If you are a veteran and looking for ways to tap your equity in retirement, you may be wondering about the possibility of using a reverse mortgage. Is a reverse mortgage right for you and does the VA offer them?
What is a Reverse Mortgage?
A reverse mortgage is a type of loan that allows homeowners aged 62 and older to borrow against the value of their home. These loans work best for those with a significant amount of equity in their homes.
One of the biggest advantages of reverse mortgages is that they do not require loan payments. Borrowers have the option to receive from their lender: fixed monthly loan payments, or a line of credit to be used at their discretion, or even a one-time large lump-sum cash payment. The catch is that the entire loan balance comes due when the borrower sells their home, moves out, or dies. That means reverse mortgages are best for those who do not intend to leave their house to their children or grandchildren as an inheritance. If any descendants want to keep the house after the owner passes away or moves into a care facility, they will have to pay back the reverse mortgage.
However, if inheritance is not an issue, reverse mortgages are one way for homeowners strapped for cash to still stay in their homes as long as possible. They also feature rules that keep the loan balance from exceeding the value of the home to protect the homeowner from owing money in the end. And even if for some reason the balance grows beyond the value, the loan terms state that neither the borrower nor the borrower’s estate will be responsible for any excess loan balance.
Can I Get a Reverse Mortgage Through the VA?
No, the VA does not offer reverse mortgages. You may see misleading commercials that make it seem like there is an official VA reverse mortgage; these are really just reverse mortgages targeted towards veterans.
VA-Sponsored Alternatives to Reverse Mortgage Loans
While you could switch out of your current VA loan into a reverse mortgage, you could also consider a VA cash-out refinance loan if you need extra funds in retirement. This type of refinance allows you to pull out up to 100% of your home’s market value in cash. This will be given to you in one lump sum to be used in any way you choose.
To qualify for a VA cash-out refinance, you will need to meet the basic requirements of all VA loans as well as your lender’s individual credit score and debt-to-income ratio qualifications. You must use your home as your primary residence and have made all your mortgage payments on time for the past 12 months.
The refinance will start with a home appraisal to determine your home’s value and at the closing table you will have to pay a one-time upfront VA funding fee. Unlike reverse mortgages, monthly repayments are required with VA cash-out refinances, so borrowers need to have a source of income to be able to repay the loan.
While there is no such thing as a VA reverse mortgage, there are options within the VA loan umbrella for veterans to get the cash they need in their later years. And traditional reverse mortgages are always available to veterans as an option if they are looking to get rid of home loan payments in retirement.
If you have any questions or would like to learn more, please give us a call today!
These materials are not from HUD or FHA and were not approved by HUD or a government agency.