t make sense if you do not wish to move, and home equity loan and HELOC options may be difficult to obtain or qualify for.
There is an alternative solution, however, and that is the reverse mortgage. If you are eligible and the product is suitable for your needs, a lender can offer you fixed monthly payments, or a line of credit based on the value of your equity.
Melanie Sedam is a HUD-Certified HECM Mortgage Originator and owns ReverseMortgage62AZ.com, which specializes in mortgage financing in the 55+ communities of Arizona. She can be reached at 520-829-5219 or Melanie@ReverseMortgage62AZ.com. There is also a 35-minute PowerPoint presentation on her website that goes in the financial details and numbers of a reverse mortgage loan.