NORMAN — Dear Savvy Senior, What can you tell me about reverse mortgages? I was considering one last year, but now I hear they are more difficult to get.
— Ready to Reverse
That’s correct. Tighter rules on reverse mortgages that have recently gone into affect have made them harder to get, especially for seniors with heavy debt problems.
The reason the Federal Housing Administration made these changes was to strengthen the product, which has suffered from a struggling housing market and a growing number of defaults by borrowers. Here’s a rundown of how reverse mortgages now work.
Overview: The basics are still the same. A reverse mortgage is a loan that allows senior homeowners to borrow money against the equity in their house. The loan doesn’t have to be repaid until the homeowner dies, sells the house or moves out for at least 12 months. It’s also important to know that with a reverse mortgage, you, not the bank, own the house, so you’re still responsible for property taxes, insurance and repairs.
Eligibility: To be eligible for a reverse mortgage, you must be at least 62 years old, own your own home (or owe only a small balance) and currently be living there. You also will need to undergo a financial assessment to determine whether you can afford to make all the necessary tax and insurance payments over the projected life of the loan.
Lenders will look at your sources of income, assets and credit history. Depending on your financial situation, you may be required to put part of your loan into an escrow account to pay future bills.
If the financial assessment finds that you cannot pay your insurance and taxes and have enough cash left to live on, you will be denied.
Loans: Nearly all reverse mortgages offered today are Home Equity Conversion Mortgages, which are FHA insured and offered through private mortgage lenders and banks. HECMs also have home value limits that vary by county but cannot exceed $625,500. See hud.gov/ll/code/llslcrit.cfm for a list of HUD approved lenders.