Can You Qualify for a Reverse Mortgage with No Income?
Under the Reverse Mortgage for Seniors program, your income is not even a consideration in qualifying for a reverse mortgage! All of the loans that you have qualified for up to this point in your life required that you meet certain income levels to meet their debt/income ratios. This is simply not true with a reverse mortgage. Since you will have no obligation to pay back the loan each month, your income is not considered. You can have no income at all and still qualify for a reverse mortgage!
Under a traditional home loan, if you failed to make your payments, you could lose your home. With a reverse mortgage, you have no obligation to make monthly payments, so you cannot lose your home for any reason other than not paying your taxes or homeowner’s insurance. Most reverse mortgages require no repayment for as long as you — or any co-owner(s) — live in the home.
Home Value Minus Debt Equals Equity (V-D=E)
A simple formula can be used to explain the difference between “forward” mortgages and “Reverse” Mortgages. Home Value less Debt equals Equity or (V-D=E). In a traditional or “forward” mortgage, as you make loan repayments, you reduce the Debt (D) and thus increase the Equity (E).
Under a Reverse Mortgage, each time the lender disburses cash to you (whether by lump sum or by monthly payments), the Debt (D) is increased and and Equity (E) is decreased. If you should live in the home long enough that the equity is reduced to zero, then the required reverse mortgage insurance kicks in and continues the monthly payments until you pass on or move from the home. The reverse mortgage Debt can never exceed the value of the home.
Opposite Views
So, both forward and reverse mortgages affect how much equity or ownership you have in your home – only in opposite ways.
Home Value Appreciation
Most residential property in the United States appreciates over time. Some areas rise in value faster than others. So, one of the critical factors that is considered heavily by reverse mortgage lenders is the area in which you live. If your home is in a zip code where properties are losing value, then the lender will, necessarily, be less aggressive in valuing the maximum loan amount of your reverse mortgage. In most zip codes, however, residential real estate can be expected to increase in value over the life of the reverse mortgage.
If your home is in a rapidly appreciating area, the reverse mortgage payments to you will not be fully realized in your resulting equity. In other words, the value of your home may grow almost as fast as the debt is increased by the reverse mortgage, leaving you with almost as much equity. You can look at this as though you are able to realize much of the appreciation of your home in cash rather than having to wait until you sell the home.
Be Realistic and Be Conservative
Of course, you cannot expect your home to continue to rise in value at a rapid rate for a very long time. It may for a while, but not over a period of more thana few years. Entering into a reverse mortgage, you should always expect your debt amount to rise and your equity to thus be reduced. If the home appreciates quickly, that would be a good surprise, but don’t budget on that happening over the long term.
Do Your Homework
Before moving forward with a reverse mortgage, take the time to learn as much as possible about the Reverse Mortgage for Seniors program, its Pro’s and Con’s, and be a well educated consumer. You will be glad you did!
Don Seibert is a retired business executive who, as an Expert Author, writes timely articles on many issues concerning retirement
Photo by Gene Hunt
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