Retirement expenses can be difficult to afford, especially when they are unexpected expenses like medical bills or home repairs. You might even find it difficult to pay your regular monthly bills on a fixed income when you retire. If you own your own home, you may be eligible for something called a reverse mortgage, which can help. However, before applying you need to assess your reverse mortgage eligibility and understand how the process works.
Receiving and Making Payments with a Reverse Mortgage
You might be wondering why you would even consider applying for a reverse mortgage as opposed to a traditional home loan. A primary reason is the payment and repayment structure is quite different. With a reverse mortgage you can opt to receive ongoing monthly payments. You may not have to pay any of those funds back for several years. A traditional home loan requires you to make ongoing restitution to the lender beginning soon after you receive your loan funds, instead. Therefore, it can just make your retirement financially harder.
Making Sure Your Home is Appropriate for a Reverse Mortgage
Of course, one of the key factors in reverse mortgage eligibility is the type of home involved. For example, you cannot take out a reverse mortgage on a property you own that has no structures at all. You also cannot take one out on a vacation home or other home you do not live in. Only your primary residence qualifies.
A factor that can affect whether a home qualifies for a reverse mortgage is its size and general value. Obviously, the home must have enough value to borrow against, so some buildings do not qualify due to low value. Another aspect of how a reverse mortgage works is you may apply for one on an apartment building. However, you must own and live in the building. Also, it typically cannot consist of more than four apartments.
Personal Eligibility Factors for a Reverse Mortgage
Of course, you must personally qualify for a reverse mortgage as well. That means you must be at least 62 years of age and a resident in the home. You must also agree to keep the home as your main residence for as long as the loan lasts. Additionally, you agree to continue to be the owner of the home for the duration of the loan. That means you are required to pay property taxes and otherwise maintain it. You may have to pass a credit check to prove you have the means to do so.
When You Have to Pay Your Mortgage Back
Reverse mortgages are meant to be paid back a long time after they are activated. Therefore, there is no rush to pay one back. However, that also means you may need to stay in your home for many years to keep the loan active for as long as you want. Therefore, you might not be eligible for a reverse mortgage on your current home if you have any plans to move away in the near future.
What Happens When You Cannot Pay the Loan Back
If you do move out of your home at any point, you must pay the full remaining amount you owe back. If you cannot do so, you lose ownership of the home. The sale of the home is then initiated. Proceeds from the sale pay as much of the remaining loan balance as possible. If a balance still remains after that, the remaining debt is overlooked.
Putting it All Together to Determine Your Eligibility
As you can see, determining your reverse mortgage eligibility can be complicated. You may meet basic requirements to qualify for the mortgage. That does not necessarily mean it is automatically appropriate for you. For example, if you already have a traditional loan, you must use reverse mortgage money to immediately pay it off. That may make you reluctant to obtain a reverse loan. Ultimately, only you can determine which factors are of the most importance to you when making your final choice.