If you are struggling to pay for retirement expenses, you are not alone. It can be difficult when you lose income you are used to. Using the value of your home, also called equity, to help fund your retirement is a way to make your retirement more comfortable. A reverse mortgage can help you do that. Here is what you need to know about reverse mortgage qualification and terms.
Reverse Mortgage Personal Qualifications and Requirements
There are a few personal requirements you must meet to qualify for a reverse mortgage. One is you must be at least 62 years of age because it is a type of loan only available to people of retirement age. The second is you must agree to keep meeting the requirements of home ownership because the home will remain yours for the entire loan period. That means you may have to pass a background check and credit check to determine your ability to pay expenses like property taxes.
Types of Homes That Qualify for Reverse Mortgages
Another requirement for getting a reverse mortgage is the building you want to mortgage must be the place you primarily live. A vacation property is ineligible. If you have a small apartment building that you own, it may be eligible. However, it can typically have no more than four units. Also, you must personally reside in one of those units, as must anyone who co-signs the loan agreement with you, such as your spouse.
Establishing the Reverse Mortgage Amount You Can Borrow
You cannot borrow the total value of your home with a reverse mortgage. There is a special tool called a reverse mortgage calculator that can help you and your lender figure out what you can borrow. The government does not allow you to borrow the full amount as a protection for you and for the lender. A calculator for reverse mortgages uses formulas necessary to figure out the total available based on current laws at the time of application.
Establishing the Borrowing Terms of Your Reverse Mortgage
When you apply for a reverse mortgage, you can select your borrowing terms. For example, you may have trouble paying monthly bills on your fixed retirement income. If so, opting to collect small payments every month for an extended period of time can help to relieve your monthly budget constraints. On the other hand, you may want to collect the whole amount the reverse mortgage calculator determines you can borrow all at once, if you want to pay a large bill. A third option is to borrow exactly the amounts you need as you need them. That is called establishing a home equity line of credit.
Long-Term Implications of a Reverse Mortgage
The long-term implications of a reverse mortgage must be considered before you apply. The long-term benefit is you can live comfortably in your home for as long as you want and enjoy your retirement more. You can also be secure in the knowledge you still own your home throughout the process. However, there are some cons to think about. One of the largest is a reverse mortgage can last for many years and accumulates interest over that entire time period. You also may not want such a mortgage if you have any desire to move out of your home in the foreseeable future.
What Happens if You Cannot Repay Your Reverse Mortgage Balance
Typically, you get to choose when you pay back your reverse mortgage, as long as you stay in the home. However, there are situations that may cause you to have to leave your home suddenly or may otherwise violate the loan agreement. If the reverse mortgage balance comes due at a time when you cannot pay it, the home is typically sold. Any amount over what you owe is given to you or your family. If a loan balance is still owed after the sale, any remaining debt is canceled.