Senior citizens often apply for reverse mortgages to pay for their rising medical bills, invest in some unforeseen home repairs and for converting home equity into cash. But following the recent reverse mortgage fraud case in Florida, senior citizens need to be very alert about the risks involved. As per the court filings, the accused pitched for mortgages using a telemarketing campaign at the national level. Home values were fraudulently inflated to ensure that home owners qualify, but their original loans weren’t paid off. Quite a few senior citizens are facing foreclosure as a result. Here are some areas that you should focus on, to determine if a reverse mortgage suits your needs:-
What Exactly is Reverse Mortgage?
This type of mortgage is a bit similar to a home equity loan. By applying for it, you are contracting a lender to borrow against your home equity while continuing to reside there. The lender will pay you the amount either as a line of credit, lump sum or monthly payment. One of the most widely sought after reverse loans is Home Equity Conversion Mortgage(HECM), that is insured federally.
Are you Eligible?
As a property owner, you need to be at least 62 years of age to be eligible for a reverse mortgage. If another person is on the title with you, both must be 62 or older. You don’t need any income or credit requirements.
How much can you Borrow?
The amount that you will be able to borrow will be based on your age, home value, and interest rate which will be added to your loan. To find out whether you can qualify, you can visit the site of National Reverse Mortgage Lenders Association.
What Amount Will you Receive and what Homes are Eligible?
Reverse mortgages are issued just for primary residences. It might be an apartment, a single family home or a townhouse, but he owner needs to reside there.
Can you get a Reverse Mortgage in Case your Home is not Paid Off?
Yes, you can but you will need to pay off your present mortgage along with your reverse loan or with your own financial resources. Federal law will also allow you to purchase a new home with such a mortgage.
How will the Reverse Mortgage be Repaid?
You or your family members will need to repay the money that you received while selling your house or moving out once and for all. The compound interest over the loan’s lifespan will also be included in total amount due. Enquire your lender if the loan would become due, or would you be penalized if you moved out for an extended time span.
What would happen if your Home Loses Value?
The amount that you or your heirs need to repay won’t exceed the value of your home. So your family would be safe in case the home’s value drops to a level that when your heirs sell it, it will fail to cover loan repayment. They can keep the extra amount if proceeds exceed repayment. But if they consider not to resell it, they will have to repay the entire reverse mortgage, irrespective of the property value.
Author Bio
Joe Aldeguer is a Chicago-based businessman, having an experience of almost 25 years in the field of real estate. He began his career as a commodity future broker and later on he turn his interests into real estate and. He has won “Businessman of the year” award for his accomplishments and has also featured in the Business section of NY time for his work. You can follow Joe Aldeguer on @twitter, Vimeo and Facebook.