Reverse: For Financial Planners
Planning for retirement is a huge part of someone’s financial journey. The most common sources of income during retirement are savings or stock accounts. Often, even when combined with Social Security or pension income, this is not enough to offset inflation or increasing health problems. A reverse mortgage provides an alternate source of funds without having to pay taxes in liquidating other assets.
With a reverse mortgage, a borrower never has to give up title to their home. Because the borrower pays mortgage insurance premiums (through the reverse mortgage), the borrower will never owe more than their home’s value. Further, a borrower never has to make loan repayments in advance of leaving the home until they choose to do so. The reverse mortgage must be paid either when the home sells or when the borrowers move out of the home.
What do you need to know?
At least one homeowner must be aged 62 or older. Reverse mortgages are only permitted on primary residences. The borrower must have sufficient equity in the home or put a high percentage down on a purchase.
The property must meet FHA property standards and flood requirements, meaning an FHA appraisal will be ordered on the property. FHA-eligible properties include 1- to 4-unit homes and HUD-approved condos and manufactured homes.
The home does not currently have to be owned free and clear. The reverse mortgage would be used first to pay off the existing mortgage. This would lower the amount of equity the borrower would directly have access to.