This post was written by a contributor.
Have you heard of a reverse mortgage? Maybe you fancy applying for one? Well, here’s what you need to know going in…
Everyone loves the sound of retirement. But the problem is, retirement is only seen as fun when one has the financial capacity for it. At the end of the day, you need that money to start up any pet projects, go on adventures, or shell out for unexpected expenses. As a result, most people look for more financial support at this time — some take out a loan, which sounds okay, but it’s not great for you in the long run. Conventional home loans have their issues that can cause you serious anxiety, especially if you cannot keep up with repayments. However, a reverse mortgage takes away these challenges.
What makes a reverse mortgage different?
Unlike a traditional home loan that just takes your money non-stop without considering your circumstances, a reverse mortgage gives you the financial support to meet your needs and live comfortably. You do not have to worry about repaying the loan immediately, which means that you can enjoy your money as you wish.
Another impressive feature that comes with a reverse loan is that you can reside in your home, even after taking a mortgage on it. The traditional loan puts you at risk of losing your place. There is no way that will happen with a reverse home loan. The only time you can pay back is when you are 100% in a position where you are able to, or put the house up for sale.
If you qualify for a reverse mortgage, your lender will expect you to clear off an existing home loan before accessing the fund for other causes. You cannot have two home loans for a long time. Your long-term loan (reverse mortgage) takes the place of your short-term loan (traditional loan).
How much can you access?
The first question to ask is if you need a loan or not. If you have the financial capacity to cater for your upcoming expenses, then a loan is not necessary. Otherwise, you can apply for a reverse mortgage. Also, your home equity should exceed the amount you intend to borrow. Your lender will determine your eligibility based on the following factors:
Your age
Financial situation
The age of your home
Location
Condition of your home
According to federal law, you can only borrow a percentage of the equity of your home.
How else can you qualify for a reverse mortgage? To begin with, you should be 62 or older to procure a reverse mortgage. This is why most people refer to it as a ‘retirement loan’. There are other ways to qualify for this type of mortgage, apart from using a reverse mortgage calculator. Your lender will run a credit check to determine your financial capacity in paying the property taxes, home insurance, and home maintenance cost.
Additionally, you have to reside in your primary residence permanently. If you have a multiple-unit apartment, it is required that you select one of the units that will serve as your primary residence.
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