Is Equity Required to Qualify For A Reverse Mortgage?

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It is a common belief that one must have a lot of equity in their home to qualify for a reverse mortgage. In reality, a reverse mortgage can still be done as long as there are enough proceeds from the reverse mortgage to pay off any current liens. Even if there aren’t enough reverse mortgage proceeds, a reverse mortgage can still be done as long as the borrower is able to come up with the difference.

If a senior is finding it difficult to stay current on their monthly mortgage payment and is now facing foreclosure, a reverse mortgage may be the best solution to save their home. Even if the reverse mortgage proceeds are used to pay off current liens, the senior’s disposable income improves because they will have eliminated their monthly  obligation.

For example, Wayne was struggling to make his mortgage payment of $1,200 a month, but he was able to get enough reverse mortgage proceeds to pay off his current lien. While he didn’t any have funds available after the reverse mortgage, he paid off his current lien which improved his monthly cash flow by $1,200 because he no longer had to make a mortgage payment.

When we ran the calculations for Minnesota home owners, Jerry and Dorothy the reverse mortgage proceeds were short $3,000 to pay off their current mortgage. They chose to pull some funds from their savings so they could do the reverse mortgage and eliminate their mortgage payments – a benefit and savings in the long run.

Note: HUD, who insures the most common reverse mortgage, the Home Equity Conversion Mortgage (HECM), does not allow the difference to be from another loan or credit cards. If the funds are coming from an outside source, not from your own resources, then it must be a gift, not a loan to be repaid.

If you are over the age of 62 and having a tough time handling your monthly housing or credit card payments, a reverse mortgage may be the solution.  Once the reverse mortgage pays off one’s current lien(s) or mortgage(s), there are no more monthly payments.

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