Reverse annuity mortgages (RAM) were created to allow senior Americans to tap into the equity of their paid for or nearly paid for home. Homeowners receive a tax-free payment each month, with the mortgage paid out and when the home is sold. Before you choose a RAM, make sure you have evaluated the risks since this option can limit future housing plans.
Types Of Reverse Mortgages
RAM programs are developed by HUD.To be eligible you must be 62 or older, use the property as your residence, and have paid off your mortgage in full. The fed government will then insure your mortgage.
You might want to talk to private lenders as an option. You will want to review their terms and conditions very carefully to be sure that you are getting the full value of your home and not paying unnecessary and exhorbitant fees.
Both types of RAM will never let you owe more than what your home is worth. When you decide to move out of the property, the loans principal, interest, and fees will be due and any equity remaining from the sale of your home will be yours or can be based onto heirs.
Difference Between A Reverse Mortgage and A Home Equity Loan
The major difference between a RAM and a home equity loan is when the loan balance is due. With a RAM, the mortgage balance will need to be fully paid once you stop living in the property. You dont have the monthly payments of an equity loan and it is much easier to qualify for the mortgage since you dont have to show any prove of income to make monthly payments.
Payouts Options
There are several payout options that you can choose from. A ‘tenure policy’ provides equal monthly payments to the borrower as long as he or she lives on the property itself. A “term policy’ gives fixed monthly payments for a set period of time. A line of credit enable the borrower to withdraw funds only when needed. A modified tenure combines a line of credit with life long monthly payments while a modified term provides a line of credit with fixed monthly payments.
Beware Of Scams
There are several scams related to reverse mortgages that you should be aware of. You should not pay thousands for information about a RAM and should get them from HUD and legitimate mortgage lenders. You should also avoid any terms that require payments before you sell or that sell your house within so many years.
When looking for additional funds for retirement, seniors can turn to a financial tool called HUD reverse mortgages. Seniors can have access to their equity from their homes without the worries of making monthly repayments.
In order to be eligible for a HUD reverse mortgage, there are a few basic requirements to fulfill. Homeowners must meet the following criteria in order to be eligible for a HUD reverse mortgage:
1.) The home must be a principal residence.
2.) Homeowner must be age 62 or older.
3.) The home must be owned free and clear or have a mortgage balance that can be paid from equity.
4.) The property must be a single-family home, a one-to-four unit dwelling with one unit occupied by the applicant, a manufactured home (mobile home), or a unit in condominiums or Planned Unit Developments.
5.) The property must meet minimum property standards.
Homeowners that qualify can receive payments in a lump sum, on a monthly basis, or on an occasional basis as a line of credit. At a later date the payment options can be restructured if circumstances change.
The amount that can be borrowed on a HUD reverse mortgages is determined by the borrowers age which in any case the older the borrower the more that can be borrowed against the value of the home and the lower the interest rate the more that can be borrowed.
There is no hard limit for home value to qualify for a HUD reverse mortgage, but the amount that may be borrowed is capped by the maximum FHA mortgage limits for an area. This means that owners of a high priced home can’t borrow any more than the owners of homes valued at the FHA limit. There are no asset or income limitations on borrowers receiving a HUD reverse mortgage.
Unlike ordinary home loans, a HUD reverse mortgage does not require repayment as long as the home remains the borrowers primary residence. When the home is sold the Mortgage company recovers their principal, plus interest, and the remaining value of the home goes to the homeowner or to his or her survivors. Should the sales proceeds not cover the amount owed, HUD will pay the mortgage company for any shortfall.