One of the FHA loan programs which can help senior citizens is the reverse mortgage. A reverse mortgage is a great way to deal with financial needs which are pressing in nature.
If you are 62 years or older and you need some cash for something important or for an emergency (or even just to have on hand if an emergency arises), then you may want to free up some of the equity in your home with a reverse mortgage and increase your liquid cash flow.
A reverse mortgage only works if you do have equity in your home
That means you will either need to own your home outright or you will need to own enough equity in your home that you can draw on it in the form of a loan.
The program for reverse mortgages is HUD administered and allows you to withdraw the money in a flexible way which suits you.
You can choose to receive the money all at once as a lump sum, in monthly payments over your lifetime, or in the form of a credit line. You can also choose some combination of those methods if that suits you better.
The great thing about a reverse mortgage aside from the availability of the cash is that you don’t need to repay the loan at all until your home is sold, you move out of the home, you breach your contract, or you die.
In many cases this means that you won’t have to repay the loan at all, which is as good as it gets!
What would constitute a breach of your contract?
Usually the contract for the reverse mortgage requires you keep the place in good condition, don’t fall behind on your property taxes, and insure the home against fire, theft, or other scenarios which could cause damage or reduce the value of the property.
You can leave the home for up to a year at a time (for medical care or vacation or whatever other reason) without breaching your contract. Otherwise you will need to be present and living in the home on a continuous basis.
How is the value of your reverse mortgage determined?
The amount you receive will be based on the appraised value of your property, the presence of liens, your age, and the method through which you opt to receive the money.
A line of credit will make the most money available to you, and the older you are the more money you will be eligible to receive.
The money isn’t taxable, and it won’t affect your Social Security or Medicare benefits directly, although that depends on what you do with it.
If you keep the money in a savings or checking account through the end of the month you receive it on, it will count as liquid assets, which could hinder your participation in the benefits programs. This is something to be very cautious of when you are using a reverse mortgage.
What are some of the reasons you might take out a reverse mortgage?
You may want to get a reverse mortgage in order to have money available should you need it in an emergency. Cash assets can make your whole life more secure.
You also could choose to get a reverse mortgage to help you pay a medical bill or even to finance improvements to your home. You can use a reverse mortgage for other less necessary expenses too (vacations, etc.), or even just to help you to pay your daily living expenses—but be careful not to spend more than you can afford within the constraints of your financial situation.
You might even take out a reverse mortgage in order to help pay off your primary mortgage—but if you’re in a situation like this, it’s important not to spend the money on anything that is unnecessary since you will owe it all back if you lose the house.
For seniors in financial need, a reverse mortgage can represent a solution to many problems; with the help of this federal program it is possible for citizens over 62 who own equity in their homes to enjoy greater ease and quality of life.