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Top Tips for Choosing the Best Proprietary Reverse Mortgage Lender
As you reach retirement age, securing your finances to maintain your lifestyle is essential. A proprietary reverse...
Colorado seniors have an average personal income of $50,000. While the state has one of the highest senior household incomes in the country, many seniors still depend on Social Security for at least 50% of their annual income.
In that case, a reverse mortgage in Colorado may seem like the best course of action. Currently, the state has one of the highest usage of reverse mortgages. They’re easy to qualify for, non-taxable, and non-payable until a maturity event.
Here’s everything you should know before you borrow one for your new home.
A reverse mortgage is a specific loan type for senior investors. It allows elderly homeowners to acquire funding in a non-traditional way.
If they have enough home equity, they can acquire a reverse mortgage loan, which is typically funded as a line of credit, monthly payment, or lump sum. The unique factor of this mortgage loan is that you don’t have to pay it back during your lifetime.
Reverse mortgage loans become due and payable once the borrower passes away, moves out permanently, or sells the home they were funding. They only have to pay back the home’s resale value, even if it’s less than the original loan amount.
The borrower is not responsible for paying the difference since these mortgages are insured.
There are two types of reverse mortgages: HECMs and proprietary reverse mortgages.
Reverse mortgages don’t require homeowners to make payments to the lender. Instead, it’s the other way around – hence the name.
The borrower can also choose how they’ll receive the funds. They also don’t need to pay more interest than the original owed amount or any upfront since the loan balance collects it. The best part is that you’ll also keep the home's title.
Of course, loans always come with a catch. Your debt will increase, and your home equity will drop over the reverse mortgage term. Your home will also be the collateral for this loan.
If you move permanently or pass away, the house will be sold to pay off the loan. If the resale value exceeds the owed amount, the rest will go to you or your estate.
The IRS states that reverse mortgages are not taxable. According to Title 11, Article 38 of the Colorado Revised Statutes, a reverse mortgage in Colorado must meet certain criteria:
Reverse mortgages in Colorado are non-recourse loans. That means borrowers or their heirs will never owe more than the home's value when it's sold to repay the loan.
Borrowers also have the right to withdraw their loan application at any stage. They even get a 3-business day grace period after signing the closing documents. Most importantly, borrowers can pay back the loan at any time without penalty.
Housing market trends in Colorado have an impact on the reverse mortgage rates.
For instance, in Denver, homes typically sell for around 1% below the listing price at an average sales price of $617K. That means reverse mortgage borrowers in Denver can potentially get more equity from their homes compared to areas with lower home prices.
Reverse mortgage counseling is mandatory before applying for a reverse mortgage. Luckily, the counseling session typically takes 1–1.5 hours. Plus, there are currently 11 HUD-approved reverse mortgage counselors located throughout Colorado.
Unfortunately, scammers target seniors who are considering reverse mortgages to exploit their financial vulnerability. In fact, AARP estimates that $28 billion a year has been stolen from senior victims of financial exploitation. Here are some common ones to watch out for.
The first step is to know the warning signs of a scam. For instance, reputable lenders won't bombard you with unsolicited calls or mailers. Be wary of anyone pressuring you into a quick decision, especially if you haven't initiated contact.
Keep in mind that no one can predict the future housing market. A lender promising your home value will only go up is likely trying to mislead you. Lastly, while educational seminars can be helpful, some are just a ploy to get your contact information and push a reverse mortgage product.
The question is, how do you avoid such scams when seeking a reverse mortgage?
Here’s how to decide whether a reverse mortgage is the right path for you:
Explore other financial options that might suit your needs:
Reverse mortgages are a flexible option for seniors, but they can also be susceptible to scams. Don’t go at it alone – hire a financial advisor to guide you through the mortgage approval process. Contact us today at Equity Access Group.
Aug 5, 2024by Jason Nichols
As you reach retirement age, securing your finances to maintain your lifestyle is essential. A proprietary reverse...
Jul 15, 2024by Jason Nichols
Colorado seniors have an average personal income of $50,000. While the state has one of the highest senior household...
Jul 4, 2024by Jason Nichols
As retirement living costs rise, many seniors are turning to reverse mortgages. This type of loan allows them to unlock...