You may have heard that a reverse mortgage can ease your financial woes after you retire. It is true that reverse mortgages are available only to retirees or people who are at least 62 years old. It is also true that if you obtain one you will not have to repay any part of it right away. However, reverse mortgages have several pros and cons you must weigh before deciding whether to apply for one or not.
Basic Reverse Mortgage Requirements Must be Met
To obtain a reverse mortgage you must meet basic requirements. For example, you must own or co-own the home in question and be at least 62 years old. You can apply for a reverse mortgage as a single individual or with a cosigner. However, the cosigner must be your spouse or immediate family member, must also live in the home, and must meet the minimum age requirement of 62 as well. Furthermore, the property must be your main residence, not a vacation or rental home.
Additional Requirements for Obtaining a Reverse Mortgage Must Also be Met
When you speak to a reverse mortgage lender you will also have to undergo scrutiny to make sure you are a good candidate for a reverse mortgage. Since you will continue to be the homeowner your reverse-loan lending broker must make sure you are financially stable enough to keep up with the responsibilities associated with maintaining your home. For example, you must show that you have sufficient income to pay for homeowner’s insurance.
Your home itself must also pass an inspection before your loan request will be approved. If the home does not have enough current value (equity) you may not be able to qualify for a reverse loan. That value will be calculated based on current housing market trends in your area, the age and condition of your home, and several other factors. If you already have a standard mortgage the equity will also be affected. Depending on the conditions you may be able to receive a conditional reverse mortgage, meaning that you will receive funds under the condition that a large portion will be used to pay your older mortgage or known expenses right away. Then you will be able to use the remaining money for purposes of your choosing.
A Reverse Mortgage Offers Financial Independence and Stability
A pro of a reverse mortgage is that it can allow you to stay financially independent and comfortable during retirement. Without it your fixed income may make it difficult to make ends meet. Financial stability can also allow you to retain your family home. Therefore, you will not need to downsize and move into a small apartment and can keep precious possessions.
A Reverse Mortgage May Not Offer the Same Stability for Your Family
Although a reverse mortgage can give you piece of mind because you will not have regular payments to make and cannot lose your home, your family may not be so lucky. You or your cosigner, such as your spouse, must stay in the home throughout the loan duration. If at any time you move out or pass away remaining residents may be evicted. Therefore, if you want to leave your home to your descendants, you must make sure the loan can be paid upon your death.
Reverse Mortgage Safety Varies Greatly Between Lenders
A final con of reverse mortgages is that they are not all equal. Some are provided privately, while others are federally monitored. There are also many reverse mortgage scams in operation. Therefore, if you are considering applying for a reverse loan you must beware of potential pitfalls. Do business only with a company you fully trust. For example, if you have had accounts in good standing with a specific financial institution for years and it offers reverse mortgages it may be a safe company to do business with again. If you are unsure of a lender’s reputation check it online or ask for recommendations from trusted sources like family members.