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Is Now the Best Time to Buy a Home?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Mortgage applications increased by 7.8% in December 2017 from the previous year, according to the Mortgage Bankers Association. But the fact that more people are buying homes doesn’t necessarily mean it’s the best time for you.

If you’re trying to decide whether now is the right time to buy a home, it’s important to understand how the housing market works and whether you’re financially and emotionally ready to take on such a large commitment.

Here are some of the most important factors to consider.

A snapshot of the current housing market

There are several market forces that influence the overall affordability of housing, and can therefore affect your personal decision.

In this section, we’ll look at the current state of three main factors: mortgage rates, home prices, and inventory levels.

Mortgage rates are rising

As with the stock market, you can’t know for sure how mortgage interest rates will change over time. You can, however, make predictions based on some underlying factors.

According to Tendayi Kapfidze, chief economist at LendingTree, mortgage rates are significantly higher than they were six months ago. Indeed, the following chart from Freddie Mac shows a steady climb starting in September, followed by a sharp climb in rates more recently:

Kapfidze points to two factors that have helped push rates higher.

“The first thing is that the Federal Reserve, since September, has been reducing its holdings of Treasury securities and mortgage-backed securities,” he said.

The Federal Reserve began the program of buying up these holdings in response to the financial crisis that began a decade ago. The idea was to lower interest rates to encourage businesses to invest and help the economy grow.

Kapfidze says that this reduction in the Federal Reserve’s holdings lowers demand for Treasury bonds and mortgage-backed securities, “If you reduce the demand, the price falls,” he added, “which in this case means that interest rates go up.”

The second factor, according to Kapfidze, is the recent behavior of Congress, which passed both the Tax Cuts and Jobs Act and a sweeping budget bill recently.

“Both of those things are projected to increase the U.S. budget deficit pretty significantly,” said Kapfidze. “They’re going to be issuing a lot more Treasury bonds, and because they’re adding a lot of supply and we have a reduction in demand, that’s also pushing up the interest rates.”

Home prices are on the rise

If you thought home prices were high when the housing market bubble burst in 2007, take a look at how they’ve grown since the market recovered.

If you’re concerned that the market will see another correction soon, you might not want to risk getting caught up in it. It’s difficult to predict if and when a correction will happen, so it’s often not advisable to try to time the market.

One thing to keep in mind, though, is the correlation between interest rates and home prices.

“As mortgage rates go up, that does put some downward pressure on home prices, but it does it with a lag,” said Kapfidze. “If you were to run a correlation between mortgage rates going up this year and home prices three years from now, you’ll probably see a little slower appreciation in home prices.”

There are fewer homes available

While mortgage rates may not have an immediate impact on home prices, inventory levels can. Total housing inventory fell 11.4% in December 2017, according to the National Association of Realtors, and was 10.3% lower than the previous year.

With fewer homes on the market and growing demand, sellers have less competition and therefore more opportunity to increase prices. But Kapfidze doesn’t see that acting as a deterrent for homebuyers.

“Given the strength of demand in the housing market today, I think you’ll probably still see pretty strong growth in home sales this year,” he said.

The benefits of buying a home

Buying a home is a major financial commitment and should not be taken lightly. But it also comes with some significant benefits, both financial and otherwise, that may factor into your decision.

Tax breaks

The U.S. tax code allows homeowners to deduct the amount of mortgage interest and property taxes they pay each year from their taxable income. The catch is that you have to be able to itemize your deductions instead of taking the standard deduction.

With the new tax law in effect, the standard deduction has increased from $6,500 to $12,000 for single taxpayers and from $13,000 to $24,000 for married couples filing jointly. As a result, fewer homeowners find it worthwhile to itemize their deductions and therefore take advantage of the mortgage interest and property tax deductions.

You may also receive a tax break when you selling your home down the road. The IRS allows you to up to $250,000 in tax-free gains on your sale if you are single, and up to $500,000 if you are married filing jointly, assuming certain conditions are met.

So if, for example, you buy a house for $200,000 and sell it years later for $300,000, that $100,000 gain would be completely tax-free as long as you meet the eligibility requirements.

Equity

So long as home sales remain strong, a home is an appreciable asset, which means that its value typically grows over time. And every monthly payment you make increases the amount of the home that you actually own — your equity — which means that you are building wealth along the way.

Of course, growth isn’t guaranteed. As the U.S. real estate bubble burst a decade ago, the Case-Shiller 20-City Composite Home Price NSA Index fell for almost three years straight.

That said, the long-term upward trend is clear. According to the U.S. Census Bureau, the median home value grew from $30,600 in 1940 to $119,600 in 2000, adjusted for inflation.

All of which is to say that owning a home functions as a sort of forced savings program. By continually contributing money to an appreciable asset, you can build long-term wealth.

Predictable monthly costs

If you opt for a fixed-rate mortgage, your monthly payment is locked in for the length of your loan term. This is in contrast to renting, where your monthly payment can change every time you renew your lease.

That fixed cost can make budgeting and planning a lot easier. With that said, owning your house means that you’re on the hook for maintenance and repairs. These costs can be unpredictable, and sometimes quite high, which is one of the reasons why building an emergency fund can be so helpful.

More control

While homeownership can provide financial benefits, many people simply want the freedom to create a home that makes them happy.

As a homeowner, you don’t have to ask permission to paint the walls, replace the floor, add a room or get a pet. For the most part, you have complete control to do what you like.

Of course, this may mean spending more money on home improvements. But if it’s in pursuit of turning your house into a home, it may be worth the costs.

Running the numbers on buying vs. renting

The choice to buy or rent isn’t always an easy one, even if you’ve done your homework. But it’s always helpful to run the numbers to see which route is more likely to come out ahead.

You can play around with The New York Times’s Buy vs. Rent calculator to crunch the numbers.

It generally makes more sense to buy if you plan on living in the home for an extended period of time.

The less time you plan on staying in the home, and the greater the associated costs of your home are — such as interest rate, property taxes, insurance, and maintenance — the less likely it is that buying will be the better financial decision.

While there is no golden rule, there are certain variables that generally argue one way or the other in the buy vs. rent debate.

Here are some of the major considerations:

Even if you’re ready to take the next step toward buying a house, the process can be daunting, especially if you’re a first-time homebuyer.

As you begin the house-hunting process, here are some tips to help you stay on the right track.

1. Figure out how much you can afford

A mortgage is a long-term investment, so make sure your budget can handle both the monthly payment and all the other expenses that come with owning a home.

“You want to make sure to have a conservative budget, so if any curveballs are thrown at you like a lost job or big unexpected repair, you have the means to tackle them,” said Mike Schupak, CFP®, a fee-only financial planner and the founder of Schupak Financial Advisors in Jersey City, N.J.

You can use MagnifyMoney’s home affordability calculator to get a quick idea of your price range, then focus on homes within that range.

2. Research recent home sales in your area

Given that the housing market crashed not too long ago, and that average home prices have now risen above what they were before the crash, you might be worried about buying at the top of the market and suffering through another downturn.

Luckily, there are plenty of tools that allow you to research the value of recently sold homes in your area, which can help you gauge whether the home prices you see are fair.

Websites like Zillow.com and Realtor.com can be helpful places to start. Zillow allows you to search as many as three years back, and both sites allow you to filter based on a number of variables so that you can get as fair a comparison as possible.

But this is where a good realtor will really shine. Realtors have access to databases that go back even further, and a good realtor will understand how to evaluate that data, find the right comparisons and explain it all in a way that makes sense.

3. Determine how much you’ll put down

A larger down payment will reduce your monthly payment and potentially allow you to avoid PMI, but you have to weigh that against the savings you have available and your other financial needs.

Lucas Casarez, CFP®, a fee-only financial planner and the owner of Level Up Financial Planning in Fort Collins, Colo., says that a 20% down payment is preferred, but not a deal breaker. It typically allows you to avoid PMI and may allow you to secure a lower interest rate.

But putting 20% down isn’t always realistic, and there are plenty of mortgage programs that allow you to buy a home with less. You just need to weigh the pros and cons in light of your personal situation.

4. Get preapproved

You can get a pre-approval letter from a lender before even making an offer on a house. This letter says that the lender will likely loan you up to a certain amount of money, based on a set of assumptions.

And while this isn’t a loan offer or a guarantee, it both allows you to make an offer with more confidence and gives the seller more confidence that you will actually be able to follow through on your offer, increasing your odds of having it accepted.

5. Avoid applying for credit

Every time you apply for a credit card, loan or any other type of credit, the lender does a hard credit check that can temporarily knock a few points off your credit score.

It’s therefore wise to delay new credit activity until after you close on your mortgage in order to keep your credit score from dropping.

6. Get the right loan

There are many different types of mortgages, from conventional loans to non-conforming loans, to programs that allow you to put less than 20% down. You can get a fixed interest rate or an adjustable rate, and you can choose mortgage term that’s typically either 15 or 30 years.

There are many different factors to consider, and a good mortgage adviser can help you understand your options and make the right choice based on your personal needs.

7. Compare mortgage rates

Every mortgage lender has different criteria when underwriting their mortgages, so you have the opportunity to shop around to find the lowest interest rate available to you. You can use this tool from the Consumer Financial Protection Bureau to get a sense of the rates available in your area, and you can apply with several lenders to see what offers you qualify for.

MagnifyMoney’s parent company LendingTree also makes it easy to get quotes from lenders online, using this short online form.

And you don’t have to worry about hurting your credit score by making several applications. As long as they are all within a 45-day window, the credit bureaus will count multiple credit checks from multiple mortgage lenders as a single inquiry.

8. Make a strong but reasonable offer

Once you find the right house, you can work with your real estate agent to make a strong offer that’s within your budget.

At this point in the process, you may be confronted with competing bids, and it’s important not to get caught up in a bidding war that could put you in a difficult situation. You can potentially work with your realtor to make certainly reasonable concessions, but be prepared to walk away if the price gets too high.

The bottom line: Is it time for me to buy a house?

With so many market and financial factors to consider, it can be hard to figure out whether it truly is the right time to buy. Schupak’s advice is to focus on what you can control.

“Don’t try to time interest rates,” Schupak said. “Instead, focus on items like purchase price, expected maintenance cost, insurance, HOA fees and real estate taxes. A forecast miss on those items often turns out to be much more costly than a higher interest rate.”

Casarez encourages people to be conservative and wait until you have a solid foundation in place that can help you navigate the ups and downs of this big transition.

“Sometimes the monthly cost of owning a house can be a big jump, and it can cause a lot of stress,” said Casarez. “The best time to buy a home is when you’re financially and mentally ready to do so.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Matt Becker
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Matt Becker is a writer at MagnifyMoney. You can email Matt here

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5 Questions to Ask Yourself Before Buying a House

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Buying a House

The housing market is heating up and so is the homebuying competition. Recent data from the National Association of Realtors show that pending home sales are up nearly 5%.

Still, don’t let the increased activity pressure you into getting a mortgage before you’re truly ready. Take inventory of your personal and financial preparedness first.

Step back and ask yourself the following questions before you start your homebuying journey.

Question 1 How much house can I afford?

Prior to your house hunt, be sure you have a concrete understanding of exactly how much house you can comfortably afford. A common way to determine affordability is to get a mortgage preapproval.

A preapproval is a letter from a mortgage lender that tells you how much money you might qualify to borrow for a home purchase along with an estimated interest rate. In order to get preapproved, you’ll need to submit several documents and other pieces of information to the lender, including:

  • A government-issued I.D. (e.g. driver’s license)
  • Social Security number
  • Pay stubs
  • Bank statements
  • Tax returns

The lender will also pull all three of your credit reports and scores to help determine your creditworthiness.

Getting preapproved for a mortgage not only gives you a price range to use when you start shopping for a house; it also gives you an advantage over other buyers, and legitimizes you when it’s time to put in offers.

Question 2 How long do I plan to live in the home?

Homeownership is a commitment. You’re committing to the mortgage you borrow, the home you choose and the surrounding community — this isn’t the case as a renter.

The financial commitment is just as real as the moral one. Financial experts commonly say it takes five years to make the money back you spent on your house, should you decide to sell it. Owners typically stay in their home for a median of 10 years before selling, according to the Homebuyer and Seller Generational Trends Report from the National Association of Realtors.

Question 3 Am I financially secure enough for homeownership?

Don’t focus solely on stashing away just enough cash to cover your down payment. Factor in the many other costs of buying and owning a home.

Before you’re handed the keys, you also have closing costs to pay. This could run you anywhere from 2% to 5% of your home’s purchase price — not to mention all the deposits and expenses related to moving in.

You’ll also want to have a sizable cash cushion for maintenance and unexpected expenses. Aim to have at least three to six months’ worth of your living expenses saved in an emergency fund, such as a personal savings account. Be mindful of how your expenses might change as a homeowner and tweak your savings amount to reflect those changes.

Another consideration is how you’re handling your current debt obligations. If you’re struggling to stay afloat as is, a mortgage lender likely won’t approve you. That’s because one of the main qualification factors a lender pays close attention to is your debt-to-income ratio, or the percentage of your income that is used to pay your debt every month. A good DTI ratio for all your debt payments, including your estimated monthly mortgage payment, is a maximum of 43%.

Question 4 Is my credit history positive enough?

You’ll need to demonstrate your creditworthiness as a potential mortgage borrower before you’re approved. Start by pulling your credit reports from all three credit reporting bureaus — Equifax, Experian and TransUnion — by visiting AnnualCreditReport.com. You’re entitled to one free report from each bureau once a year.

Review your reports for any negative remarks and errors. Do you have a history of multiple late payments? Are your credit card balances close to the limit? If you see room for improvement, you might need to postpone your homeownership goals until your credit profile is in a better position. Lenders want to see overwhelmingly positive credit habits from mortgage applicants.

You’ll generally want to have at least a 580 credit score to qualify for an FHA loan and a 620 score for a conventional loan. Read our guide on minimum mortgage requirements for more information on credit score specifics for other mortgage products.

Question 5 Which mortgage type is best for me?

There are several different mortgage products available and one may fit your financial situation better than others. For example, if you don’t have a lot of money for a down payment and have a credit score in the 600 to 700 range, you might want to go with an FHA loan, which requires just a 3.5% down payment. On the other hand, if you have at least a 5% down payment and a score above 700, you could benefit from a conventional mortgage.

There are also VA loans, which cater to military service members and veterans, USDA loans that focus on homes in designated rural areas and several other options. Speak with your lender to get a rundown of their available mortgage programs.

The bottom line

It takes some time and effort to decide to buy a home. To help in your decision, it’ll be worthwhile to develop answers to the above questions.

Once you’re ready to take that leap, shop around with multiple lenders to get the best deal. Data show that homebuyers stand to save more than $36,000 in interest on a $300,000 mortgage over a 30-year term by shopping around, according to LendingTree’s Mortgage Rate Competition Index.

Review the Loan Estimates you’ll receive from each mortgage lender after submitting your application to compare interest rates and the many other costs that come with borrowing.

This article contains links to LendingTree, our parent company.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Crissinda Ponder
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Crissinda Ponder is a writer at MagnifyMoney. You can email Crissinda here

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Guide to Reverse Mortgages: Is the Income Worth the Risk?

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Real estate investment. House and coins on table
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Although they have received increased attention in recent years, many consumers still have a hard time fully understanding what reverse mortgages are, how they work and who they benefit.

Continue reading for a thorough explanation on the above topics, plus a discussion of the advantages and disadvantages of this complex financial product.

What is a reverse mortgage?

A reverse mortgage is a loan that allows senior homeowners to borrow money against their home’s equity. Instead of making monthly payments to their mortgage lender, the homeowner receives money every month from their lender — or receives a larger amount in a lump sum. The balance owed to the lender grows over time and isn’t due until the homeowner moves out, sells the property or passes away.

Reverse mortgages are the opposite of a “forward,” or traditional, mortgage, which allows a borrower to purchase a home and repay their lender on a monthly basis. With traditional mortgages, the balance owed reduces over time until it’s completely paid off.

In both forward and reverse mortgages, the property is used as collateral for the loan. Only homeowners who are at least 62 years old can take out a reverse mortgage.

Reverse mortgage types

There are three types of reverse mortgages available to homeowners depending on their situation.

Home Equity Conversion Mortgage (HECM)

This is the most common reverse mortgage and is backed by the Federal Housing Administration (FHA). A HECM offers more flexibility in terms of how payments are disbursed to borrowers. Payment options include:

  • A single, lump-sum disbursement.
  • Fixed monthly advances over a specified period of time.
  • Fixed monthly advances as long as you live in your home.
  • A line of credit.
  • A combination of a credit line and monthly payments.

Single-purpose reverse mortgage

As the name suggests, this type of loan is used for a single purpose, such as covering home repairs or property taxes. Loan proceeds are typically distributed in a lump sum to cover the homeowner’s financial need. Single-purpose reverse mortgages are offered by nonprofit agencies and some local and state governments.

Proprietary reverse mortgage

This loan is offered by private lenders and usually benefits borrowers with high-value homes because they may receive bigger advances.

How a reverse mortgage works

A reverse mortgage is a loan that takes a portion of your equity and converts it into payments made to you. The money you receive is typically tax-free, according to the Federal Trade Commission. Unlike a traditional home equity loan, you are not required to pay back a reverse mortgage on a set schedule.

Let’s look at an example of how a reverse mortgage works:

John is retired, has paid off his mortgage and owns his home outright. He wants to stay in his home, but needs to supplement the monthly income he receives from Social Security and his pension.

The total amount John can borrow using a reverse mortgage is based on his age and that of his spouse, current mortgage rates and the home’s value; these limits are imposed by HUD. Here’s how the numbers could possibly work out for him, based on LendingTree’s reverse mortgage calculator:

Value of the home$300,000
Title holder’s age70
Mortgage balance$0
Lump sum estimate$145,902

Based on the calculator, John might qualify for as much as $145,902 if he decides to go the single disbursement route. An advantage of getting a lump-sum payment from your lender is that the interest rate will be fixed, unlike the other options which have an adjustable interest rate.

The reverse mortgage loan limit is $726,525 for 2019, which is 150% of the conforming loan limit of $484,350 for forward mortgages. Still, even if the amount of equity you have is lower than the loan limit, you won’t be allowed to borrow the full amount.

The amount you’re allowed to borrow for a reverse mortgage is determined by the age of the youngest borrower, the home’s appraised value and the anticipated interest rate. Generally, the older you are, the more you can borrow.

Costs and fees

The most common fees associated with a reverse mortgage include:

  • A loan origination fee, which could cost up to 2% of the loan amount.
  • An initial mortgage insurance premium, which is a flat 2% fee.
  • An annual mortgage insurance premium, which is 0.5%.
  • Housing counseling, which usually costs about $125.

There are also additional closing costs and interest fees.

Reverse mortgage requirements

Senior homeowners who are interested in borrowing a reverse mortgage must meet the following requirements:

  • Be at least age 62 or older.
  • Own your home outright or have a small remaining mortgage balance. If you still have a loan, a good rule of thumb is to have at least 50% equity in your home, because you’ll first need to use the reverse mortgage funds to pay off the outstanding balance on your forward mortgage.
  • Must be seeking a loan backed by your primary residence.
  • Have no federal debt delinquencies, including student loans and taxes.
  • Proof of sufficient income to cover your property taxes, homeowners insurance and other housing-related expenses.
  • Demonstrate your creditworthiness as a potential borrower. While there isn’t a minimum credit score requirement, it helps your case to be responsible with your credit usage by maintaining on-time payments, keeping your balances low, etc.
  • Participate in an information session with a HUD-approved reverse mortgage counselor.

Most reverse mortgages have what’s called a “non-recourse feature,” which means if the lender takes legal action against you due to default, the lender can only use the home to satisfy the defaulted debt and can’t come after you for any difference between how much you owe and the home’s value. This also applies to your heirs in the event you pass away and the home is sold to repay the debt.

4 things to watch for when taking out a reverse mortgage

Just like all other financial products, a reverse mortgage comes with its share of risks, which typically include the following:

Higher financing costs

Compared with a forward mortgage, the fees associated with a reverse mortgage are more costly. As an example, a HECM lender can charge an origination fee equal to $2,500 or 2% of the first $200,000 of your home’s value, whichever is greater, plus another 1% for any home value amount above $200,000. The maximum allowable origination fee is $6,000. By contrast, the average origination fee for a traditional mortgage is just under $1,000, according to data from Value Penguin, a LendingTree company.

Increase in debt

You receive income from a reverse mortgage, but it’s still a loan that you or your estate will be responsible for repaying. Since you’re borrowing from your home’s available equity, your loan balance increases over time, which adds to your outstanding debt load.

No tax deductibility

The IRS treats the income received from reverse mortgages as loan advances, and for that reason any interest paid on a reverse mortgage isn’t tax-deductible.

Rising interest rates

The majority of reverse mortgage products have an adjustable interest rate, which is subject to market fluctuations. Your rate will be at a high risk of increasing very quickly.

Reverse mortgage pros and cons

Consider the following benefits and drawbacks before applying for a reverse mortgage:

Pros

  • Increase in your monthly income. If you opt for monthly payments from your lender, a reverse mortgage gives you additional income every month on top of any retirement income you already receive.
  • Flexibility to use the funds how you see fit. If you take out a HECM or proprietary reverse mortgage, there aren’t restrictions imposed on what the money is used for.
  • Ability to stay in your home. Not only do you get to keep your home, but you can keep it in your family after you pass away if your estate is able to fully repay the reverse mortgage.
  • Free from underwater mortgage stress. If your loan balance becomes greater than your home’s value, you likely won’t be on the hook for the difference between the two.

Cons

  • High upfront costs. There are origination fees, mortgage insurance expenses and closing costs in a reverse mortgage transaction. If you choose to cover these costs with your loan, you’ll receive a smaller payout.
  • Decrease in your home equity. With a reverse mortgage, your loan balance grows and your available equity shrinks over time.
  • Loan becomes due if you have a change of heart. If you decide you want to move out of or sell your home, the outstanding balance on your reverse mortgage becomes due immediately.
  • Adjustable-rate mortgage. Most reverse mortgages have adjustable interest rates that will likely increase over time. As of January 2019, the latest month for which data are available, reverse mortgage rates range from 3.583% to 7.019%, according to FHA statistics.

Shopping for a reverse mortgage

The first few steps you should take when you decide you want to apply for a reverse mortgage are to educate yourself on how reverse mortgage programs work, and to determine which loan type works best for your financial situation.

Once you have those details figured out, gather multiple quotes from reverse mortgage lenders and compare the costs and fees to find the best deal available. Ask questions about any and everything that seems unclear, and don’t forget to consult a HUD-approved reverse mortgage counselor for extra help.

Consider the interest rate each lender charges, as well as the origination fee and other closing costs. Additionally, work with each lender to determine how folding the financing costs into your loan will affect the amount you ultimately receive and whether it makes sense to pay those costs out-of-pocket instead.

After you’ve closed on a reverse mortgage and — for some unforeseen reason — decide you no longer need it, you have a “right to rescission,” which means you’re allowed to cancel the deal without penalty. You have a minimum of three business days after the loan closes to notify your lender in writing, and the lender has 20 days to refund any money you’ve paid toward the financing of that loan.

FAQs about reverse mortgages

The timeline varies by lender, but the lending process could take two months or longer. Be sure to ask your loan officer for a rough idea.

No, interest paid on reverse mortgage balances is not tax-deductible.

When you pass away, your reverse mortgage becomes due and payable. If you have a surviving spouse or heirs, they will be responsible for paying back the loan, which might involve selling your house.

For HECM loans, you can find an FHA-approved lender through HUD’s website. For other types of reverse mortgages, a quick online search will reveal public and private lenders in your area.

Reverse mortgage alternatives

A reverse mortgage isn’t the best option for every senior homeowner. If you need money to fund renovations, repairs or other expenses, here are some alternative options.

Borrow a home equity loan or line of credit

If you have a sizeable amount of equity in your home, you might qualify to take out a home equity loan or home equity line of credit (HELOC). You borrow a lump sum of cash with a home equity loan and you’re granted a line of credit, similar to a credit card, with a HELOC. Either of these products might work better if you’re still employed, as they require you to make monthly payments after borrowing the funds.

Refinance your existing mortgage

For those borrowers who still have a mortgage balance, you could refinance your loan by extending the term and lowering your monthly payment amount, which frees up some cash in your budget. You could take advantage of a cash-out refinance, which allows you to borrow a new mortgage that’s larger than what you actually need for your house and pocket the difference.

Rent out a room

Empty-nesters with more home space than they actually need might benefit from renting out one of their bedrooms either through short- or long-term rentals. This generates extra income that can be used for remodeling, traveling or other expenses.

Don’t forget your retirement accounts

As long as you’re old enough to tap your 401(k), IRA or other retirement account without any early withdrawal penalties, going this route is a less costly way to supplement your income. Generally speaking, you can withdraw from your retirement accounts without penalty starting at age 59 ½.

The bottom line

Reverse mortgages come with additional considerations that may not always be a concern for forward mortgages, but they may provide relief for some older homeowners who want to supplement their income and also age in place.

If you can comfortably manage your insurance, tax and other obligations related to homeownership, maintain your property and keep it in good condition, and are confident that your heirs will take care of your home after your passing, a reverse mortgage could work well for you.

This article contains links to LendingTree, our parent company.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Crissinda Ponder
Crissinda Ponder |

Crissinda Ponder is a writer at MagnifyMoney. You can email Crissinda here

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