A reverse mortgage allows older homeowners to convert part of their home equity into cash without having to sell the home or take on additional monthly bills. The reverse mortgage does not have to be repaid until the homeowner dies, sells the home, or stops using the home as his or her primary residence for at least 12 months.
Three Types of Reverse Mortgages Are Available
The three types of reverse mortgages available in the U.S. are:
- Single-purpose reverse mortgages.
- Home Equity Conversion Mortgages (HECMs) that are federally insured and backed by the U.S. Department of Housing and Urban Development (HUD).
- Proprietary reverse mortgages that are private loans backed by the companies that offer them.
What Are Single-purpose Reverse Mortgages?
When it comes to reverse mortgages, single-purpose mortgages are the low cost option compared to HECMs and proprietary reverse mortgages. However, there are limitations that apply, and these mortgages are not available everywhere. Single-purpose reverse mortgages:
- Are offered by some state and local government agencies and nonprofit organizations.
- May be used only for specified purposes, such as paying property taxes or making necessary home repairs.
- Are available only for homeowners who are at least 62 years of age and who occupy their homes.
- Are typically available only to low or moderate income seniors.
Where to Locate Single-purpose Reverse Mortgage Lenders
Single-purpose mortgages are available in some areas through state and local government agencies. They may also be offered through nonprofit organizations in one's local area. The best place to begin a search for a single-purpose reverse mortgage lender is by researching the local Area Agencies on Aging.
Once a consumer has located the Area Agencies on Aging in his or her local area, the Federal Trade Commission recommends asking about information on loan or grant programs for home repairs or improvements or for property tax deferral or postponement programs. These organizations should have information on whether such programs exist in one's local area. If such programs are available, one should ask for information on the qualifications for applying and how to apply.
Reverse Mortgage Sales Pitches
There are many reverse mortgage lenders competing for business in the U.S. market. If a company sells home repair services and pitches a reverse mortgage as an easy method for paying for those repairs, one should be cautious. The FTC warns that consumers should bear in mind that the total cost of such a service includes not only the price the seller quotes, but also the costs and fees involved in obtaining the reverse mortgage.
The best option for seniors who need money for home repairs and who otherwise qualify would be a single-purpose reverse mortgage. If such a program is unavailable in one's area, or if one would prefer a more flexible type of reverse mortgage loan, one should investigate HECMs and proprietary reverse mortgages. There are a number of reverse mortgage calculators online. Prior to making any decision, one should talk to a HUD-approved housing counselor.
Additional Resources: The Pitfalls of Reverse Mortgages
Disclaimer: This article is in no way intended as legal or financial advice. For questions related to specific legal or financial issues, one should contact an attorney or financial expert in one's local area.
Jessie Vanwinkle - Jessie Vanwinkle is an attorney in practice since 1998. View her full profile for more information.
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