What You Need to Know About Reverse Home Loans Before You Apply in Washington

Reverse home loans, also known as reverse mortgages, are becoming increasingly popular among homeowners in Washington who are looking to supplement their retirement income. However, before you apply for one, it’s essential to understand the mechanics and implications associated with this financial product.

What is a Reverse Home Loan?

A reverse home loan allows homeowners aged 62 or older to convert part of their home equity into cash. Unlike traditional loans, where monthly payments are made to a lender, the payments in a reverse mortgage are made to the homeowner. This loan is repaid once the homeowner sells the home, moves out, or passes away.

Eligibility Criteria

In Washington, to qualify for a reverse mortgage, homeowners must:

• Be at least 62 years old.
• Own their home outright or have a low mortgage balance that can be paid off with the proceeds of the reverse mortgage.
• Live in the home as their primary residence.
• Meet financial assessment requirements set by the lender.

Types of Reverse Mortgages

There are three main types of reverse mortgages available in Washington:

• Home Equity Conversion Mortgage (HECM): This is the most common type and is insured by the Federal Housing Administration (FHA).
• Proprietary Reverse Mortgages: These are private loans backed by individual lenders and are not regulated by the FHA.
• Single-Purpose Reverse Mortgages: Offered by some state and local government agencies, these loans are designed for specific purposes, such as home repairs or property taxes.

The Application Process

Applying for a reverse home loan involves several steps:

• Choose a Lender: Research lenders in Washington who offer reverse mortgages. Compare terms, interest rates, and fees.
• Consult with a Housing Counselor: It is a requirement to meet with a HUD-approved housing counselor who will explain the details and responsibilities of a reverse mortgage.
• Complete the Application: Fill out the application with necessary financial documents, including proof of income and tax returns.

Costs and Fees

Reverse mortgages come with various costs, including:

• Origination fees
• Mortgage insurance premiums (for HECMs)
• Closing costs
• Servicing fees

It’s crucial to consider these costs as they can reduce the equity you have in your home.

Repayment Considerations

Repaying a reverse mortgage can differ significantly from traditional loans. The loan is due when the borrower moves out of the home, sells it, or passes away. The heirs will typically need to sell the home to repay the loan unless they choose to keep it, which requires paying back the reverse mortgage balance.

Impact on Taxes and Benefits

The funds received from a reverse mortgage are generally tax-free and do not affect Social Security or Medicare benefits. However, they can affect eligibility for need-based programs, so it’s advisable to consult a financial advisor regarding your unique situation.

Conclusion

Reverse home loans can be a valuable financial tool for seniors in Washington looking to access home equity. However, it is essential to fully understand the terms and conditions, costs, and implications associated with this loan type. Carefully evaluating your financial circumstances, consulting with professionals, and considering your long-term goals will help you determine whether a reverse home loan is the right choice for you.