Taking The Mystery Out Of Reverse Mortgage Applications

10:34 AM

Retirement is a time when you have a lot of freedom to do the things you want to do. However, you may not have the finances to do those things. You also may not be financially equipped to handle any emergencies that arise when you retire, such as medical expenses. If you need more money than you currently have, filling out a reverse mortgage application may be the solution to your financial woes.

Reverse Mortgages Provide Money Instead of Depleting Your Cash Reserves
A standard solution to a lack of funds is often to take out a traditional home loan. Unfortunately, such a loan has a major downside. That drawback is the need for ongoing repayment of the borrowed amount. When you are paying back a home loan in small increments for years on end, you add an extra bill that you need to pay on a recurring basis during retirement. That does not relieve any financial stress. If anything, having such a loan can make you feel more stressed.

A reverse mortgage lender can give you a special reverse loan you do not have to pay back anytime soon. In fact, paying back a reverse mortgage early is strongly discouraged. Additionally, since full repayment is not due until you leave your home, the loan duration is often much longer than that of a standard loan. Over the several years between when you get a loan through a reverse mortgage lender and when you leave your home, you can use the money you receive from the reverse mortgage to fund all aspects of your retirement, from entertainment to essentials.

Photo by Brett Sayles from Pexels

Borrowing Against Your Home Equity with a Reverse Mortgage
Before you can use a reverse mortgage to borrow against your home equity, a reverse mortgage calculator must be used to determine what that equity is and how much of it you can use. Due to government guidelines, the full equity amount cannot be borrowed. It doesn't matter if you are applying for loans from major banks, such as Bank of America reverse-mortgages or from smaller private lenders or government agents. A reverse loan calculator can help you and your lender make sure you are following those government guidelines and only borrowing a legal amount. The regulations prevent lenders from loaning too much money and also keep borrowers like you from taking on more debt than is reasonable.

How to Spend Reverse Mortgage Money You Borrow
Another benefit of a reverse mortgage is there are very few limitations on how you can spend the money you borrow. However, fees and closing costs are deducted before any money is loaned to you. You must also immediately use reverse mortgage funds to fully pay off a standard home loan, if you have one. Whatever remains can help you afford basic living costs or fund extra expenditures as you enjoy your retirement. 

Homes That Qualify for Reverse Mortgages
To get a reverse mortgage, your home must be of a qualifying type. The first qualification is it must have a high enough equity for borrowing against that equity to make sense. Your lender can tell you if your home value is high enough. Second, you must live in the home on a full-time basis and pay all of the related home ownership expenses.

Some condominiums and Department of Housing and Urban Development-approved manufactured homes are reverse mortgage-eligible. Apartment buildings with less than five apartments can also qualify. However, if you own such an apartment building, you must live in one of the apartments to apply for a reverse mortgage on the property.

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