For many seniors, their home represents not just a place to live but also a valuable asset that can help fund their retirement. One financial tool that allows them to unlock their home’s equity is a reverse mortgage.

In this article, we’ll explore how a reverse mortgage works, the different types of reverse mortgages, the benefits and potential drawbacks, alternative ways for seniors to tap their home equity, and answers to some frequently asked questions.

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How does a reverse mortgage work?

A reverse mortgage is a loan that lets homeowners convert a portion of their home’s equity into cash. Unlike a traditional mortgage, where homeowners make monthly mortgage payments to a lender, a reverse mortgage allows homeowners to receive payments from a lender. These payments can be received in various forms, including a lump sum payment, regular monthly payments, a line of credit, or a combination of these options.

Here’s a breakdown of how a reverse mortgage works:

Eligibility: Generally, to qualify for a reverse mortgage homeowners must be age 62 or older (although some select lenders offer reverse mortgages to individuals as young as 55). This applies to both reverse mortgages offered by private lenders and reverse mortgages through the Federal Housing Administration’s Home Equity Conversion Mortgage (HECM) program.

Beyond the age requirement, the home must be your primary residence, the property must be in good shape, you cannot be delinquent on any federal debt, and you must either own the home outright or have a low mortgage balance. And if you’re getting a HECM loan, you’ll be required to receive counseling from a HUD-approved reverse mortgage counseling agency; the counseling session can help you understand the benefits and drawbacks of the loan.

Disbursement Options: You can choose how you want to receive your reverse mortgage funds, whether as a lump sum, monthly payments, a line of credit, or a combination of these methods.

Repayment: The loan becomes due when you sell the home, move out permanently, or pass away. Typically, the balance is paid from the sale of the property. If the proceeds from the sale exceed the loan balance, the excess funds go to you or to your heirs.

Types of reverse mortgages

Generally, there are three types of reverse mortgages:

• HECMs, which are insured by the FHA
• Reverse mortgages funded by private lenders
• Single-purpose reverse mortgage loans offered by state and local governments

Most reverse mortgages are HECMs. Reverse mortgages from private lenders, which are not insured by the federal government, are typically designed for borrowers with higher home values. Single-purpose reverse mortgages can be used only for the purpose specified by the lender, such as for home repairs or property taxes.

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What are the rules of reverse mortgages?

There are limits on how much you can borrow through a reverse mortgage. The maximum loan amount is determined by a variety of factors, including your home’s appraised value, your age, and current interest rates.

Another critical component: You’ll still be responsible for paying property taxes and home insurance when you take out a reverse mortgage.

Are reverse mortgages a scam?

Reverse mortgages aren’t a scam but many bad actors try to take advantage of homeowners seeking a reverse mortgage.

Watch out for contractors who approach you about getting a reverse mortgage to pay for repairs to your home, says the Consumer Financial Protection Bureau (CFPB). These contractors, who are often unlicensed, will try to strong-arm you into getting a reverse mortgage to pay for home repairs that you don’t need — or they provide a cost estimate that’s much higher than the actual cost of the repair.

Some scams target veterans. The Department of Veterans Affairs (VA) does not offer reverse mortgages, yet some mortgage advertisements “falsely promise veterans special deals, imply VA approval, or offer a ‘no-payment’ reverse mortgage loan to attract older Americans desperate to stay in their homes,” according to the CFPB.

Be on the lookout for foreclosure scams, too. These scams target older homeowners who are at risk of losing their homes to foreclosure. In this instance, the con artist promises relief by providing a reverse mortgage, but the reverse mortgage they offer comes with exceptionally high fees.

Some scammers may also pose as financial planners. These individuals advise you to get a reverse mortgage and to let them manage the funds, but they use the money for their own financial gain.

Pros & cons of reverse mortgages

What alternatives are there to reverse mortgages?

Reverse mortgages aren’t the only way to tap into your home equity. Other options for accessing home equity include:

• Cash-out refinances: Replace your existing mortgage with a loan that’s larger than what you currently owe and pocket the difference in cash
• Home equity loans: Get a second mortgage secured by your house as collateral, providing you a lump sum of cash with a fixed interest rate
• Home equity lines of credit (HELOCs): Borrow funds against your home equity through a revolving line of credit as needed and pay interest only on the money that you borrow

Most home equity loans and HELOCs allow you to tap as much as 80% to 85% of your home equity.

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Reverse mortgage for seniors FAQ

What is a reverse mortgage for seniors?

A reverse mortgage is a type of loan that lets seniors convert a portion of their home’s equity into cash. Generally, to qualify for a reverse mortgage you must be 62 or older, the home must be your primary residence, the property must be in good condition, you cannot be delinquent on any federal debt, and you must either own the home outright or have a low mortgage balance.

How much money can you get from a reverse mortgage?

Reverse mortgage lenders use your age, home value, and loan balance to determine how much you can borrow. Typically, the older you get, the more you can borrow.

In addition, HECMs have loan limits, which are subject to change annually. Currently, the maximum HECM is $1,089,300, according to HUD.

How do I find a reverse mortgage lender?

The simplest way to search for a FHA-approved reverse mortgage lender in your area is through the U.S. Department of Housing and Urban Development’s (HUD) database of reverse mortgage lenders. (Select your state, uncheck Title I Property Improvement, and check off HECM.)

When do you have to pay back a reverse mortgage?

The loan becomes due when you sell the home, move out, or pass away.

Can you lose your house with a reverse mortgage?

Generally, no. However, if you fall behind on your property taxes and home insurance, the lender could potentially foreclose on your home.

What is the downside to a reverse mortgage?

The most notable drawbacks of a reverse mortgage are that you accrue interest and pay upfront fees and closing costs to obtain the loan.

What are the 3 types of reverse mortgages?

There are three types of reverse mortgages: Home Equity Conversion Mortgages (HECMs), which are funded by the FHA, reverse mortgages funded by private lenders, and single-purpose reverse mortgage loans offered by state and local governments.

What is the best age to take a reverse mortgage?

The best age to take out a reverse mortgage depends on how much equity you’ve accrued, how much money you’re looking to borrow (since loan limits for reverse mortgages increase as you get older), and how you plan to spend the money.

Is a reverse mortgage a good idea for seniors?

For some seniors, a reverse mortgage can be a good way to unlock their home equity, especially if they’re looking for a way to supplement their income in retirement.

The bottom line: Are reverse mortgages worth it?

A reverse mortgage can be a valuable financial tool for eligible seniors looking to access their home’s equity without selling their home. For example, it may be a good option for seniors looking to supplement social security income. Still, it’s essential to consider the associated costs, risks, and potential impact on heirs before pursuing a reverse mortgage.

It can also be beneficial to meet with a financial advisor or reverse mortgage counselor to fully understand the implications and determine if a reverse mortgage aligns with your retirement goals.

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The post Reverse Mortgages for Seniors 2024 first appeared on My Mortgage Insider.

Check your cash-out refinance interest rates. Start here (Sep 16th, 2024)

Are there home repair grants for seniors in 2024?

There are a variety of government programs that offer home repair grants to seniors. These grants are designed to help aging homeowners make home repairs, modifications, and upgrades, allowing them to create safe and comfortable living spaces where they can age in place.

That’s good news for the nearly eight out of 10 adults 50 and older who said they want to stay in their homes as they age, a recent AARP survey found, yet roughly a third of those individuals said their houses need modifications to be able to do so safely and independently.

What is a home repair grant?

Home repair grants for seniors are financial assistance programs that help older adults make repairs, renovations, and modifications to their homes. These grants are typically provided by government agencies, non-profit organizations, or private foundations, with the goal of ensuring seniors can continue to live independently in their homes.

Home repair assistance grants for seniors often cover a wide range of repairs and modifications that make homes safer and more functional, from fixing structural issues and addressing safety hazards to accessibility improvements to upgrading plumbing and electrical systems.

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Types of home repair grants

Here is an overview of six major home repair grants, including eligibility requirements and the types of repairs covered by each program.

U.S. Department of Agriculture (USDA) Single Family Housing Repair Grants

Also known as the Section 504 Home Repair program, this USDA repair grant program provides loans to elderly and low-income homeowners. The program is intended to support rural development. Homeowners age 62 or older can use the grant money to address health and safety hazards in their home, like a leaky roof or faulty electrical wiring. Borrowers will need to demonstrate their household income is less than the area median income. The maximum grant is $10,000, but your property must be located in an eligible rural area. And here’s an important piece of fine print: If you sell your home in less than three years, then repayment of the grant will be required. You can visit the USDA Income and Property Eligibility website for full eligibility requirements.

VA Specially Adapted Housing (SAH) Grant

This program, offered by the U.S. Department of Veteran Affairs, offers grants for veterans and service members with certain service-connected disabilities to help them build, purchase, or remodel an adapted home that meets their physical needs. Such home repairs include installing ramps, widening doorways, or making other changes that help provide independent living. The maximum SAH grant is currently $109,986. (The amount can change from year to year.) Check out the VA’s website for complete eligibility requirements.

Housing Improvement Program (HIP)

Also known as the Housing Program (HP), the HIP helps members of federally recognized Indian tribes make select home repairs and improvements. The grants provide up to $60,000 in repairs and renovations to improve the condition of a homeowner’s dwelling to meet building code standards. To qualify, you must be a member of a federally recognized Tribe, live in a Tribal servicing area, and meet certain income limits. For full eligibility requirements, go to the Bureau of Indian Affairs website.

Federal Emergency Management Agency (FEMA) Grants

FEMA’s Individuals and Households Program (HIP) provides home repair grants to victims of presidentially declared natural disasters, such as a hurricane, tornado, earthquake, or wildfire, who are uninsured or under-insured. To qualify, your property must be determined to be uninhabitable after a FEMA inspection. Learn more about the agency’s grant program on the FEMA website.

HOME Investment Partnerships Program

This grant program, funded by the U.S. Department of Housing and Urban Development (HUD), helps qualifying low-income people rehabilitate their homes. To qualify, the property’s post-rehabilitation value must not exceed 95 percent of the area’s median purchase price for a single-family home as determined by HUD. Learn more about the HOME Investment Partnerships Program on HUD’s website.

HUD Community Development Block Grant (CDBG) Program

This HUD program offers states, cities, and counties grants to help provide housing and cover home repair costs for low- and moderate-income people. Jurisdictions with a population of less than 200,000 and non-entitlement cities and towns of less than 50,000 residents can apply. Find out more about the CDBG program on HUD’s website.

Who is eligible for a home repair grant?

To qualify for any of the six grant programs outlined above, you must meet specific eligibility requirements. These criteria often consider age, income, the nature of repairs or modifications needed, and other factors.

Cash-out refinance: An alternative home repair option

Another way to foot the bill for home repairs is with a cash-out refinance. This entails refinancing your mortgage for more than what you owe and pocketing the difference in cash. Mortgage lenders generally let you borrow up to 80 percent of your home equity.

So, let’s say your home is worth $400,000, and you currently owe $300,000 on your mortgage. That gives you $100,000 in home equity, which means you can borrow $80,000 through a cash-out refinance.

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Home repair grants for seniors FAQ

What is a home repair grant?

A home repair grant provides funds to eligible homeowners who need financial assistance to make certain home repairs and/or modifications. These grants are typically provided by government agencies, non-profit organizations, or private foundations, with some specifically aimed at seniors.

What can you do when your house is falling apart and you can’t afford to fix it?

If your home is in desperate need of repairs for safety reasons and you can’t afford to pay for them, a home repair grant can help you cover the costs. But make sure to read the grant program’s eligibility requirements and stipulations before applying.

Who is eligible for a government home improvement grant?

Eligibility requirements can vary by grant program and many grants set restrictions on the types of repairs that can be made. For example, a USDA Single Family Housing Repair grant can only be used to “remove health and safety hazards” in a home, like a leaky roof or faulty electrical wiring, according to the department’s website.

Are there alternatives to home repair grants?

If you’re a senior in need of funds to make home repairs, a home repair grant is just one of a number of options you can seek out. Alternatives include cash-out refinances, personal loans, home improvement loans, home equity loans, and home equity lines of credit (HELOCs).

Which home repair grants are best for seniors?

The best loan program for each borrower will depend on the specifics of their financial situation, and the same is true for senior borrowers. To determine the best option for your specific circumstance, you’ll need to consider all your single-family housing repair loans and grant options.

The bottom line: Home repair grants for seniors

For seniors looking to improve their home and quality of life, there are a number of options to make upgrades and renovations, including a number of grant options that could put home upgrades within reach.

Check your cash-out refinance interest rates. Start here (Sep 16th, 2024)

The post Home Repair Grants for Seniors in 2024 first appeared on My Mortgage Insider.