Most people are familiar with a mortgage; you find a house you want to buy,

Most people are familiar with a mortgage; you find a house you want to buy, you get a loan (mortgage) and buy it. However, with the longevity rate increasing, more and more homeowners are looking for ways to increase their retirement income. A reverse mortgage may be one option.

The top ten issues associated with reverse mortgages include the following:

1 Reverse Mortgage versus Home Equity Loan

A reverse mortgage, by definition, is a mortgage taken out using the equity of a home as the collateral. There are some specific guidelines to be met, but basically this is a loan (a mortgage) which is paid using a variety of different methods. The homeowner keeps full title/deed to the property until very specific conditions are met. This differs from a traditional home equity loan in that there are no payments made on the loan until such time as both parties die, move away, or sell the property. At that time, the loan is either paid off or the property becomes the possession of the lender.

2 Who Can Qualify for a Reverse Mortgage

To qualify for a reverse mortgage, the homeowner/borrower must:
· Participate in a consumer education session with a HUD-approved counselor
· Be age 62 or older
· Have the property as their main residence
· Hold a fair and clear title to the property, or
· Have a balance on the current mortgage that can/will be paid off with a reverse mortgage

3 What Property Can Qualify for a Reverse Mortgage

The property must also qualify. As such, the property:
· Must be a single-family dwelling or one-to-four unit, owner-occupied dwelling
· Can be a townhome, detached home, condominium unit, planned unit development (PUDs) or a manufactured home
· Must meet HUD (Department of Housing and Urban Development) minimum property standards.

4 The Process

As with any mortgage, an application must be made to a lender. The same process applies for getting inspections, appraisals, insurance (including title insurance), and paying the closing costs. There is one major difference, however – there is no credit report to pass. As the collateral is the home, not the borrower, loan amounts and mortgage rates are based on the value of the property, not the owner’s ability to repay the loan. 

5 What Determines the Amount of the Mortgage

As with regular mortgages, lender policies apply. Some of the determining factors include the following:
· The age of the youngest homeowner
· The appraised value of the home
· The current interest rate
· The locally established lending limit

6 Different Types of Reverse Mortgages

The difference in the types of reverse mortgages is not in the type of loan, but in the types of loan disbursements. Proceeds can be paid in the following manners:
·

Lump sum: a specific amount is paid immediately.
· Term: funds are released in set monthly amounts for a specific period as requested by the customers.
· Tenure: loan proceeds are distributed in equal monthly allotments for as long as at least one homeowner continues to occupy the home as their prime residence.
· Line of Credit: funds remain available for the customer to draw as needed.
· Combination: Any of the above.

7 What Happens to the Property

The property stays in the possession of the homeowner until they pass away, move away, or sell it; then the loan is either paid off (by them or their heirs) or the property becomes the possession of the lender.

8 What Can Be Done with the Money

The spending of the money, as with any loan, is at the discretion of the borrower. It can be used to pay off debts, the first mortgage, living expenses, medical expenses, or even to purchase another property as long as the first property is considered the prime residence.

9 The Advantages of a Reverse Mortgage

The advantages of getting a reverse mortgage and the monies it provides can include the following:
· The elimination of an existing mortgage
· A supplement to retirement income
· Tax incentives, as payments are not considered income by the IRS
· Money for remodeling or repairing the property
· Covering medical or healthcare expenses
· Increasing retirement income

10 The Disadvantages of a Reverse Mortgage

The disadvantages of a reverse mortgage are as follows:
· It is a loan which needs to be paid back
· Payments can affect some need-based programs/services
· Property taxes, insurance, and general upkeep must be continued.
· HUD standards must be followed

Additional Resources

For more information about reverse mortgages, visit these Web sites:

• Reverse Help Line at: http://www.reversehelpline.us/whatIsReverseMortgage.html
• Wells Fargo at: https://www.wellsfargo.com
• Department of Housing and Urban Development (HUD) at: http://www.hud.gov