Reverse Mortgage and Divorcing Seniors
A reverse mortgage is a type of loan that allows homeowners to borrow money against the equity in their homes. Reverse mortgages enable homeowners to tap into a line of credit or receive from a lender a fixed monthly payment that can help them pay off debts, make upgrades to their property, manage large expenses, or supplement their retirement income.
Divorcing clients over the age of 62 may have the option of utilizing a Reverse Mortgage for an Equity Buyout and keeping the home. Not only may a Reverse Mortgage be a viable option for divorcing clients who want to remain in the marital home; it may be a wise financial planning decision as well. Taking a reverse mortgage can also have implications on the tax bill, and for configuring potential Social Security income. You may be able to limit the income tax exposure by using cash flow from a reverse mortgage, rather than taxable withdrawals from a 401(k) or other retirement investment, to pay off a traditional mortgage or other debts. If you can delay taking Social Security by using a reverse mortgage as a source of income, you can potentially increase the monthly payment you will eventually receive.
Single-Purpose Reverse Mortgage:
A single-purpose reverse mortgage is a loan that is made for a specific purpose, such as a home improvement loan or to pay off a debt. Single-purpose reverse mortgages are the least expensive form of a reverse mortgage and are typically made available to homeowners from state agencies and local non-profit groups.
Proprietary Reverse Mortgage:
Proprietary reverse mortgages are loans made through private lenders. Proprietary reverse mortgages are most often made available to homeowners who have expensive properties and who owe little on their home. The less that a homeowner owes, the more he or she will be able to take out when the loan is made. Proprietary reverse mortgages are typically made to homeowners who need a large infusion of cash and are hoping to take it out in a lump sum.
Home Equity Conversion Mortgage (HECMs):
A home equity conversion mortgage, or HECM loan, is a home-equity loan that is backed by the U.S. Department of Housing and Urban Development (HUD). Home equity conversion mortgages are FHA loans and are only available through FHA-approved lenders. A borrower using one of these HUD-backed loans will have access to many different types of payment options through the HECM program, including monthly cash advances or a line of credit. Borrowers who have more equity in their homes and who are older are given access to more money than homeowners who are younger and who have access to less equity.
Again, a Reverse Mortgage has many options for divorcing clients over the age of 62.
Certified Divorce Lending Professionals are trained to work as financial neutrals in a divorce situation. Their goal is to look at all options and remove as many hurdles as possible for both spouses who wish to obtain mortgage financing. The verbiage, or lack thereof, contained in the divorce settlement agreement can be an obstacle for either party going forward once the divorce is final. A CDLP’s goal is to help recognize these obstacles and set each party up for success.
If you have any questions regarding a client’s contingent liabilities and how it will be considered in qualifying for a future mortgage, please contact a CDLP today!
If you’d like to start the process of getting a home, come see us at the Tammi Lindley Team. We are Portland’s premier mortgage lenders, offering hundreds of mortgage products so you can pick the mortgage that matches your needs. Contact us today and start the process of owning your dream home.