High Reverse Mortgage Costs
One of the larger pitfalls of a reverse mortgage are the high fees. Fees for reverse mortgages are based on the value of your home, which is different from traditional mortgages where the fees are based on the loan amount. Most reverse mortgages sold are federally insured and known as a Home Equity Conversion Mortgage (HECM). For an HECM mortgage, origination fees alone are usually 2% of the home’s value, and then there is the mortgage insurance premium of 2%. By the time you add an appraisal, title search, title insurance, and other reverse mortgage closing costs the total loan fees can reach 5% or more of the home’s value.

Loan Caps
Since HECM mortgages are backed by the government, they have instituted a limit on the amount that you can borrow. These limits range from just over $200,000 to $417,000 depending on where you live.  So even if your home is worth more than $417,000 the maximum amount the government will allow you to borrow will be limited.

There are non-government insured reverse mortgages available, but just like an HECM, the closing costs are high. The benefit to non-government reverse mortgages is that there is no loan cap and in some instances you can avoid the mortgage insurance premiums.

Equity is Required
Although you do not have to own your home free and clear to obtain a reverse mortgage, you do need to have equity. Although there are some traditional mortgages on the market that allow you to borrow more than your home is worth, that is not the case for reverse mortgages.

Negative Impact on Medicaid
Often overlooked, the impact a reverse mortgage can have on Medicaid is one of the scarier reverse mortgage pitfalls. According to the National Reverse Mortgage Lenders Association, a reverse mortgage that is paid out in a lump-sum can impact Medicaid benefits. In order to avoid this significant reverse mortgage pitfall, the lender needs to ensure that none of the lump sum amount is remaining the month after it is received. Otherwise the remaining amount can count as a resource and will impact Medicaid eligibility.

Age Requirements

Another drawback to obtaining a reverse mortgage is the age requirement. You must be 62 or older to qualify for this type of mortgage. If the home is owned by 2 or more people, all owners must be over the age of 62.
Reverse mortgages are increasing in popularity among senior citizens who are looking to use the equity in their home to pay for medical bills and other expenses. However there are many reverse mortgage pitfalls that need to be carefully considered before taking out such a loan. High closing costs, loan caps and Medicaid considerations as well as equity and age requirements all need to be balanced against the need for income. Hopefully this article has provided some insight into the pitfalls of reverse mortgages and will help you make an informed decision.

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Getting Mortgages – For People With Bad Credit

Firstly, the process of receiving a mortgage takes several months.  What this means is that you can act today to increase your credit score.  To do this is as simple as taking out modest secured loans.  This ‘trick’ has been around for a long time, but it entails taking out a secured loan with one bank, then using the proceeds to take out a secured loan with another bank.  You then make modest interest payments on these loans.  In return, the banks will report to the credit bureaus that you are current on your debts.  Although this seems unrelated to getting a mortgage, this is in fact one of the very best things you can to do help yourself if you have bad credit.  Boosting your credit score in this manner significantly improves the chance that you will receive a mortgage, but also will lower the interest rate you will end up paying and improve the terms of the loan you will receive.  Even a small boost in your credit score will save you literally thousands of tens of thousands of dollars over the life of your mortgage.

Another thing that can help with mortgages for people with bad credit history is to look into receiving a government guarantee or government insurance on your mortgage.  Most countries have a housing or urban development administrative bureau that provides these services.  Most people do not understand that getting a government guarantee or federal insurance can be the difference between receiving a high-interest short-term adjustable rate mortgage and a steady, low-interest thirty year fixed rate mortgage.  Without getting into the specific math, all that you need to know is that a standard mortgage is much, much cheaper than any form of adjustable rate mortgage.

With all of that said, it is still possible to receive a mortgage (however poor the terms) if you have bad credit.  Here’s how:

First, approach a bank you have a relationship with, particularly if it is local to your area.  Banks that you have done business with for a while are much more likely to issue a loan to you, regardless of your credit history.

If you do not have this, it’s time to do some research.  Find banks in your local area that have a history of issuing adjustable-rate or otherwise subprime style mortgages.  Since applying for a loan damages your credit score, it is important that you only apply to banks which you know are actually making the types of loans you are seeking.

If there are no local banks that offer subprime mortgages, then it is better not to apply locally and try national banks.  Note that it can be difficult to receive a bad credit mortgage from a national bank unless the bank is on a campaign to make these sort of loans.

Finally, a word of advice:  Even if you do receive a mortgage while you have bad credit, it is important that you work at improving your credit while you are paying down your mortgage.  It will behoove you to refinance a subprime mortgage as a fixed rate mortgage as soon as possible, and you will be unable to do this unless you improve your credit score.  Additionally, governments will commonly sponsor refinancing programs for specifically this purpose.  You should always be on the lookout for such programs.

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