Are you thinking about a reverse mortgage? Hasty decisions often lead to confusion. You need to think twice before you leap. A reverse mortgage can put money in your pocket but an immature decision can make things confused. The payment becomes messy and the money you are planning to put into your pocket may get transferred to the pocket of someone else. If you make the right decision, it can become a lifesaver.
Here are the most important things to keep in mind while planning to have a reverse mortgage in California:
Realistically Assess Whether You Can Afford Taxes, Maintenance and Insurance
Accessing to the equity in a home becomes a reality with a reverse mortgage. But, you should not mistake it as free money. There are some fees involved with these types of loans. Moreover, you have to look out for maintenance of the home, insurance and property taxes. If you do not analyze these aspects, your mortgage may come due. You need to realize that the reverse mortgage lender does not write off on a tax return until you pay off the loan partly or in full. It is an opportunity to enhance the quality of your life but you should make it good for nothing thing by undermining the importance of these critical aspects.
Age and Residency are More Prominent than Income
When you depend on conventional mortgage loans, you have to be mindful of making a certain amount of income to qualify for the loan. This aspect cannot be applied to reverse mortgage. Your credit does not gain a major impact in the eyes of the lender. What matters most is your age and residency. Age factor can become highly advantageous if you have owned the home for a long period of time and the home value has been increasing in a steady manner.
Loan Document must Contain Names of All Home Owners
As long as the home serves as your primary residence, reverse mortgage arrangements allow you to live in the home. Only loan agreement signatories are privileged to enjoy this living arrangement. If there are two members as homeowners and only one is listed on the mortgage, the other person risks being thrown out of the home when the main borrower moves to a special care facility or hospital or passes away. This is a mistake that many families commit and it leads to foreclosure. If you want to avoid this situation, you have to add names of all homeowners on the loan document
Major Differences Between a Home Equity Loan and Reverse Mortgage
If you do not have a satisfactory income, you do not qualify for a home equity loan and monthly payments should be paid on the principal and interest. A credit check is conducted to identify how much you can borrow and it also decides what type of interest rate you need to pay. A credit check does not apply to a reverse mortgage and there are no monthly income requirements as well. You also do not need to pay any monthly payment on the mortgage. If you are interested in making payments, you can make them on your reverse mortgage.
Should You or Your Heirs Sell the Property to Repay a Reverse Mortgage?
There is no compulsion to sell your property. You can make the repayment by refinancing the current reverse mortgage into a traditional mortgage loan. If your heirs decide to sell the property and get more money than the mortgage loan, they are allowed to keep the extra amount. If the cash received for the property is less than the amount to be repaid, the reverse mortgage lender makes up the difference and decide to keep the property. They need to refinance the whole amount of the current mortgage balance irrespective of the appraised value of the home.
How do You Receive the Payments?
The payment can be received in 5 ways and they include monthly tenure, monthly term, lump sum fixed rate, the line of credit and a combination of any of these payment methods. A combination of all these payments refers to getting a lump sum and the remaining amount is paid on the monthly basis.
What is the Impact of a Reverse Mortgage on Social Security and Medicare?
Your reverse mortgage proceeds have nothing to do with your Medicare and social security. At the mean time; if you are on Medicaid, any proceeds that you receive from the reverse mortgage should be utilized instantly. The reserve funds are going to be considered as an asset and such a situation can adversely influence your Medicaid eligibility. You have to consult with your financial advisor to deal with the amount that you retain.
The bottom line is that a reverse mortgage can offer you the cash you need with your retirement. This tax-free cash can be utilized the way you want but you should be mindful of all these important aspects while considering a reverse mortgage in California.