A reverse mortgage loan is meant, specifically, for homeowners aged 62 or older to purchase or leverage the equity in their home. With a reverse mortgage for California, a homeowner who owns his house or at least a considerable equity to draw from can withdraw a part of their equity without the need of repaying it until they leave the home. It means the loan will not come out until you stop living in that place, fail to meet the loan obligation, or sell your house. Let us learn in detail about it.
How Does a Reverse Mortgage Work?
Firstly, to understand the work concept of reverse mortgage loans, you will have to understand home equity. In real estate, equity means the current value of your property reducing the amount of the loans still owed on it. Let us take an example. If your house values $300,000, but you owe $100,000 on a mortgage, you will have $200,000 in your home equity. If you have paid off the mortgage or do not have it in the first place, your home equity will be equal to the total market value of the property.
When you take the reverse mortgage for California, you will borrow money against a certain portion of that particular equity. The money you receive from this loan is not taxable. Also, you will receive the amount in a single lump sum, monthly credits, or in the form of a line of credit. It all depends on your needs and the type of loan you choose.
If you want, you can choose to make payments on the loan, but it is not compulsory. However, you must keep on paying the property taxes, insurance premium and keep it in good condition. If you do not take care of that, it can lead to foreclosure.
Requirements for a Reverse Mortgage
To be eligible for a reverse mortgage loan, the homeowner must be 62 years old or more than that. The additional requirements include: –
- You must own the house or property completely or at least have paid a substantial amount of the mortgage.
- The property must be your primary residence.
- You must not be involved as a culprit on any federal debt.
- You must be financially capable of paying the property taxes, insurance, and homeowners association dues.
Seniors must be careful to make the best use of the loan by budgeting carefully. They make set everything right to avoid running out of funds too soon. It is to ensure that they can pay the taxes and insurance as agreed.
What are the Different Types of Reverse Mortgages?
There are different types of mortgage loans. Each of them fits a separate financial need.
Home Equity Conversion Mortgage (HECM) – HECM is one of the most popular reverse mortgages. These mortgages are federally insured with high upfront costs, but you can use the funds for any purpose. You can also choose the withdrawal type in the form of monthly payments or line of credit, or maybe both options. The HECMs are only offered by the FHA (Federal Housing Administration)- approved lenders, and before closing, all the loan borrowers must get the HUD-approved counseling.
Proprietary Reverse Mortgage – It is a private loan and the government does not back it. You can typically receive a large loan advance from this type of reverse mortgage, especially if your house is higher valued.
Single Purpose Reverse Mortgage – The reverse mortgage loan type is not that common compared to the other two. The nonprofit organizations or state and local government agencies offer these loans. A single-purpose reverse mortgage loan is mostly the cheapest of the three options. But the borrowers can use the loan to cover only one particular purpose.
Can You Lose Your House With a Reverse Mortgage Loan?
As with the other mortgages, there are some conditions that you need to stick to keep the reverse mortgage loan in good standing. That is because if you fail to do that, you might lose your home. You can violate the terms and conditions of a reverse mortgage in the following ways: –
Your home is no longer your primary residence – As a part of the loan agreement, the home you are mortgaging must be your primary residence. That means the loan does not allow you to leave your house for more than twelve consecutive months. Do not worry. This rule does not stop you from traveling or going anywhere whenever you want as per your will. But if you leave the house for more than twelve months straight, the loan becomes due and payable.
You are moving out or planning to sell your home – If you are moving out or putting up our house on sale, the loan binds you by the condition to live in the house for 12 months. If no buyer shows up or agrees to buy the place within the twelve months, the reverse mortgage loan will become due.
You did not pay the property taxes or insurance costs – Even during a reverse mortgage loan, you are still responsible to pay all the taxes of your property. Failure can lead to the failure of the loan. Also, you must maintain the current homeowners’ insurance.
Is Reverse Mortgage a Good Idea?
A reverse mortgage is pretty helpful for people looking for a source of additional income when they are in their retirement years. Most people use this loan to meet their medical expenses, home care expenses and make home improvements. The borrowers can make money in several flexible ways. Also, if the home value appreciates with time and becomes worth the value of the reverse mortgage loan, you or your heirs will receive the difference.
A reverse mortgage loan is the only way to access the home equity without selling the property. It is a great option for people who do not want to be involved in monthly loan payments or can not qualify for an equity loan or refinance a home loan due to certain reasons.
Conclusion
Reverse mortgage for California is beneficial for senior homeowners that understand how the loan systems work and what all is involved in tradeoffs. But remember that it is a complicated product. That is why you must consider it properly before getting with it. You can contact RCD Capital for better guidance about reverse mortgage loans or USDA home loans.
