Are you wondering if a reverse mortgage is an option for you? There are a variety of reasons why people decide to take advantage of their home equity. It can be the right choice if you need cash but don’t want to sell your home. Let’s review the reverse mortgage rules to see if they apply to your situation.
How Does it Work?
With a regular mortgage, you pay the lender each month. That is, until you own your home outright. But with a reverse mortgage, the lender actually pays you, drawing the equity out of your house. But you keep the title to your property. This money is generally tax-free, and, in most cases, you won’t need to pay back this money while you still live in your home.
It’s important to note that there are three different types of reverse mortgage. A mortgage broker can help you figure out which is right for your situation, as these reverse mortgage rules differ and can be more complicated.
The three options are:
- Proprietary reverse mortgages: Private loans
- Single purpose reverse mortgages: These are offered by certain states, as well as some non-profits
- Federally-insured reverse mortgages: Known as Home Equity Conversion Mortgages (HECMs)
What are the Reverse Mortgage Rules?
The Federal Housing Administration (FHA) updates these guidelines from time to time, mainly to protect borrowers. The main reverse mortgage rules were put in place to help seniors stay in their homes.
The four main borrower rules are:
- You must be a homeowner with a substantial amount of equity
- You’re sixty-two years of age or older
- The home is your primary residence
- You’ve passed a financial assessment
What Else You Need to Know
Once you’re approved for a reverse mortgage, there are still certain borrower obligations to uphold. Complying with the terms of the loan will include things like continuing to pay property taxes, home insurance, and keeping up with basic property maintenance tasks. You also need to remain in the home, using it as your primary residence.
Reverse Mortgage Rules for Repayment
So, when do you need to repay your loan? If you’re eligible for a reverse mortgage, you may be wondering when it becomes necessary to return the money that’s loaned back to you. In general, the reverse mortgage loan becomes due if you move out of the house, or upon your death. Although, there are certain instances when you would need to make payments sooner. For example, if you were to stop paying your homeowner’s insurance, or property taxes, this would cause you to default on the loan. Additionally, if the property is no longer your primary residence, or you allow it to fall into disrepair.
Talk to a Bay Area Mortgage Broker Today
Hopefully this post answers some of your questions about reverse mortgage rules. It can be a little confusing. If you have other questions you can talk to an expert by calling Karen Douglas at the Mortgage Genie. She’s happy to help you make the best decision for your situation. Contact Karen at (925) 648-0981. You can also view her client testimonials by clicking here.