How can you use a reverse mortgage to help pay for senior care home modifications?
In order to know how a reverse mortgage can help pay for home modifications that will accommodate your eldercare needs, it is important to understand what a reverse mortgage is and how it works.
Moreover, it is also essential to determine if aging in place is the right option for you or your loved one.
Reverse mortgages are a viable financial source for seniors and their families to generate funds for home modifications and in-home elder care, which are required to make aging in place possible. There are different types of reverse mortgages, so to determine the suitable one, it is best to do your research before opting for one.
In this article, we’ll discuss how to use a reverse mortgage to meet those senior aging in place needs.
What is aging in place?
Aging in place means living in your home and community during your senior years. This allows the elderly to live comfortably in a familiar environment and also somewhat independently.
What are aging-in-place home modifications and why are they necessary?
The renovations you make to your home in order to make it suitable and safe for seniors to live in are called aging-in-place home modifications.
The goal of these modifications is to make it easier for the elderly to move around and to eradicate any potential dangers for them. The modifications are planned while keeping in mind the convenience and independence of the elderly.
The following are examples of home modifications that may be made to accommodate eldercare:
- Grip bars, no-slip floor strips, and shower seats in the bathrooms
- Better lighting throughout the home
- Installation of smoke detectors and fire extingishers
- Adding a downstairs bedroom and bathroom to eliminate the need for navigating stairs
- Adding an accessory dwelling unit (ADU)- sometimes called a “granny flat” or “in-law cottage” among other things
What is a reverse mortgage?
A reverse mortgage is a cash loan that seniors can get against the equity of their home. Home equity is the difference between the estimated value of your property and any mortgage that you might owe. The loan doesn’t exceed the home equity.
Among other uses of reverse mortgages, paying for home modifications is a great option.
How does a reverse mortgage work?
Unlike a regular mortgage, you don’t have to pay the lender on a monthly basis. In fact, it is the other way around; the lender pays you in a single aggregate amount, in monthly installments, or as a line of credit. The lenders get part of your home’s equity and make a form of “advance payments” against that value.
You don’t have to repay the loan while you live in the home. The repayments are made in case of the owner’s death or if they move out or sell the house. If you, the borrower, die, your spouse or estate repays the loan. The repayment includes the loan amount and the interest. If there is any remaining money left, it goes to the owner or the beneficiary.
The good thing about reverse mortgages is that you maintain the title and ownership of your home throughout the loan period. The lender cannot force you to forfeit your property or repay the loan if you keep maintaining your house and paying your property taxes. This is to ensure that the value of the property doesn’t go down.
What are the different types of reverse mortgages?
There are three main types of reverse mortgages:
1. Single-purpose reverse mortgage:
Some states, government agencies, and non-profit organizations offer reverse mortgages that the seniors can use for the specified purpose. This type of reverse mortgage is the least expensive one, but it is not available everywhere.
Depending on your state, if single-purpose reverse mortgages are available in your region, you can specify home modifications as the sole purpose of the loan. It can be quite a cost-effective solution for you.
2. Proprietary reverse mortgage:
These are private loans that some companies offer that formulate them. This type of reverse mortgage is particularly suitable for owners of high-value houses. For this reason, these are sometimes called jumbo reverse mortgages.
The amount of loan you get depends on the appraised value of your home and the mortgage you owe.
3. Home equity conversion mortgage (HECM):
This is the most common type of reverse mortgage. The U. S. Department of Housing and Urban Development (HUD) backs it and the Federal Housing Administration (FHA) insures it.
People most widely use this type of reverse mortgage because it has no income or medical requirements. Though, HECM is likely to be more expensive than a regular home loan.
What are the eligibility criteria for reverse mortgages?
The eligibility criteria for reverse mortgages are generally divided into two parts:
1. Requirements related to the individual:
- The minimum age for qualification is 62. Usually, seniors can get bigger loans if their age is more.
- There are no specific health requirements for eligibility, but single seniors with disabilities might need to move out, making a reverse mortgage an unsuitable option.
- Seniors of all marital statuses are eligible for reverse mortgages. In the case of a married couple, both spouses co-sign for the loan.
- The seniors have to pass the financial assessment to ensure that they are capable of paying for the home maintenance and property taxes and insurance.
- The place of residence doesn’t play a part in the eligibility but can help determine the amount of loan you get. The higher home values can get you a higher amount of loan.
2. Requirements related to the property:
- The home should be the primary place of residence for the senior. If they don’t live in that property for over a year, they have to repay the reverse mortgage loan.
- The reverse mortgage should be the primary loan against that house.
- The home can be of any value to qualify for the reverse mortgage, but the value determines the limits of the loan.
- A single-family should own the property.
This information should guide you on how a reverse mortgage can help pay for home modifications. With the right information and research, you can use the reverse mortgage to your advantage by paying for aging in place home modifications and even for in-home senior care.