For many people, the idea of owning their home as they move into retirement is very appealing. Those who achieve this goal do it for the reduced monthly obligations and sense of security. But what happens if you find yourself "House Rich & Cash Poor"? For some the answer is a Reverse Mortgage. We've talked about the advantages of RM's before, but I've noticed more and more people continue to have questions and misconceptions about the process. Let me try and clear up a couple of those here.
"It's difficult to qualify for the loan."
A reverse mortgage is qualified based on the equity in the home. The borrower does typically need to have any income to qualify. The qualifications are based on value of the home, maximum loan amounts, and age of clients.
"The borrower could owe more than the value of their home."
Reverse mortgages are "non-recourse" loans, which means that the borrower, the borrower's heirs, or the borrower's estate can never owe more than the appraised market value of the home at loan maturity.
"The lender takes the title of the borrower's home."
A reverse mortgage is simply a lien against the property so the lender does not take the title of the home. The borrower will retain ownership of the property.
"The borrower can be evicted from their home."
A reverse mortgage is not due and payable until the home is no longer occupied as the borrower's primary residence. Even if the borrower has used up all of the funds available, they do not have to leave or sell the home. However, they are required to keep the home insured, pay the property taxes and maintain the home. Failure to meet these obligations could result in a default on the borrower's loan and possibly even foreclosure or a tax sale.
These are just some of the common questions & misconceptions that I've been hearing lately.
