One of the most overlooked methods that homeowners may have available to save their homes from foreclosure is obtaining a specific type of loan called a reverse mortgage. Because of its limited applicability, it is not frequently discussed as an option, but it may provide certain foreclosure victims with one more valuable solution.
A reverse mortgage is usually used by homeowners over the age of 62 who are trying to supplement their monthly income. Instead of paying a mortgage every month, the reverse mortgage will pay the homeowners. The payments can be taken in a number of ways; for example, the homeowners may receive one lump sum from the mortgage company, get a certain amount every month, or be given a line of credit to be used whenever it is needed.
Even if there is already a mortgage on the property, a reverse mortgage can be used. The main consideration will be how much the home is worth and how much is still owed on the loan. For example, if the property is worth $200,000, but the homeowners only owe $150,000, a reverse mortgage for the full amount of $200,000 can be obtained, which will pay off the $150,000 balance on the original loan, and still allow the owners to use the $50,000.
In the case of a foreclosure, a couple over the age of 62 who is facing the loss of the home can turn an expensive mortgage payment into potential income. The foreclosed loan can immediately be paid off and the home taken out of the foreclosure process.
Some of the drawbacks of this type of mortgage include higher up-front fees, and the fact that homeowners under the age of 62 would not be able to obtain this type of mortgage. There are no certain equity or income requirements to be met, but the equity situation may cause problems in the current real estate market, as property values have been in decline. Homeowners interested in a reverse mortgage should contact a mortgage professional as early as possible to ensure that the value of their home does not fall further while their defaulted mortgage increases due to added interest, fees and legal costs.
Although the reverse mortgage applies only in certain situations, it can allow a specific class of homeowners to stop foreclosure very effectively. It is also a quite-overlooked option that is not discussed frequently as a possible solution to save a home. Despite some of the drawbacks of a reverse mortgage, though, homeowners who may be able to qualify for this method should research what they need to qualify for this type of loan, and which lenders could provide it to them.