We talk about retirement planning a lot here on the Quicken Loans Zing Blog, but one thing people may not consider as much is that for some people your home is actually your biggest asset. If it’s in line with your financial goals, you can absolutely use your home equity in retirement in order to give yourself an added resource.
Reverse mortgages can be a good option for people who are 62 and older and in the right situation to exchange the equity they have in their home for actual cash value. Most reverse mortgages are government backed. These are great, but they come with certain restrictions that can make it hard to qualify if you have higher property value or a condo that isn’t approved by HUD, for example.
Of course, we believe in helping every client we can, so our friends over at One Reverse Mortgage recently announced their first private product, the Home Equity Loan Optimizer (HELO). Although it’s in many ways similar to a government-backed reverse mortgage – also referred to as a home equity conversion modification (HECM), it has a few unique features that allow homeowners who may not have been able to utilize a reverse mortgage due to loan amount or property qualification requirements another avenue to access their equity.
Available for homeowners 62 and older, HELO has some unique features when compared to a traditional reverse mortgage.
A typical limiting factor is that the loan limit on a government-backed reverse mortgage is $679,650. With a HELO loan, you can access up to $4 million in home equity. Additionally, 100% of that money is available to you at closing.
If you live in a condo, you can also take advantage of this option without the condo project having to be HUD-approved. This loan option also allows more flexibility for homes with unique features like solar panels.
There’s also no mortgage insurance premium (MIP) with this loan.
Similarities to a HECM
Functionally, a HELO works just like a regular reverse mortgage. When you get one, your current mortgage is paid off. You don’t have to make another mortgage payment (unless you wanted to replenish the funds you can access) for as long as there’s a client living in the home. It’s important to note that you’re still responsible for property taxes, homeowners insurance and maintenance of the property to avoid foreclosure.
A reverse mortgage is a nonrecourse loan. That means that under no circumstances can your heirs be forced to pay back more than they can sell the home for. Your heirs also aren’t responsible for the loan.
When it does come time to pay off the loan after the last client has moved out, passed away or sold the home, you or your heirs have three options:
- Pay off the balance and keep the home
- Refinance into another loan and keep the home
- Sell the home and use the proceeds to settle the balance
- sign the home over to the lender to sell and walk away
Many of the requirements to get a HELO are very similar to the requirements to get a HECM. You still have a financial assessment to determine your ability to pay your property taxes, insurance and home maintenance costs.
You have to be able to make these payments, because unlike a government-backed reverse mortgage there are no life expectancy set-asides, so your financial assessment process will be slightly different.
Additionally, you need to have a median minimum qualifying FICO credit score of 640 or higher.
If you’re interested in HELO, our friends at One Reverse Mortgage can help. Feel free to give them a call at (888) 980-1543. if you would like to get started over the phone. If you have any questions, leave us a note in the comments below.
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