What A Reverse Mortgage Is All About?

Most of us now hear about reverse mortgage from our friends, family members or other elders. You might have also heard about it in T.V. commercials or in news papers that there are lot of reverse mortgage companies in the market. But despite of all these takings, many of us are still not aware of the exact meaning of reverse mortgage.

The reverse mortgage is specially for those homeowners who are aged equal or more than 62 years. through this process you can get loan money as a line of credit or as a lump from your home. And when you sell your house or pass away, this money will be repaid automatically to your creditors.

The trend of reverse mortgage is now getting more and more popular nowadays. And the prime reason behind it is, these revers mortgage loans are not taxable and most importantly it does not affect your social security. You can have your home as long as you want and along with the title and you don’t even need to make any repayments to your creditors. The loan is subject to repayment only when the owner of the house is dead or sells it or permanently moves somewhere else from there. It is totally irrelevant to a regular mortgage loan.

Types of reverse mortgages:

1. Single-purpose reverse mortgages: This one is offered by some nonprofit organizations and the State and Local Government Agencies.

2. Federally-insured reverse mortgages: This one is protected by (HUD) Department of Housing and Urban Development.

3. Proprietary reverse mortgages: This service is provided by those companies which develop them. These are private loans.

This type of reverse mortgage loans are very cheap compared to the other loans in the market. Bu the problem is they are not available everywhere. There are some terms and conditions are there for one to qualify for this loan. The home owners must have low or moderate monthly income to qualify for this reverse mortgage loan.

3 Types of reverse mortgages and 4 steps to take out such a loan

Reverse mortgage can help you if you are 62 and in need of lump sum cash. However, in order to obtain such a home loan, you should own a primary residence against which you can borrow the required amount. One of the greatest advantages of a reverse mortgage is that you don’t have to repay the borrowed amount until the loan term ends or you move out. Read on to know the types and how to apply for reverse mortgage.

Types of reverse mortgages

There are primarily 3 types of reverse mortgages that are given below.

1. Home Equity Conversion Mortgage – Popularly referred to as HECM, Home Equity Conversion Mortgage is a federally-insured home loan that is backed by HUD, the US Department of Housing and Finance Development. Before applying for such a home loan, the borrower has to meet a government-approved counselor, who explains the financial implications of taking out a HECM.

2. Single-purpose reverse mortgage – It is usually offered by the state as well as local government agencies. Some non-profit organizations also offer single-purpose reverse mortgages. In this type of mortgage loan, the lender may specify the purpose (such as, making home improvement, paying property taxes, etc.) for taking out the loan.

3. Proprietary reverse mortgage – Proprietary reverse mortgages are private home loans offered by several companies.

Steps to take out a reverse mortgage

Apart from meeting a lender and discussing face-to-face, you can also apply for reverse mortgage online. Go through the following liens to know how to take out a reverse mortgage by filling out an application form online.

1. The reverse mortgage specialist contacts you – After you fill out the online form, a reverse mortgage specialist will contact you and resolve all your queries.

2. You receive a Good faith Estimate – You will receive a Good faith Estimate from the lender if you agree to proceed with the loan. By reviewing the documents supplied by your lender, you’ll get to know about the closing cost and the amount you may obtain.

3. Go for a counseling session – In the next step, you need to go for a counseling session and receive certificate from a counseling agency that is approved by the US Department of Housing and Finance Development.

4. Select the payment option – You need to decide whether you want lump sum cash, a line of credit or a combination of both.

In the next step, the lender orders an appraisal in order to determine the home value. Once the application package is complete, the lender sends it to the underwriter for approval that may take several weeks. If the underwriter approves it, then the closing formalities take place and the homeowner needs to sign several papers. It is advisable that you read the fine print before signing the dotted line. However, even after you sign the documents, you’ve every right to cancel the loan within 3 business days.