Reverse mortgages can be a way to help an elderly individual or couple receive the money they need to make the rest of their lives comfortable, to finance a medical need, or to get them out of a financial bind. With a reverse mortgage, a lender will pay you a lump sum or monthly payments and in return, the lender will have ownership over your home when you pass or move out of the home. Additionally, if you sell your home, the loan will need to be repaid in full. A reverse mortgage is not a decision that should be taken lightly. It seems like a great deal, but there are also many factors to consider. The steps below will help you through the process.
- Decide which type of reverse mortgage fits you best. You can choose from a single-purpose reverse mortgage, which is given out by the government and nonprofit companies, a Home Equity Conversion Mortgage, which allows your mortgage to be insured by HUD, and a proprietary reverse mortgage, which is a fully private loan.
- Make sure you meet the minimum requirements for the type of reverse mortgage you choose. These usually include being 62 or older, owning your own home (which may or may not have mortgage payments remaining on it), and using the home as your primary residence. Some programs may have their own requirements, such as income guidelines.
- Determine what you can get from your home and if it is enough to fulfill your needs.
- Determine how you will receive your funds. You can choose from lump sum payment, a line of credit (which you can access when you need), a monthly payment (which will be a set amount paid at the same time every month), or you can combine a number of methods if you need flexibility. Each of these options will have its own advantages or disadvantages depending on your situation.
- Talk to someone who knows about your options and can help you decide what is best for you, such as a HUD or AARP counselor. This will give you a chance to ask questions and clear up any misunderstandings you have about reverse mortgages.
- Choose your lender. Make sure you are making a deal with a reputable lender and that they are a member of the National Reverse Mortgage Lenders Association (NRMLA). This will ensure that you will not be subjected to any misleading tactics, as the members of NRMLA must abide by a code of ethics.
- Just like a regular mortgage, before the deal is finalized, it will need to go through processing, underwriting, and closing. You will be able to receive your funds, or start your monthly payments, once these three final processes are complete.
Follow all of these steps to ensure that you are not taken advantage of through unreasonably high fees or unusual guidelines hidden in the contract. If you are seeking a private loan, it may be advisable to have a relative come with you to take a second glance at everything or to hire a lawyer to look over any paperwork before you sign.