Are my parents good candidates for a reverse mortgage?

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Question: I feel like I see TV commercials and hear daily radio commercials for reverse mortgages. How do I know if my dad is a good candidate for one?

To respond: Before answering your question, let me give you a brief overview on reverse mortgages.

A reverse mortgage is a loan secured by the equity in your property. It allows you to borrow against the value of your home if you are 62 or older and have significant equity. You can receive money as a lump sum payment, monthly installments or a line of credit. Unlike a traditional mortgage, which is used to buy a home, you won’t make monthly payments to the lender. Instead, when you die, sell the house, or leave the house permanently, the entire debt becomes due.

You can use reverse mortgages in different ways. You can use it for settle credit card debtconsolidate payday loans, renovate your house, etc. You choose.

Now back to your main question: your father must meet the criteria to qualify for a reverse mortgage. The two most essential considerations are your father’s age and the amount of equity he has in his property.

How old is your father ?

Reverse mortgages are intended to help senior homeowners who have no other means of funding their retirement by allowing them to tap into the equity they have accumulated in their property. Therefore, to apply for a reverse mortgage, your father must be at least 62 years old. If your father wishes to include your mother as a co-borrower, she must also be at least 62 years old.

Your father should also have a substantial share of the equity in his home, usually at least 50%. In addition, he must live in the house before and after taking out the reverse mortgage. The house must also be built on or after June 15, 1976.

Credit score and income

There are no income or credit score restrictions for reverse mortgages. This is one of the ways reverse mortgages differ from a home equity loan or home equity line of credit (HELOC). HELOCs allow homeowners to borrow money against the value of their home. Home equity loans and HELOCs, unlike reverse mortgages, require borrowers to make payments and they must have a good credit score to qualify. On the other hand, they may have lower costs and be a cheaper option than a reverse mortgage.

HUD Approved Tips

According to the US Department of Housing and Urban Development (HUD), all potential reverse mortgage borrowers must attend a HUD-approved counseling session. This $125 counseling session should last at least 90 minutes and explore the pros and cons of a reverse mortgage in light of his particular financial and personal situation.

The counselor will explain how a reverse mortgage could affect your father’s eligibility for Medicaid and Supplemental Security Income (SSI) and how he can receive your reverse mortgage income.

Upfront costs

Setting up a reverse mortgage comes at a price. Borrowers must pay an origination fee and an initial mortgage insurance premium. The loan often covers these expenses, so your dad may not need the money to get a reverse mortgage. It’s essential to remember that reverse mortgages come with hefty upfront fees, whether your dad pays them out of his wallet or the equity he has.

Payments

Although property taxes and home insurance aren’t strictly necessary to get a reverse mortgage, your dad will be responsible for them once he receives the loan. If your dad misses those payments or stops living in the house for more than a year — even if he’s in a long-term care facility for medical reasons — he’ll have to pay off the debt, which is usually done in selling the property.

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