A conventional mortgage refers to any loan that is not insured or guaranteed by the federal government. They differ from government-insured loan options such as a Federal Housing Administration (FHA) Loan, US Department of Veteran Affairs (VA) Loan, or a US Department of Agriculture (USDA) Loan options. It’s typical for conventional loans to have slightly higher down payments than their government-insured counterparts. However, conventional mortgage loans normally provide more flexibility with fewer restrictions on the borrower.
Some of the key advantages to a reverse mortgage include:
The ability to receive money from your home equity that is usually tax-free.*
Payments are made to you from your accumulated property equity, which may enhance and extend your retirement. You have options on how to receive this money: lump sum, line of credit, or monthly payments. Please note that a line of credit may allow you to pay down the line if you want to have less cash and an increase in equity.
The opportunity to delay Social Security payments and increase monthly income.*
Reverse mortgages can allow you to delay taking money out of your IRA and avoid penalties and/or taxes because the proceeds do not count toward your income. If you haven’t drawn from your Social Security account yet, you should consider discussing this option with a tax advisor or financial planner.
The assurance that you never owe more than the home is worth.⁺
When you move out of the home (whether by selling or death), neither your estate or its heirs are responsible to pay a deficit on the balance owed if your mortgage exceeds the value of your home. If your heirs choose to keep the home, they can purchase it for 95% of the currently appraised value.
The chance to bridge the Medicare gap from 62 to 65.
Some borrowers feel the need to delay retirement until age 65 because they cannot afford their own health insurance before Medicare kicks in. But a reverse mortgage can help you avoid paying income tax on money drawn from your IRA or other accounts to help you keep your retirement plan in place without diminishing your current assets.*
The opportunity to eliminate monthly mortgage payments.
Reverse mortgages remove the requirement that you pay monthly payments during your lifetime as long as you live in your home, pay taxes and insurance, and maintain the home by paying HOA fees, if applicable.
The ability to pay for long-term care expenses.
A reverse mortgage may provide proceeds which can be used to purchase expensive but necessary long-term care insurance without losing your home in the process.
If you have good credit and stable income, conventional loans might be the best option for you as they offer:
- Lower interest rates for borrowers with good credit
- Flexible loan terms
- Flexible mortgage insurance options
- Fewer penalties and fees
If a conventional loan is right for you, there are a few programs to choose from
An adjustable-rate mortgage (ARM) is one with interests rates that change periodically after the initial fixed-rate period. This means that your monthly loan payments are susceptible to increases and decreases based on market changes. An ARM might be the right choice for you if you only plan on staying in your home a few years, are anticipating an increase in your salary, or cannot afford the current interest on fixed-rate mortgages.
A fixed-rate mortgage is one where the interest rate remains the same over the life of the loan. Additionally, you can select different terms, or lengths, of the loan (10, 15, 20, 25, or 30-year term). These fixed-rate loans have higher monthly payments, but this also means you build equity in your home faster than you would otherwise. This equity can be used as a down payment for your next home or a cash-out refinance. If you have plans to be in your home for a longer period of time, a fixed-rate mortgage might be the right solution for you.
A jumbo loan (also known as a non-conforming mortgage) allows borrowers to purchase more expensive properties with loan amounts above the limit for conforming mortgages set by the Federal Housing Finance Agency. For most of the country, the limit on a conforming conventional is around $453,100. A jumbo loan might be the right solution for borrowers who don’t have sufficient funds to bring the loan amount under the conforming limit but who do have low debt-to-income ratios (DTI) and high credit scores.
If you are interested in a conventional loan, contact our local branch location in your area.