Find the Top Reverse Mortgage Lender  in Your Area

Decide on a Plan To Use the Funds You Receive

Whether you have a fixed income or you’re finding that your budget needs shoring up after an emergency, you may be able to get a reverse mortgage option from your bank. Depending on the value of your home’s equity, you can receive a portion of it as a line of credit or a lump sum cash payment to use as you wish. This option can improve your situation, but you benefit by planning ahead and choosing a funding arrangement that best suits your needs.

Some banks offering reverse mortgages may require borrowers to spend their proceeds on paying off an existing home loan. Loan terms could also include conditions such as maintaining mortgage insurance and staying current on property taxes. In some cases, the IRS or state tax authorities may not allow borrowers to deduct the interest on their income tax returns.

You may need to add certain expenses to your household budget when preparing a plan for using your loan’s proceeds. If you believe that you will need additional money to cover a new budget, the costs and conditions of a traditional reverse mortgage might not help you achieve your desired outcomes. You may discover that a nontraditional lender can enable you to accomplish your goals.

Consider Possible Drawbacks

By turning to your home equity value to obtain additional funds, you could possibly disqualify yourself from becoming eligible to receive taxpayer-funded financial support. If you require expensive health care treatments, for example, a traditional reverse mortgage may not allow you to receive funding from certain subsidized medical programs. The bank’s terms and conditions may also require you to sell your property and pay back the loan after moving into a residential-care facility.

If you’re searching for ways to obtain cash for home improvements or repairs to sell your property, you may not benefit from a traditional reverse mortgage. Interest accrues on the loan’s unpaid balance, and it may reduce the amount you receive from a sale.

You may intend to leave your property to your heirs, but your bank may require them to sell your home after they inherit the property. Some lenders, for example, may require heirs to sell the home within one year after inheriting it unless they plan to live in it. The heirs may also require additional income to cover a new mortgage or property taxes.

Review All of the Loan Options Available to Senior Citizens

Traditional financial institutions offer different types of reverse mortgages. Each option has unique characteristics that may or may not fulfill your personal needs. A single-purpose version, for example, is affordable, but you may need to spend the proceeds in a way that your lender approves. With a large amount of home equity, on the other hand, you could apply for a proprietary reverse mortgage and spend the money as you please.

If you need medical treatment or hope to buy a new home to downsize your living expenses, you could apply for a home equity conversion mortgage. Because the Federal Housing Administration backs this type of funding arrangement, borrowers need to meet strict income and credit score requirements. The FHA may also require lenders to conduct due diligence on your home and obtain a professional appraisal to verify that it has a predetermined amount of equity value.

Because a bank may place a limit on how you can use the proceeds, you may need to apply for an additional loan if you encounter unexpected circumstances that require increased funding. Creating a forward-looking budget that includes various financial scenarios can help you choose the funding option that can lessen the need for additional borrowing.