As baby boomers reach retirement age, a challenge many face is how to afford the house payment. Housing expense is usually the largest monthly obligation a household faces. Even for those who have paid their mortgage off, retirement income may be limited and there is upkeep of the home, taxes, insurance, etc., to pay.
Homeowners often will comment that they will have to sell their homes when they retire but now that we are living to older ages we are living in our homes later in life. The reverse mortgage is a financing tool that assists seniors over the age of 62 to continue to own their home with no mortgage payment. This loan has a variety of options. With a reverse mortgage, the homeowner can either receive regular fixed monthly payments for life or a lump sum in cash or have access to a line of credit, all without any obligation to make a mortgage payment leaving only property taxes and homeowner's insurance to pay. The reverse mortgage can be customized to each borrower's needs and provide a combination of fixed monthly income and an equity line.
To qualify, all homeowners who are on title (or, in the case of a purchase, going on title) must be over 62 and the home must be a principal residence of 1-4 units. Condominiums, townhomes (Planned Unit Developments), single family residences and manufactured homes built after 1976 are all eligible properties. Reverse mortgage recipients must participate in counseling with a Housing and Urban Development-approved counseling agency. Your mortgage professional can provide you with a list of HUD-approved counselors.
Good credit is not required for this loan. Any federal debt such as IRS tax liens, must be paid but this type of derogatory credit will not cause a loan to be denied. A bankruptcy is the only situation that will disqualify a person for his loan.
When reverse mortgages first came out, the common misconception was that when the homeowner died, the heirs would lose any equity still in the home to the lender. If that was ever the case, it is certainly not the case today. The reverse mortgage is just a lien on the property; the homeowner(s) is the only one on title and if and when the property is sold, the reverse mortgage lender will be paid back and the proceeds of the sale will go to the homeowner or heirs. If the amount owed is greater than the sale proceeds, there is no obligation to pay back the difference.
If you are a senior and do not want to be tied to a mortgage payment or if you want to tap the equity in your home to create some cash, explore the options of a reverse mortgage. The homeowner's responsibility is limited to paying the standard homeowner's insurance and property taxes.
When using a reverse mortgage to purchase a home, the buyer would only need to come up with the down payment and instead of obtaining a traditional mortgage that requires monthly payments, the reverse mortgage would provide the difference between the sales price and the down payment and would never require any monthly payments. Again, the homeowner would only be responsible for homeowner's insurance and property taxes. To find out more about reverse mortgages, consult with an experienced local HUD-approved lender who offers reverse mortgages.
Local mortgage consultant Peter Boutell has been writing a weekly column for the Sentinel since 1995. Send questions to 'Lending a Hand,' 1535 Seabright Ave., Santa Cruz, CA 95062, fax them to 425-1044 or email them to email@example.com. Archived columns are available at www.peterboutell.com.