The types of homes that may qualify for a reverse mortgage include single-family homes 2-4 unit properties, condominiums, townhouses and newer manufactured homes. Co-ops do not qualify. The owner must be at least 62 with enough equity in the home to qualify. Borrower credit and medical status are not relevant to loan payments since you don’t make loan payments on a reverse mortgage. Lenders will assess borrowers’ financial capacity to pay taxes and insurance, and may set aside loan funds 
 to pay these in the future.

This video and article explain which organizations are exempt from ability-to-repay laws when handling mortgages. While most lenders are required to assess a borrowers ability to repay a mortgage, a few types of agencies and organizations are not. These include: State Housing Finance Agencies Community Housing Development Organizations Community Development Financial Institutions Downpayment Assistance Providers In addition, some not-for-profit companies making relatively few home loans are exempt. Federal loans, like this made under, the Emergency Economic Stabilization Act, might be exempt. Mortgages laws are designed to help customers and lending institutions avoid risk. If you need to check on a lending institutions right to be exempted from Ability-to-Repay, inquire with the Consumer Financial Protection Bureau online, or by telephone at (855) 411-2372.

Can a mortgage be paid off ahead of schedule, and is it a good idea? Those are two separate questions. Most mortgages allow early payoff, but you should make sure you understand any payoff terms or restrictions in your specific loan. Some loans have prepayment charges. People sometimes accelerate payoff by sending extra money each month, or with an extra yearly payment. If you do this, indicate in writing that the excess funds should be applied to reducing principal. Record the payments and instructions! Whether paying off ahead of schedule is in your financial interest is a complicated calculation. If you have the ability to do it, and prepayment penalties arent an issue, you will reduce the interest you pay over time. But reducing a low-interest-rate loan by taking funds from higher-interest-rate investments may not be in your interest. (Note: Payment used against principal is not tax-deductible!) Your lender is one source of advice, but financial planning for you is not their core business. If you have the option, get advice from a financial planning professional when considering something like early payoff.

Equity is a key financial and legal term, but its not taught in school. Understanding the basic concept is very much in your long-term interest! (While equity is also used as a social term, this is just about the financial and legal sense of the word.) At heart, equity is "value owned." If you have equity in a home, or a company, you legally own some part of itscurrent value. If the value of the asset goes up, that part that you own becomes more valuable. In homes and mortgages, this idea of "the part you own" and "current value" are critical. As the example in this video shows, the value of the home changes separately from the size of the loan. You might own a $300K home today, and owe $200,000 — your equity is $100,000 in the current market. If the home is valued at $600K a few years later, and your loan principal hasnt changed (unlikely, but this is just an example), your equity would be worth $400K, and youd owe $200K. As the asset (property) value goes up, or the amount owed goes down, your equity grows. Generally speaking, assets like homes tend to go up in value over time. Equity becomes a financial tool for the owner; for example, as collateral. Because home equity is usually one of the biggest assets people accumulate, it should be treated carefully. Get financial advice before treating home equity like a giant piggy bank.

"Do you want to pay points?" is the kind of mortgage question that leaves many people thinking "I dont even know what that is!" Heres a simple explanation. Points are pre-paid interest. You pay interest now (which is frequently tax-deductible) to lower your long-term rate. "One point" is 1% of the total loan amount. If your lender is willing, ask to compare a loan package with 0 points to options with 1, 2 or more so you can see the short-term and long-term effect. As an example and general guideline, on a 30-year mortgage, your interest rate will go down by about 1/8 (0.125) for each point paid -- 3% interest would drop to 2.75% with 2 points paid. If you plan to stay in the home for a while, points can reduce your monthly payment, while the up-front tax deduction might help with first-year finances. PRO TIP: In some market conditions, negotiating to have the seller pay points may be an option. Talk with your real estate professional and lender.

Understanding the building-blocks of a mortgage may help you compare your options. Your monthly payment is based on a complex calculation that changes over time, so "getting the picture" can be tricky! The biggest pieces are: Loan Amount Interest Rate Term (years to pay off) Payment Schedule Down Payment Equity Down payment and equity are of course closely related, but remember that your equity changes as loan payoff proceeds. This short video visualizes the way these factors relate to help you make sense of the math.

Many people buying a home and shopping mortgages will eventually face the decision: "fixed or ARM?" Its a risk-vs-cost decision. Heres some perspective about fixed-rate options. 15-year Terms are the shortest of the commonly-available fixed rate plans. Interest rates are usually lower for 15-year loans. Payments reduce loan principal earlier, so you build equity (ownership) faster. And, of course, the loan is paid off earlier. 30-year Terms are the longest terms allowed, and probably the most common. For perspective, though, keep in mind that for most 30-year loans, the first 23 years of payments pay off more interest than principal. This may mean larger tax deductions, but it also means more interest paid. Keep your plans for living in mind; how long will you be in this home? What payments make financial sense? Look at the short-term and long-term math for eligible loan amounts, interest rates and payments to make the best decision for your situation.

Adjustable Rate Mortgages commit buyers to making loan payments that may change over time as market interest rates change. If interest rates go up, payments go up and the borrower has to meet those payment obligations. ARM rates may be lower than fixed rates now. Look at your personal situation to assess if you can handle the risk of future increases. Is your income likely to increase over the years to come? Will you be staying put, or do you anticipate selling the home and moving? While an ARM may put a larger loan amount in reach now, make sure you can keep up with that commitment if rates increase in the future.

This short video summarizes the main kinds of mortgages available for home buyers: Adjustable Rate Mortgage, commonly called “ARM” Fixed-Rate Mortgages Balloon Mortgages 2-Step Mortgages ARMs, as the name suggests, will change over time. As market interest rates vary, the mortgage interest rates and payments will vary with them. Buyers opting for ARM loans take on responsibility for meeting payments even if interest rates go up significantly. Fixed rate mortgages lock in interest rates for the entire loan. If the interest rate on a fixed-rate loan is higher than an ARM today, the rate and payments will not change in the years to come. Balloon mortgages are sort of “shaped like a balloon” — smaller at the bottom, bigger at the top. In financial terms, balloon mortgages provider lower interest rates for the early years of a loan — usually 5 years, 7 years, or 10 years. Then the balance and interest are adjusted and refinanced, which sometimes requires a large ‘balloon’ payment. Two-Step mortgages are like super-simplified ARMs. Interest rates adjust, but only one time. Other options for mortgages are available, and worth investigating for your particular situation. For veterans, VA loans are a frequently a great option; see the VA loan series on this site for additional details. Other government programs for non-veterans may also be available. Real estate professionals and lenders can help you make sense of the current market and the options that might suit you best.

Buying your first home? Many lenders provide affordable mortgage options specifically designed to help first-time buyers. Home purchase is a big and often difficult step; these programs may help. If any of these apply: You have long-term debts You have, or have had, income irregularities Your credit history notes past challenges You have not accumulated enough for closing and down payments First-time buyer programs may be able to help. Talk to lenders early.