Seniors, age 62 and older who are looking for money for any reason may just find themselves sitting on it. Thousand of seniors every month are cashing in on the equity in their homes by doing reverse mortgages. It may be the best way for seniors to get cash without paying income tax on the money they take out and the seniors are not required to pay the money back.
How does a senior get approved for a reverse mortgage? Approval is simple. Credit score or credit history does not matter. Income does not matter. Credit and income are probably the largest factors in approving or denying a forward mortgage but when applying for reverse mortgage, these factors do not matter at all.
The 3 largest factors of being approved for a reverse mortgage are:
o Loan is based on age, number of borrowers and home value.
o Must be 62 years of age for FHA insured reverse mortgages.
o Must have equity in the property. Amount or percentage of equity will vary depending on the senior's goals but typically an equity position of 50% or greater pays more benefits.
There have been many myths surrounding reverse mortgages. The biggest myth might be, "The bank takes the deed to the house." In a reverse mortgage, the borrower retaines ownership of the home. The lender does not take control of the title. The lender's interest is limited to the outstanding balance.
Another myth regarding reverse mortgages is that the approval process is difficult. Although the approval is easier than a forward mortgage, an over the phone credit counseling session is required for each borrower. This phone session only takes twenty to thirty minutes and is designed so that seniors are not taken advantage of by unscrupulous telemarketing companies. The credit counseling helps the seniors have a full understanding of the reverse mortgage. A certificate of completion is issued to the senior after the counseling is conducted. The credit counseling is conducted by third party firms and is paid by the lender and not the senior.
Reverse mortgages are regulated by HUD and insured by FHA and there are safeguards in place to protect seniors before a transaction takes place. These processes are in place to make the transaction smooth and so ensure that the seniors are well informed of the details of the transaction.