Are you wondering what is a reverse mortgage? A reverse mortgage is a type of home loan available to homeowners of retirement age. The loan allows homeowners to gain access to equity they’ve built up through mortgage payments and is paid directly to the homeowner. Unlike a typical mortgage, a reverse mortgage does not require homeowners to make monthly payments on the mortgage. Basically, instead of making a monthly payment toward a mortgage, homeowners receive cash or monthly income while continuing to retain ownership over the home. This allows older homeowners who have substantial equity in their home, but relatively low income, to receive money each month.

Homeowners are not required to pay back the reverse mortgage loan for as long as they retain residence in the home. However, upon the death of the homeowner/mortgagor, the bank gains ownership over the home.

Reverse mortgages are structured in such a way that the loan amount the homeowner receives cannot exceed the value of the home at the time. What this means for the homeowner is that you are likely not given fair market value of the home initially.

The Federal Housing Authority’s reverse mortgage program is the Home Equity Conversion Mortgage (HECM). The FHA decides the loan amount homeowners are eligible based on age, home value, and more.

Who Qualifies?

In general, to qualify for a reverse mortgage you must meet the following criteria:

  • Be at least 62 years of age
  • Occupy the home in question as your primary residence
  • Own the home (or only owe a small amount on the home, in some cases)
  • There are generally no income restrictions for reverse mortgage qualification

Effects of Reverse Mortgages…

Reverse mortgages usually will not affect Social Security or Medicare benefits, and is in fact often used to supplement these programs, giving seniors more financial security during retirement.

Reverse mortgages can also work in purchase transactions, meaning that a qualified homeowner can purchase a home without being required to make any monthly payments (payments are covered by reverse mortgage funds).

Rules, restrictions, and requirements vary by state, so it is important to talk with your lender, real estate agent, and financial advisor to learn more about the option of taking out a reverse mortgage.

For more FAQ’s about Reverse Mortgages visit the HUD website and contact Reata Realty to find an experienced real estate agent in Texas.

Happy Trails!