Are you looking to generate passive income from the home equity you’ve built over the years? Homeowners can use reverse mortgages to receive monthly payments based on their built-up equity. It’s also possible to receive a lump sum payment for the home equity you have built over the years. However, it’s important to understand the risks and to only take out a reverse mortgage with a trustworthy lender. Reverse mortgages can be beneficial and help you stay in your current home if you approach them with the right mentality.
Who Benefits from Getting a Reverse Mortgage?
Reverse mortgages are primarily for retirees who need an extra income source to stay in their homes. A reverse mortgage can complement social security, cash flow from investments, and other income streams during your retirement years. In addition, reverse mortgages allow homeowners to tap into the home equity they have built up over the years.
When Is It Not Recommended to Get a Reverse Mortgage?
Mortgage lenders only provide reverse mortgages to homeowners who have at least 50% equity in their properties. You will need to fulfill that hurdle, but even then, there are some reasons a reverse mortgage may not be right for you. These financial products have high fees, and your heirs will have to pay off the reverse mortgage to inherit the property. This shouldn’t be an issue if your home’s value exceeds the reverse mortgage’s balance. However, some reverse mortgage balances become higher than the value of the home.
Are Reverse Mortgages Safe?
Reverse mortgages are safe and can provide an extra financial cushion, but they have risks. Mortgage lenders require you to go to a HUD-approved counselor or counseling agency before taking out a reverse mortgage. There are also plenty of scammers in the space who prey on retirees. Therefore, it’s important to work with a trustworthy lender and look at their online reviews before embarking on a reverse mortgage.
How to Keep Your Reverse Mortgage Safe
You can take several protective measures to keep your reverse mortgage safe and ensure a productive experience. Here are some tips to keep in mind.
Federal Rules and Guidelines
Not everyone can qualify for a reverse mortgage. The 50% equity requirement discussed earlier is one of several requirements. You or your spouse must be 62 years or older to obtain a reverse mortgage since these financial products are reversed for retirees or seniors approaching retirement. You also cannot have any outstanding federal debt or unpaid taxes, and it must be your primary residence. You can’t use a reverse mortgage for a rental property or vacation home. You are still responsible for some expenses, such as HOA fees and property taxes. If you take out a reverse mortgage, you must also keep the property in good condition.
FHA Insurance
Most reverse mortgages have insurance from the Federal Housing Administration. The policy protects you in case the mortgage lender goes out of business. This insurance policy increases your fees but is a standard protection. Most lenders will require that you pay for FHA insurance to take out a reverse mortgage.
HUD Counseling
A reverse mortgage is a significant decision. While the monthly payouts give you extra cash to cover living expenses, you also lose home equity with each of those payouts. As a result, some homeowners run out of equity to use for the monthly reverse mortgage payments. That’s why mortgage lenders require you to go through HUD-approved counseling. This counseling helps homeowners understand the risks and rewards of using reverse mortgages.
Ban on Cross-selling
Reverse mortgage lenders are not allowed to cross-sell additional financial products that you may not need. Restricting cross-selling safeguards you from taking on more debt and having to navigate higher monthly expenses.
Non-recourse in Nature
If you run out of equity in your home, interest will continue growing on your debt. It’s something many homeowners fear, but if you fall into this situation, you will never have to repay more than your home’s value. Most homeowners also won’t have to worry about repaying the reverse mortgage while they are still alive. That responsibility will go to the heirs if they want to keep the home, but lenders will not require you to pay $500,000 on the loan balance if the home is only worth $400,000.
What Else Should You Consider When Getting a Reverse Mortgage
Several factors will impact your experience with a reverse mortgage. Here are some key details to keep in mind before getting this financial product.
Risk of Foreclosure
Most foreclosures related to reverse mortgages happen when the homeowner passes away. However, a foreclosure can also take place if you do not keep up with property taxes, do not adequately maintain the property, or no longer treat the home like your primary residence. You won’t have to worry about repaying equity in your lifetime to avoid foreclosure if you use a reverse mortgage.
Unexpected Events
Unexpected events can impact your ability to live in the residence long enough for it to be treated as your primary residence. For example, medical emergencies can take up more equity than a homeowner would like and impact how long they can count on monthly payouts from the mortgage lender.
Effect on Other Government Programs
A reverse mortgage may hurt your chances of getting Medicaid or Supplemental Security Income (SSI). However, a reverse mortgage will not impact your Social Security or Medicare.
Reverse Mortgage Scams
Scammers take on many guises to deceive consumers and separate them from their money. Reverse mortgage scammers present deals that are too good to be true and frequently use aggressive sales tactics to win over victims. Scammers may present a lofty appraisal that exceeds your home’s value. A higher appraisal means your reverse mortgage lasts longer, and scammers will capitalize on this fact. A higher appraisal tempts a borrower to stick with the scammer who has an entourage of actors on his side. They work on the documents and do everything on your behalf. After getting the dubious reverse mortgage, the scammers run off with the money. It’s good to look at online reviews and ask questions during the application process. Scammers intentionally try to sound vague. If you ask for more details and stay involved with the process, you may catch a scammer off guard.
Unreliable and Predatory Lenders
Not all lenders are scammers, but that doesn’t mean every lender is a good choice for you. Not scamming people is a low bar, and some lenders barely get over that bar due to excessive fees. These lenders pressure borrowers into getting reverse mortgages and usually send unsolicited invites to prospects. It’s true that your credit score doesn’t impact your reverse mortgage. That’s because you’re getting paid based on the equity you have accrued. However, that won’t stop lenders from being predatory in other ways, such as pressuring you to take out a reverse mortgage right away.
Apply for a Reverse Mortgage with a Trusted Lender
A reverse mortgage can provide greater financial flexibility and help you during your retirement years. Taking a safe approach and distinguishing genuine lenders from scammers can help you maximize this opportunity. Top Flite Financial can help if you need help figuring out where to start.
Top Flite Financial is a full-service mortgage lender that offers reverse mortgages and is a leading originator of these Home Equity Conversion Mortgages (HECM) backed by the federal government. Accredited with an A+ by the Better Business Bureau, Top Flite Financial offers reverse mortgage loans, allowing you to keep ownership of your home while getting the cash you need to cover expenses such as medical bills. To qualify, you must be over 62 years old and have a sizeable amount of equity in your home.
If you think a reverse mortgage could be a good solution, complete this online form to request a free consultation with a Top Flite reverse mortgage expert.
