The mortgage market is still very tight but for those who are over 62, owns their home and in need of cash there are 3 legitimate options. As homes are paid off or the loan balance decreases, homeowners still have some very basic needs. For some it is to use equity and obtain cash in order to add to whatever income is available to support desired lifestyle. For others, it is to complete repairs to improve the quality of the home.
What is Equity
Your home is basic shelter but it also is a financial asset, as based on housing values equity is achieved. Equity is merely the value of the house, minus what you owe, THE DIFFERENCE IS YOUR EQUITY. Lenders typically lend a percentage of whatever equity is available. Of course as our nation is still reeling from the housing crisis which started in 2007, caution is suggested. The fact you have equity doesn’t mean you use it, unless there is a specific strategy.
For those over 62 want to explore using home equity, here are 3 solid options:
· Refinance– A refinance is basically rewriting the current mortgage. While this is the most popular choice because the homeowner is in more control regarding interest rates and payment terms, the core issue is qualifying. Assuming you can qualify based on today’s guidelines; this is the best bet in securing needed cash. Another popular option if you do not want to touch your first mortgage (i.e., loan balance may be extremely low, interest rate may be lower than market, etc.) is to opt for a second mortgage (Fixed Rate or Home Equity Line of Credit). For qualifying homeowners, lenders will allow a percentage of the equity to be loaned.
· Reverse Mortgage– This program has picked up popularity, since the secondary market and FHA offered support. Basically, a homeowner is eligible to receive a loan + stipend (if desired) based on equity and life expectancy. While the interest rates are higher than a traditional refinance, the benefit is qualifying is based on available equity (not credit). THE HOMEOWNER IS NOT REQUIRED TO PAY BACK THE LOAN, as once deceased, it is understood the heirs must arrange for repayment or disposition of the property.
· Deferred Loan Program– Similar to a Reverse Mortgage, this program is also picking up popularity but it should be viewed as “an option.” These loans are offered by certain state and local governments. WHILE THERE IS NO AGE RESTRICTION these loans are better suited for the homeowner who wants to do specific repairs/upgrades to their property. To determine qualifying a homeowner should check with their respective City/State/Local government. The borrower is not obligated to pay back as long as they remain in the home.
These are just several options homeowners with equity can use to improve their financial position.
HUD Reverse Mortgages
Mortgage Advisors – Deferred Loan Program