If you’re a senior homeowner in search of cash to supplement social security, pay off medical bills or credit card debt, or if you are considering home improvements or you want to buy a car, you may not have to look any farther than your front door.
Qualified borrowers can tap into the value of their homes using a reverse mortgage to get that money now.
What is a reverse mortgage?
A reverse mortgage is different than a traditional home equity loan or second mortgage.
According to the U.S. Department of Housing and Urban Development (HUD), “with a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments.” But with a reverse mortgage, you won’t have to make monthly payments. Repayment of a reverse mortgage is not required until you no longer use your home as your principal residence, according to HUD.
With a reverse mortgage, you can borrow against the equity in your home that you have built through years of mortgage payments (whether or not you've paid off your home entirely).The proceeds of a reverse mortgage generally are tax-free, and many reverse mortgages have no income restrictions.
Can I qualify for a reverse mortgage?
You’ll have to be over the age of 62 and own your home outright or have a relatively low mortgage balance on the home you’d like to get a reverse mortgage on. You also have to be using the home as your primary residence, meaning it’s your official address and it’s in the area where you pay your taxes and vote, according to Peter Bell, president of the National Reverse Mortgage Lenders Association. And you can’t use the home or unit that is your primary residence at any time as an investment property from which you receive rental income, he says.
Your credit score and income aren’t used in determining your eligibility, but you’ll need to receive credit counseling before you receive a reverse mortgage. You can find a credit counselor for free or low-cost advice through the HUD or the National Foundation for Credit Counseling.