Reverse mortgages are becoming extremely popular with seniors in California and other States ever since the U.S. Department of Housing and Urban Development (HUD) has created such a mortgage.
Thousands of senior citizens have only one asset, their home, but they may be short of cash and struggling to keep their property. For example California Reverse Home Mortgage allows elderly people to supplement social security, meet unexpected medical expenses, make home improvements, and more.
This kind of mortgage permits the homeowner to convert a portion of the home equity into cash. Unlike a traditional home equity loan (HELOC) or second mortgage, repayment is not required until the borrower no longer uses the home as a principal residence.
To be eligible the borrower must be at least 62 years old; own the home with a low mortgage balance that can be paid off at closing with proceeds from the California Reverse Mortgage Loan, and he or she must live in the home. Seniors do not have to meet any standards of income or credit requirements in order to qualify for this Mortgage.
The loan amount depends on the age of the owner, the current interest rate, the value of the house, its location, and loan fees.
Borrowers from California and other States can expect a loan between 45% to 75% of the value of the home. However, you to have remember that these special Mortgages are costly (the closing costs for reverse mortgages are more costly than typical forward mortgages). In addition, you must attend a counseling session with a FHA counselor that takes about an hour.
Reverse Mortgage provides mortgages under three categories:
Home Equity Conversion Mortgage
Single Purpose Reverse Mortgage
Proprietary Reverse Mortgage
The Home Equity Conversion Mortgage is federally insured, whereas the other two are offered by government-licensed agencies, by banks, and by other private mortgage financing institutions.
With a traditional second mortgage loan or a home equity line of credit (HELOC), there must be sufficient income versus debt ratio to qualify for the loan, and the monthly mortgage payments are required; whereas a Reverse Mortgage loan is not repayable as long as one of the borrowers continues to live in the house and keeps the taxes and insurance current. A long living person continues to occupy the house and receive monthly payments even after the equity on the house gets used up.
If the home is sold or no longer used as a primary residence, the homeowner or the estate repays the mortgage plus interest and other fees to the reverse mortgage lender.
The remaining home equity belongs to the homeowner or heirs. A Reverse Mortgage Loan will affect no other assets and the debt will never be passed along to the estate or heirs.
A down side of this mortgage is that because the borrowers continue to own the house, they are responsible for taxes, insurance and repairs.
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