There are a few criteria of a reverse mortgage:
1. Must be at least 62
2. Must have substantial equity in the home
3. Homeowner must continue to pay property taxes and insurance
4. Must keep up with all Home Owners Association fees (if applicable)
5. Must own home free and clear or have very small mortgage
6. Home must be in good condition before getting the loan.
Think about my initial question. For many Americans the largest investment we have is our homes and the equity in them. When we do a reverse mortgage we are giving away a large part of our estate. Understandably at times a reverse mortgage is the only option left BUT please exhaust those other options first.
For those of us who are younger, there are a few things we can do to help offset us having the need to take out a reverse mortgage:
1. Open a Health Savings Account (HSA) and automatically put funds into it every pay period. HSA funds are also tax deductible and can rollover every year (not to be confused with Flexible Spending Accounts). There are a few criteria for HSAs, like you have to be in a High Deductible medical plan.
2. Open a separate savings account for medical expenses.
3. Fully fund your 401k, Roth IRA and Mutual Fund Accounts annually.
Reverse mortgages are legal mortgages and are approved by the Federal Housing Authority and before approved an individual is required to meet with someone to ensure they understand what they are agreeing to. Unless there is an extreme financial situation, I do not recommend a reverse mortgage.
The Truth About Reverse Mortgages (continued)