What to Expect When Applying for a Reverse Mortgage

The reverse mortgage also goes by the name “home equity conversion mortgages” (HECMs). You may have heard that they are a great way for retirees to get quick cash. But if you are a retiree yourself then you should know exactly what to expect before you apply for one.

Home Requirements for Reverse Mortgages

First of all, not every residence qualifies for this type of loan. If you own a large apartment building, for instance, you probably can’t take out a HECM on it. It has to be a one-family home or a condominium with no more than four units. Also, as the person applying for the loan, you have to be living permanently in one of those units yourself.

Other Home Equity Conversion Mortgage Requirements

Aside from the type of home itself, you also have to meet some other home equity conversion loan requirements. One of those is that you have to be over the age of 61 because only those who are 62 and up qualify. Also, you have to own the home that you are requesting equity from, and you have had to prove that you live in it all the time. It can’t be a secondary residence, vacation home, or home belonging to anyone who isn’t the person requesting the loan. 

Short-Term Benefits of Reverse Mortgages

A reverse mortgage has two main short-term benefits. The first is that you can get money quickly and decide exactly how you get that money. It can be done in lump sums, temporary monthly installments, or ongoing monthly installments. It’s all up to you. That gives you the flexibility to get the money you need when you need it. Click here for a free reverse mortgage calculation to find out what discounts you may be eligible to receive. 

The second short-term benefit is that there is nothing to pay back right away. If you get practically any other kind of loan on Earth then monthly payments are a given. But with a reverse mortgage, you and your family members or estate don’t pay until you move out of the home or lose the home due to your own death. 

Potential Home Equity Conversion Mortgage Problems

Not everyone should sign up for a HECM. For example, an important question is how does a reverse mortgage work if you have a large family? You will be taking equity out of your home and most likely (though not definitely) giving up your opportunity to leave your home to your family when you die. Upon your death, the home will be sold and much of the proceeds may have to go to paying off the loan. That is unless your family pays off the loan balance themselves out of their own pockets and chooses to keep the home. If you think that will be a major problem for your family, you should discuss it with them before signing any paperwork.

Selecting a Mortgage Lending Company

A final thing to know about applying for a reverse mortgage is that the best source for them is the federal government. There are private lending companies that offer them, but many of those companies are nothing more than scam artists. Even legitimate private lenders are likely to charge a lot more in interest rates and loan fees than a government plan would. That’s why it’s important to explore your options very carefully and always go over the fine print with a fine-tooth comb before you sign any loan paperwork.