Reverse mortgages have garnered considerable attention over recent years, especially among homeowners above the age of 62. This form of financial assistance allows them to tap into their home’s equity, providing a much-needed income source during their retirement years. However, obtaining a reverse mortgage is not as simple as it may seem, and it involves several critical steps. This article explores these necessary steps to guide potential borrowers through the process.
Research and Understand What Reverse Mortgages Entail Before starting the process, it’s crucial to understand what a reverse mortgaga is. In essence, it is a loan available to homeowners who are 62 years or older, allowing them to convert part of their home’s equity into cash. Unlike a conventional mortgage, the borrower isn’t required to make regular monthly payments to repay the loan. Instead, the loan is repaid when the borrower no longer occupies the home as their primary residence, generally through selling the home. Despite the apparent advantages, reverse mortgages also come with potential risks and downsides, such as high upfront costs, decreasing the estate’s value left to heirs, and the possibility of losing the home if certain conditions aren’t met. Evaluate Your Eligibility Once you’ve understood the concept of a reverse mortgage, it’s essential to evaluate whether you’re eligible. Generally, to qualify for a reverse mortgage, you must: Counseling Session Prospective borrowers are required to undergo a counseling session with a government-approved agency. This step, mandated by the Federal Housing Administration (FHA), ensures that the homeowner fully comprehends the implications of a reverse mortgage, its costs, and its alternatives. Choosing a Reverse Mortgage There are three types of reverse mortgages: Home Equity Conversion Mortgages (HECMs), proprietary reverse mortgages, and single-purpose reverse mortgages. Each type serves different needs and comes with distinct rules and costs. HECMs are federally insured and backed by the U.S. Department of Housing and Urban Development (HUD). In contrast, proprietary reverse mortgages are private loans, and single-purpose reverse mortgages are offered by some state and local government agencies and non-profit organizations. Application Once you’ve decided on the type of reverse mortgage, the next step is to apply. The process typically involves providing information about yourself and your home. You’ll need to present some documents, such as proof of age, evidence of homeownership, and information on any existing mortgage loans on your property. Home Appraisal After applying, an appraisal will be done on your home to determine its market value. This value, along with your age and current interest rates, will be used to calculate the amount of money you can borrow. Underwriting Once the appraisal is complete, your application will be processed and underwritten. During this stage, the lender will verify your information, review the appraisal, and check if you meet all the necessary requirements. Loan Closing If your application is approved, you’ll move forward to the closing process. The loan closing involves signing the final documents and paying any closing costs or fees. Disbursement of Funds Once the loan is closed, you’ll have three business days to cancel the loan if you change your mind, a period known as the “right of rescission.” After this period, the funds from the reverse mortgage can be disbursed. Ongoing Responsibilities Securing a reverse mortgage also comes with ongoing responsibilities. These include living in the home as your primary residence, keeping the home in good condition, and continuing to pay property taxes and homeowner’s insurance. Failing to meet these requirements can lead to the loan becoming due and payable. In conclusion, while a reverse mortgage can provide much-needed financial relief, it is a complex financial product with significant implications. By understanding these necessary steps, potential borrowers can approach the process with confidence and make informed decisions. It’s also recommended to seek advice from a trusted financial advisor to determine if a reverse mortgage is the right option for your financial situation. By Catherine Tims | August 6, 2023
How a Reverse Mortgage Can Be Used to Purchase a Home
Reverse mortgages have traditionally been used as a way for older homeowners to access the equity in their home and receive regular payments, either as a lump sum, tenure or term payment, or through a line of credit, all without having to sell their property or make monthly mortgage payments. * But what if your client wants to sell their home and purchase a new one? Can a reverse mortgage be used for that? In short, yes, but let’s take a deeper look into how a reverse mortgage can be used to purchase a home. The Reverse Mortgage Purchase Process In a reverse mortgage purchase, the homeowner can use the proceeds from the sale of their existing home for the down payment on the new home. This, coupled with the reverse mortgage, can cover the purchase cost of the new home, allowing the borrower to keep more funds on hand. Plus, the borrower gets all the usual benefits of a reverse mortgage, including no required monthly mortgage payment.* With a reverse mortgage for purchase, selling the existing property and buying a new home can be done simultaneously. This type of reverse mortgage can be an attractive option for seniors who want to right-size or relocate and want to maintain a healthy cash flow. Qualifying for a Reverse Mortgage for Purchase To qualify for a reverse mortgage for purchase, there are some important considerations to keep in mind. Firstly, the homeowner must have sufficient equity in their current home or liquid assets to pay off any outstanding mortgage debt and provide a down payment for the new home. Secondly, the new home must meet the requirements for a reverse mortgage, including being the borrower’s primary residence, meeting FHA or product specific guidelines, and being an eligible property, such as a single-family home or approved condominium. Additionally, the borrower must meet the reverse mortgage requirements, including being age eligible and meeting a financial assessment. Conclusion In conclusion, a reverse mortgage can be used to purchase a home and can be a good option for senior homeowners who are interested in rightsizing or relocating. It can help them keep money in savings by using the sale proceeds as a down payment and letting the reverse mortgage cover the rest of the purchase. It comes with the same benefits that a reverse mortgage typically has, including being a non-recourse loan and having no required monthly mortgage payment.* A reverse mortgage for purchase takes some additional planning and consideration to ensure it is the right fit for the borrower, but it can be well worth it in the end. We recommend your clients speak with their financial advisor or reverse mortgage specialist to help them determine if it is the best option for their particular situation. Smartfi Contributor Our Smartfi Contributors are made up of a collective group of mortgage industry professionals, who share their personal opinions of the mortgage industry, topics, and various products. These are the express opinions of the Smartfi Contributor, and the article is based on their opinion and recommendations alone. It may not have been reviewed, commissioned or otherwise endorsed by Smartfi Home Loans, LLC. Reverse mortgage proceeds may affect the eligibility and payments of Medicaid, SSI and similar program benefits. All clients should be advised to seek guidance on their financial situation with their financial planner/advisor. A reverse mortgage is not suitable for all clients in all situations. All loans are subject to loan underwriting and must meet all product requirements. Programs can change at any time, please see product handbooks for full underwriting guidelines. *Borrower must pay property taxes, insurance, any HOA fees and maintain the property.
The Big Squeeze
The Credit Crunch is Here Older homeowners are getting squeezed by loan rejections and skyrocketing homeowner’s insurance premiums We’ve warned repeatedly of the coming credit crunch, and now consumers are beginning to feel its impact. Just as mariners would ‘batten down the hatches’ when the ship was about to enter rough seas, lending institutions are aggressively moving to reduce their risk exposure to bad loans amid concerns of a looming economic recession. In the wake of one of the Federal Reserve’s most aggressive rate hike cycles large banks such as JP Morgan Chase, Wells Fargo, and Citigroup are setting aside more money to absorb an expected influx of bad consumer debt. It then comes as no surprise that the Federal Reserve’s Survey of Consumer Expectations survey found the overall rejection rate for credit applications jumped to 21.8% in June, up substantially from 17.3% in February. Considering these circumstances older homeowners seeking to refinance their existing mortgage or purchase a new home could find their loan application denied. In fact, the Fed’s survey found a 29.6% probability that home mortgage refinance applications would be rejected and a staggering 46.1% probability of traditional mortgage applications facing the same fate. Do retirees need access to more cash than ever before? There’s a strong case to be made for answering yes for two reasons. First, while somewhat moderated, inflation remains a persistent burden for Americans living on a fixed income. Much of that pain can be found in the Core Consumer Price Index or CPI which measures the change in the price of goods and services while excluding more volatile prices for food and energy. The Core CPI has been especially sticky while general or headline inflation has dropped more significantly since last June. The property insurance disaster Another reason many retirees have an increased need for access to cash is the implosion of affordable and accessible homeowners insurance. Florida has not only seen a record number of new residents arrive but natural disasters. Consequently, AAA, Farmers Insurance, and several lesser-known insurers have joined the growing list of companies that will no longer sell or renew policies in the Sunshine State. In an emailed statement to CBS AAA said, “Unfortunately, Florida’s insurance market has become challenging in recent years. Last year’s catastrophic hurricane season contributed to an unprecedented rise in reinsurance rates, making it more costly for insurance companies to operate.” Over 100,000 Floridians will be impacted by Farmer’s Insurance exit alone. However, Florida is not alone with Allstate and State Farm announcing they will no longer accept applications for property and casualty insurance in California citing increased wildfire risks and high construction costs. Even those seniors who may qualify for a mortgage could find their payments especially onerous not only because of higher interest rates but the massive increases in homeowners insurance premiums that are typically built into a mortgage escrow payment. Even worse, homeowners who cannot obtain or afford insurance could find themselves in default on their mortgage loan agreement and face foreclosure. Older homeowners in Florida and California may find themselves hammered by both a lack of access to credit and surging home insurance premiums. Perhaps a reverse mortgage could be a lifeline to provide the means of continuing to age in place in these most unsettled times. by Shannon Hicks July 24, 2023
Reverse in Real Life
When does a reverse mortgage make sense ? Julie: 87 years old • $0 mortgage • $1.1M home value When Julie was 60, she worked with her family to set up a Power of Attorney which designated her daughter, Francine, as her POA. As Julie aged, she experienced cognitive decline, which increased the level of care she needed. Julie expressed her desire to stay in her home, so Francine looked into in-home care options. Although Julie didn’t have enough income and savings to cover the in-home care costs, she had paid off her mortgage and built a significant amount of equity. Because of this, Francine decided to see how a Reverse Mortgage could help pay for her mother’s in-home care. After speaking with her financial advisor and a mortgage broker, Francine determined that a Reverse Mortgage was the best solution to paying for Julie’s care. Since Francine was established as Julie’s Power of Attorney before her mother’s cognitive decline (and she had doctor’s letters stating her mother was competent when designating her as POA), Francine was able attend counseling, sign the 1009, and obtain the loan on her mom’s behalf. Julie was able to stay in her home and get the care she needed.Smartfi Note: In this scenario, Francine was able to show that her mother established the POA when she was able to understand what the document was, what it did and what she was approving. This is important when it comes to a now “incompetent” borrower who has an appointed POA signing on their behalf.
RETIREMENT NEWS
Divorce Financial Realities as a Senior Marriage is typically good for your health. So why exactly are more older couples suddenly heading to divorce court? Disconnection, according to Jeff Rattiner, CPA, CFP® and author of Personal Financial Planning for Divorce. “Once the kids are grown and you have more free time, couples realize they no longer have much in common.” The phenomenon known as “gray divorce” is on the rise. According to the U.S. Census, nearly 35% of all divorces last year were among couples 55 or older. Those numbers may lead people to believe that getting a divorce is an easy solution. Not quite, according to Rattiner, who cautions his clients to be 100% certain and think through all aspects of splitting up before making a decision. For example, he says, “The financial aspects of divorce at a later age can be devastating. Together, you’ve saved for a certain scenario and have plans for retirement. Suddenly, you now have to fund 100% of those costs alone.” Rethinking your retirement plan The biggest issue, according to Rattiner, is figuring out how to make the numbers work in a compressed time frame. “Redesigning your financial plan is a significant move at this age. Couples who divorce in their 30s or 40s have the luxury of time to ramp up their savings. So it’s important to think things through rather than acting in the moment.” If you choose divorce after careful consideration, Rattiner recommends taking these steps: Change your passwords as soon as you’ve made a decision. This limits the possibility of financial retribution should your partner react poorly to the news. Make a list of what’s important to you. That might be a particular asset or possession, or safeguarding the inheritance of your children from a first marriage. Seek advice that’s specific to your needs. Divorcing later in life comes with different ramifications, so be sure to connect with an attorney, financial advisor and other trusted professional who has experience dealing with your situation. Rattiner reminds clients that it’s not business as usual during and after a divorce, so think about potential ramifications ahead of time and do everything you can to protect yourself. He adds, “You better be really sure, because once you start the process, there may be no turning back.” Take steps to protect your retirement financial security There’s no doubt that divorce at any age takes an emotional and financial toll. For older homeowners that may suddenly need to rethink retirement financials after a divorce, one often-overlooked asset you can put to work is your home equity. A reverse mortgage loan allows a homeowner or buyer to turn built-up equity into funds you can use for any purpose. Certain requirements apply. If you’d like to learn more about how a reverse mortgage works, please give us a call at 941-628-2849.
Reverse in Real Life
when does a reverse mortgage make sense?
Reverse in Real Lifewhen does a reverse mortgage make sense? John: 65 years old • $0 mortgage • $400k home value John owns a condo and has little-to-no liquid assets. He is currently only receiving Social Security Income and is living paycheck to paycheck. Although he doesn’t have an immediate need for cash, he’s concerned about unexpected expenses that may come up in the future. John wants to be proactive and come up with a source to handle any such expenses. He read that reverse mortgages can be used on condominiums and that a HECM Line of Credit will allow any unused money in the LOC to grow over time, opening additional equity in the home.After reaching out to a reverse mortgage lender, John found out his condominium was in fact approved by HUD, because his lender checked it on the HUD Condo lookup. He was fit with a HECM product that allowed him to access his home’s equity, without having to take a out a large lump sum or even schedule monthly disbursements. The reverse mortgage was tailored to meet John’s wants: to have a growing line of credit available for unexpected expenses. He now rests easier knowing he can handle anything life throws his way. The graph above is based on John’s scenario of a 65 year old client with no mortgage balance and a home value of $400,000. See the margin, expected rate, and interest for this scenario here. Smartfi Note: Although John’s condo was approved by HUD for a HECM, if John’s condo was not approved or was inactive, John could have explored alternative proprietary reverse mortgages products to meet his needs.
What is a Reverse Mortgage
Retirement is a time many adults look forward to, but a time dread when it is fast approaching. This is due in large part to financial stability. About 50 percent of older adults fear not having enough money saved for retirement. Another 25 percent fear they will never pay off their existing debt. Fortunately, there is a lifeline for older homeowners. A Reverse Mortgage allows older citizens to afford the retirement lifestyle they want and helps them fund their basic needs and home maintenance. What is a reverse mortgage? A reverse mortgage loan is similar to a traditional mortgage because the home is used as collateral. However, it does not work like a forward mortgage — a loan used to buy a home — and does not require a monthly mortgage payment. The loan is only accessible to older adults at least 62 years old. It is only due for repayment when the borrower is no longer living in the home — in the case of death or being moved to a nursing home. Meanwhile, interest and fees are added to the monthly loan balance, which grows over the loan term. The loan might be with or without limitation on what you can do with it. You can successfully fund your retirement lifestyle with it or even invest in a venture of your choice if the loan agreement permits. Homeowners must also pay property taxes and homeowners insurance to retain the loan validity. Any action otherwise can invalidate the loan clause and make the lender demand repayment even when the borrower is still alive and living in the home. How reverse mortgage work Homeowners who are 62 or older and have considerable home equity (usually 50 percent) can borrow against the value of their home. Here is how it works: Requirements/eligibility Age A reverse mortgage applicant must be at least 62 years old. Property type Homes built on or after June 15, 1976, can be used as collateral for reverse mortgage loans. Cooperative housing owners are not eligible. Equity The loan applicant must have considerable equity in the home. Counseling The U.S. Department of Housing and Urban Development (HUD) mandates seniors interested in reverse mortgages complete a HUD-approved counseling session. The session educates the prospective borrower on the benefits and risks of taking a reverse mortgage based on their financial and personal circumstances. Responsibilities Homeowners are expected to pay property taxes and insurance once the lender disburses the requested fund. The lender may request repayment if there is any default. Types of reverse mortgage There are three types of Reverse Mortgages: Single-purpose Reverse Mortgage These loans are provided by nonprofits, state, and local governments. They come with restrictions on what you can do with the fund, such as for repairs or improvements. Home Equity Conversion Mortgage Home Equity Conversion Mortgages (HECMs) are backed by the HUD. They do not come with restrictions on the use of funds. Proprietary Reverse Mortgage Proprietary reverse mortgages are offered by private lenders. The lender sets their eligibility criteria, rates, fees, and terms. They are considered the easiest to get considering there are lots of available lenders. Things to consider before taking a reverse mortgage It’s not interest-free A reverse mortgage is not an interest-free loan. The interest can be fixed or adjustable depending on the lender. For instance, as of June 20, 2023, the fixed rate for a reverse mortgage loan with a lending limit of $1,089,300 was about 6.680% for a fixed rate and 7.035% for an adjustable rate. Home Equity Reverse Mortgage Rate. Better to inform your heirs and/or partner If you stay with your spouse, informing them when you are considering a reverse mortgage is better. Likewise, if you have heirs looking forward to inheriting the home, discuss your plan with them. This will prevent them from the shock of learning about this afterward. The lender, upon your death, will try to sell the home to recover their loan, except your heirs repay it from their pocket. Right of rescission For most reverse mortgage agreements, you have three business days after the loan approval to cancel the deal without incurring any penalty. This is known as your right of “rescission.” CORY WEINBERG JUL 03, 2023
Alleviating the Burden of Today’s Inflation with a Reverse Mortgage
Inflation can be a major burden for retirees, especially during times of high inflation like we are experiencing now. Although many Americans plan for some degree of inflation to occur during their retirement, most seniors could not have anticipated the highest inflation in 40 years to occur now. Rising prices on everyday necessities can put a strain on their fixed income and make it difficult to maintain their standard of living. One way for retirees to alleviate the burden of inflation is by taking out a reverse mortgage. A reverse mortgage is a type of loan that allows homeowners over the age of 62** to tap into their home equity to receive regular payments, a lump sum, or access a line of credit. This can provide retirees with a source of income that can help them keep up with rising prices and maintain their quality of life. Additionally, as long as they remain current on their property taxes, insurance, and other property charge payments, the loan does not need to be repaid until the borrower passes away, sells the home, or moves out permanently. One of the key benefits of a reverse mortgage is that it allows seniors to remain in their homes while having the ability to use their home’s equity as a source of income to cover their expenses. This can be especially helpful for those who are struggling to make ends meet and do not want to downsize or move into a long-term care facility. Another advantage of a reverse mortgage is that it can provide a financial cushion to fall back on in case of unexpected expenses or an emergency. With a reverse mortgage, seniors can access a portion of their home equity to cover unexpected costs, such as medical bills or home repairs, without having to worry about repaying the loan immediately. It’s important to note, however, that reverse mortgages are not for everyone. Homeowners who are considering a reverse mortgage should consult with a financial advisor and be sure to review their particular circumstances before taking out the loan. Overall, a reverse mortgage can be a useful tool for retirees who are struggling to keep up with inflation and maintain their standard of living. By providing a source of income and a financial cushion, a reverse mortgage can help seniors remain in their homes and enjoy their retirement, even during times of high inflation. If you have a client who you think might benefit from a reverse mortgage, let’s get in touch and see how this product can help them alleviate the burden of today’s high inflation. **Age requirements differ by product and state.
4 Ways to Supplement Your Social Security Benefits in Retirement
By Kailey Hagen – Jun 26, 2023 at 7:30AM Diversifying your retirement income can make your future a lot more comfortable. Social Security is a valuable source of retirement income, and despite many people’s fears, it won’t disappear anytime soon. Even the latest and gloomiest Social Security predictions indicate the program will still be able to pay some benefits to qualifying seniors in 2097 and possibly beyond. But it’s probably never going to cover all your retirement expenses. If you want to maintain a comfortable lifestyle, you need additional sources of income to supplement your monthly Social Security checks. Here are four options to consider. IMAGE SOURCE: GETTY IMAGES. 1. Personal savings Having a sizable nest egg to cover the bulk of your retirement expenses is ideal. Though the government has rules about when you can make penalty-free withdrawals from retirement accounts and when you pay taxes on those funds, it’s largely up to you to decide when and how you use that money. You can withdraw large sums to cover emergency expenses or to fund travel or expensive hobbies. And when life is quieter, you can withdraw less, allowing your remaining savings to continue growing. It’s worth setting aside what you can for retirement, even if that’s only a few dollars each month. It builds a strong habit and, if that money is invested for decades before you use it, it could grow to be worth thousands of dollars. If you aren’t able to make regular retirement contributions right now, see if you can free up some cash by starting a side hustle or reducing expenses. If you get a raise, put the extra money into a retirement account. And set aside windfalls, like tax refunds or year-end bonuses, if you’re able to do so. 2. A job Working in retirement isn’t how many people envision spending their senior years, but it can provide a steady paycheck and some much-needed financial security to those who don’t have a lot of personal savings. It can also give you a sense of purpose and an opportunity to connect with others. It might be possible to switch to part-time employment at your existing job, depending on what you do. But if that’s not an option, you may have to switch employers or fields. This could be an opportunity, though. You may be able to find something that’s more in line with your interests so work doesn’t feel like a chore. 3. Rental income Seniors who own extra property can rely on rental income during retirement. This could be a long-term rental for people living in the community or a short-term rental for those just passing through. You will still be responsible for the insurance and any maintenance the property requires, but even with these expenses, you can still earn a substantial sum each month. However, not everyone is comfortable renting out their space to others. If this feels like too much work for you, it may not be the best way for you to supplement your Social Security checks in retirement. In that case, you could think about selling the extra property and adding that income to your personal savings. 4. Reverse mortgage Reverse mortgages are a way adults 62 and older can tap the equity they already have in their homes to get some extra cash. To do this, you need to own a home and you need to have at least 50% equity. If you qualify, you can receive a lump sum or a line of credit you can tap as needed. And you won’t have to make any payments on the loan as long as you’re alive and living in the home. But this isn’t a great fit for everyone. The entire balance of the reverse mortgage comes due if you leave the home, so it’s not the right choice for those who don’t expect to live at the property long-term. It might also be a poor fit for those who want to pass the property to their descendants. They’ll have to pay off the balance of the reverse mortgage upon your death, and if they can’t, they won’t be able to keep the home. No one knows your financial situation and your hopes for retirement better than you, so only you can decide on the best strategies for supplementing your Social Security checks. You could use one or a combination of the strategies above, but see if you can brainstorm additional ways to bring in extra cash as well.
Understanding Reverse Mortgages: What It Is and How Does It Work | Money
Story by Jeremi Davidson • Yesterday 11:44 AM A reverse mortgage is a home loan that allows older homeowners to borrow against their home’s equity. Unlike a traditional loan, a reverse mortgage doesn’t require the homeowner to make monthly mortgage payments. Instead, the borrower receives money from the lender — either monthly, via a line of credit or in a single lump sum at closing. These loans are typically reserved for borrowers 62 and up (though some lenders allow for ages down to 55). Homeowners often use them to reduce their monthly housing costs or increase their income in retirement. Keep reading to learn more about reverse mortgages, how they work and whether they might suit you in retirement. Table of contents What is a reverse mortgage? A reverse mortgage is a loan that allows seniors to borrow a portion of their home’s equity. They can access these funds as one upfront sum, via regular monthly payments or on an as-needed basis. The amount of money borrowed via a reverse mortgage is only due when the borrower: Many older homeowners use reverse mortgages to supplement their income in retirement. Reverse mortgages can also help reduce housing expenses (because there are no monthly payments), increase cash flow or pay for home repairs or improvements. Types of reverse mortgages There are three different types of reverse mortgages: Home Equity Conversion Mortgages (HECMs), proprietary reverse mortgages and single-purpose reverse mortgages. Like regular mortgages, these loans can feature fixed or adjustable rates. Fixed-rate mortgages give you a set interest rate for the entire loan term, while your interest rate can fluctuate over time with an adjustable-rate reverse mortgage. Some lenders offer multiple types of loans, each serving a unique purpose. Understanding the differences between each one will help guide you to the right financial product to meet your needs. Home Equity Conversion Mortgage (HECM) The most common type of reverse mortgage is a Home Equity Conversion Mortgage (HECM), which is federally backed and regulated by the Federal Housing Administration (FHA) and the U.S. Department of Housing and Urban Development (HUD). It’s only available through a HUD-approved lender. Every HECM borrower must be 62 or older and participate in a HUD-approved HECM counseling session before taking out a reverse mortgage. During this session, you’ll learn about the HECM program’s requirements, repayment options and tax implications. Your counselor will also discuss your individual needs and finances. HECMs come with FHA insurance and are non-recourse loans, meaning you’ll never owe more than your house sells for, even if your outstanding loan balance is larger. However, you must pay a mortgage insurance premium (MIP) with a HECM. This service costs 2% of your loan upfront and 0.5% of your outstanding balance annually. HECMs offer several options for receiving your funds, depending on your financial needs: With a HECM, the maximum amount you can borrow is $1,089,300 for 2023, though the amount you’ll qualify for depends on the appraised value of your home, your existing mortgage balance and other financial details. Your lender will require an appraisal of your property to determine its value before moving forward. Proprietary reverse mortgage Proprietary reverse mortgages are available exclusively through private reverse mortgage lenders. Private reverse mortgage lenders set their own terms, which may differ from HUD loan terms. Some call these loans jumbo reverse mortgages, as they can exceed the limits set by HUD for HECM loans, with some lenders offering up to $6 million. These loans also don’t have to adhere to HECM’s age rules. As a result, many lenders allow borrowers as young as 55. Since the federal government doesn’t insure proprietary reverse mortgages, you won’t need counseling to qualify, nor will you pay monthly insurance premiums. However, you may pay a higher interest rate because lenders are taking on more risk than with government-backed loans. Single-purpose reverse mortgage Single-purpose reverse mortgages are loans designated for a specific, lender-approved goal, like paying property taxes or improving your home. State and local government agencies and non-profit organizations offer these loans, and they typically have lower fees and interest rates than other reverse mortgage products. Eligibility requirements are also less rigid, making them easier to qualify for than a HECM or jumbo reverse mortgage. How does a reverse mortgage work? An easy way to think of a reverse mortgage is as an advance on your home’s eventual sale. The lender sends you the money, either in monthly payments, periodic withdrawals or as a lump sum. When you die or sell your house, you or your heirs will repay the loan out of your home’s sale proceeds. During your reverse mortgage term, you won’t need to make payments to your lender — although you can if you prefer. However, you must stay current on property taxes, insurance and homeowners association dues to avoid liens. You must also maintain the property — if your roof needs replacing, it falls on you to pay for it. If you fail to meet these obligations, your lender could call your loan due or even foreclose on your house. Pros and cons of reverse mortgages As with any loan, reverse mortgages have benefits and drawbacks. Understanding the pros and cons of reverse mortgages can assist you in making the right decision for your future finances. You’ll probably hear a lot about the benefits of a reverse mortgage, and much of this information is accurate. Reverse mortgages can be advantageous to many individuals because they: However, most lenders won’t be forthright with you about the drawbacks of these loans. Some cons associated with a reverse mortgage include: Reverse mortgages can be complicated, so it’s wise to learn as much as possible about how they work before signing up for anything. The more knowledge you have on the pros and cons, the easier it becomes to make a final decision. How to apply for a reverse mortgage In order to apply for an HUD reverse mortgage, you must meet HUD’s minimum eligibility requirements for a HECM loan. These requirements include the following: