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Understand reverse mortgages before applying for them
Home equity adds up to nearly more than 30-40% of the overall net worth of most seniors. As such, this is one of the most important investments that they have to their names that they use as security of reverse mortgages. Using your home’s equity value to apply for a reverse mortgage is a counter destructive move. This is due to the reason that despite you getting a reverse mortgage loan with much ease, there are a number of setbacks that come with this move. The main one being the fact that after surrendering your home’s equity to the lender, you lose all ownership benefits of the property until the loan is repaid back.
Procedures while applying for a reverse mortgage loan
There are different steps and procedures that require being undertaken while applying for a reverse mortgage loan. The first procedure involves the estimation of the home’s equity value in order to identify the highest amount of money that can be received as reverse mortgage loan. The value of the home’s equity directly affects the exact amount of money that you are to receive as loan. In situations where the home’s equity is high, you stand a chance of getting an entirely high loan and the reverse is true. Usually, the highest amount of money that can be received as a reverse mortgage loan in USA stands at $625,000.However, the high the amount of money received as loan, the higher the overall interest and the processing fees that are incurred while applying for these loans.
Types of reverse mortgages
There are different types of reverse mortgages that are open to different home owners. However, despite the huge numbers of reverse mortgages in the financial sector, you can only apply for one mortgage loan. As such, it is important to ensure that you are able to choose the best type depending on the nature of your financial wellbeing. While choosing the best reverse mortgage to apply for, hiring a financial advisor to guide you while making the decision is a great idea. Common types of reverse mortgages are such as:
Home Equity Conversion Mortgages
These are the most common types of reverse mortgages that are quite advantageous to borrowers. This is due to the reason that these loans are covered by the federal government through insurance. As such, the interests of borrowers are well taken care of alongside those of the lenders. These loans are also backed by HUD (Housing and Urban Development).
Proprietary reverse mortgages
These are high value private loans that are extended to home owners through the use of their home’s equities to cover the loans. This loan has a value of more than $600,000 but only in cases where the home’s equity is enough to cover the loan.
Single purpose reverse mortgages
These are government loans that are offered by local and state governments among other finance lending institutions. These loans are usually very low in their value and also their overall interests are equally very low. Whichever loan you want to apply for always ensure that you meet the set eligibility standards for the loans.