What is a Reverse Mortgage

If you want to turn the equity in your home to cash, a reverse mortgage is the option you should choose. This type of a loan is mainly available to seniors. Until recently you could have turned your home into money only if you sell it or sign it as a guarantee against a loan. However, with the introduction of reverse mortgages, you don't lose the right to ownership observed in the other methods. Reverse mortgages are not for everyone since there are certain eligibility rules you should meet. Additionally, in order to get a reverse mortgage, significant time should pass due to the many procedures surrounding the procedure. Reverse mortgages have several tax implications as well.

Reverse Mortgage Procedures

In case the home on which a reverse mortgage will be applied is possessed by several owners, the signatures of all of them is needed on the corresponding documents. Unfortunately, reverse mortgages are not offered for mobile homes. Some of the requirements that applicants should meet are:

1. owners of the home
2. dwell in the home
3. cannot be under the age of 62

Before submitting the documents for reverse mortgage application, the applicant is required by law to address a counseling agency that is licensed by the Department of Housing and Urban Development (HUD). This counseling is required for the thorough explanation and determination of eligibility of reverse mortgage application.

When discussing the future distribution of the cash, the borrower faces the following possibilities:

1. a credit line
2. monthly payments
3. a lump sum

It is not obligatory to choose only one of them, but instead may make a combination that best serves your needs.

You don't start repaying the reverse mortgage until:

1. you move from the home
2. sell it
3. the death of the last living borrower

As long as you occupy the home, payments on the reverse mortgage loan is not required. In order to cover the mortgage many people prefer to sell the home.

You should continue to take care of your home as а conscientious owner since by documents you still possess it. This means that you should pay any taxes or insurances and do the repairs necessary to keep the home in a good condition. Failure to do so may result in the full repayment of the loan.

Reverse Mortgage Financial Issues

1. Costs

   In order to enjoy the lowest cost on your reverse mortgage you should apply state and government lenders. On the other hand, selecting a private lender may end you up with extremely high costs. Some of the costs you should expect to incur are:

   • Application fee
   • Appraisal fee
   • Credit report fee
   • Monthly service fee
   • Closing fee
   • Insurance
2. Taxes

   The good news is that the cash from reverse mortgages is exempt from taxes. Additionally, the money has no effect on either medical benefits or social security. However, state assistance programs and Medicaid are susceptible to influences of the money from a reverse mortgage.

Finally, your eligibility about state or federal assistance can be greatly affected by this type of a loan. In case the owner dies, the heirs face the option of either keeping the home and repaying the mortgage or selling it. If the latter option is chosen and the heirs manage to sell it at a price that exceeds the balance on the loan, the excess money got straight to the pockets of the heirs.

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