Trying to find a home loan that would enable you to convert some of your home equity into actual cash, or to pay off a big purchase or monthly bills yet still keep your home? A reverse mortgage might be ideal for you. Reverse mortgages come in three types, however, so you have to choose which type is best for you.
The Home Equity Conversion Mortgage (HECM)
This is the most popular type of reverse mortgage according to the U.S. Housing and Urban Development. The reason? It comes with lesser fees and lower rates than the loan options offered by private mortgage lenders. In addition, the Federal Housing Administration (FHA) guarantees these loans, which make them more profitable for approved lenders. You could also use an HECM for whatever purpose you desire. Thanks to the flexibility of an HECM, you have to satisfy some stringent conditions (like mortgage insurance premiums) for reverse equity HECMs, not exceeding 100% of the value of your home.
The Single-Purpose Reverse Mortgages
These reverse mortgage programs are the most affordable options. However, they are not available everywhere and are offered by non-profit organizations and local and state government agencies. As the name implies, you could only use these mortgages for a single purpose: paying for property taxes or home improvements and repairs. A majority of borrowers could qualify for these loan types.
The Proprietary Reverse Mortgages
These are private mortgages that are guaranteed by mortgage companies. If you own a home with a higher value, you might get a larger advance from this loan type. This means that if you own a small home loan and a home with a higher value, you could be eligible for more money.
Reverse mortgage programs could be quite complicated, especially with all the different types you could choose and the requirements needed for each one of them. Whether you’re looking to take out an HECM, proprietary reverse mortgage, or single purpose reverse mortgage, make certain to do your own due diligence to ensure that you get the right reverse mortgage type for you.