HECM (Home Equity Conversion Mortgages) are highly regulated safe financial products for retirement that help seniors release equity from their homes to maintain or improve their retirement.
The FHA (Federal Housing Administration) and HUD (Housing Urban Development) create and manage the rules which all private lenders have to follow. If you wish to take out a reverse mortgage we recommend you know all of the rules involved before getting to to closing.
Reverse mortgages have recently gone through changes (April 27th, 2015) that has made it more difficult to qualify for the program including the introduction of a credit check and income requirements to make sure seniors can pay for the home taxes/insurance/maintenance.
If you have friends that have taken out a reverse mortgage pre April 2015 expect your process to be more challenging but don’t get discouraged as every month some 5,000 seniors are taking out the home equity conversion mortgage.
If you’re an outsider to this industry and this is your first interaction with a reverse mortgage loan it can all seem very confusing. Specially if you have been referred by a friend or a financial services professional that is not familiar with how the new program works. You may have been told things such as there are no credit checks or income requirements but this is no longer accurate.
The new HECM reverse mortgage for 2015 applies to all reverse mortgages (or about 95% of them) as the market is made up of the FHA reverse mortgages. Any lender telling you otherwise may have a proprietary reverse mortgage program and this may be a private program (not part of FHA). If this is the case review their rules/guidelines and compare them to the HECM to see which is a better deal for your retirement.
What are the new rules/regulations and requirements for the HECM reverse program and who qualifies?
While the program is now considered a viable financial option for seniors in retirement and no longer gets a bad rap from media sources, the changes that occurred in 2015 have left some seniors with more questions than answers. The purpose of this article is simplify these new changes and make it easy for any seniors considering this program to understand how it works.
What are the requirements for a reverse mortgage loan in 2015:
- You must be over the age of 62 to qualify. If one spouse is not of age you can still apply for this loan.
- You must own the home and live in it as your primary residence. You are able to qualify even with a mortgage on the property if you have sufficient equity. As a rule of thumb owing less than 50% of the homes value in a mortgage will allow you to qualify.
- Sufficient income to cover your property taxes/maintenance/ and homeowners insurance.
- Good credit scores (above 620). If your credit is not good you may be able to still qualify with conditions that you pay off certain debts to improve your scores.
- Never have defaulted on government debt/loans (this program is insured by a federal agency).
- You the consumer must pay for the FHA home appraisal. Lenders don’t pay this fee typically its $350-$450 range.
- Mobile homes have to be on a permanent foundation and built after 1976.
What are the property requirements?
Eligible home types are single-family homes, 2-4 unit homes, manufactured/mobile homes on a permanent foundation, condominiums, and townhouses. Co-ops do not qualify.
There are no medical exams required for a reverse mortgage loan as of July 2015.
What are the rules of the HECM reverse mortgage:
Restrictions on access to funds in the first year. Seniors can only have access to 60% of the proceeds from a lump sum option the first 12 months after taking out the loan. This was put in place because some seniors would spend the entire sum then have nothing to show for it.
To avoid a maturity event (having your loan come due) seniors should avoid breaking any of these technical rules.
Primary residency rule – You must live in the home for more than 183 days out of the year. This can be an issue for seniors facing mental or physical illness or need round the clock assistance in a facility.
Property taxes and insurance: Failing to pay property tax can lead to the loan maturing and coming due. Your lender will receive an update if you have fallen behind on your property taxes or your home insurance.
Property upkeep: It’s a requirement to keep the property in good condition. If the home is in disrepair it may cause an maturity event.
The guidelines have recently changed making it more difficult for lower income seniors to take advantage of the program. This is a real shame but with the reverse mortgage fund loosing billions it had to be done to protect the longevity of the program. This is not a needs based program or a free grant so potential borrowers have to meet all qualifications and rules to qualify. It may seem like a lot of requirements but if you have ever taken out a mortgage its a very similar process.
We are seeing a spike in wealthier seniors with jumbo home values looking to take out this program to secure a portion of their equity. If your current mortgage balance debt is higher than $350K and you have sufficient equity you should contact us to learn more about the HECM jumbo reverse mortgage rules/qualifications.
If you are unsure if you qualify or unaware of how the new rules/regulations impact your case give us a call and or complete the form on this page to learn more. Click Quote Save is committed to providing seniors with unbiased information and a free comparison service to allow boomers to compare quotes online with a few mouse clicks.
“Constant improvements to the reverse mortgage have made it more user friendly for seniors who are looking at ways to improve their financial positions in retirement – while maintaining their independence.”
Reverse mortgages (loans that allow seniors to borrow from their homes equity without having a mortgage payment) are finally being portrayed in the media as a proper financial solution that seniors should consider to better their retirement. There are many changes that have contributed to the recent positive view of the HECM *Home Equity Conversion* program including major publications researching the benefits of taking a reverse mortgage credit line early in retirement to increase the longevity of one’s assets.
Many seniors who faced dire financial circumstances had to make the tough choice of taking out a reverse mortgage with only one spouse on the reverse mortgage (not including the younger of spouses). Before August 4th changes, both borrowers who were going to be on the reverse mortgage loan would have had to be at least 62 years of age. With the new rules in place only one borrower needs to be over the age of 62, and should that borrower pass away the younger borrower can remain in the home for as long as the property taxes and insurance are being paid (no risk of foreclosure as before). AARP sued HUD, as senior widow were being foreclosed on as soon as their husbands passed if they were left off the loan. The reason they were left off the loan was to qualify and in most cases to also qualify for a higher percentage of the homes equity (typically to pay off any existing loans).
Due to these changes borrowers with one spouse significantly younger can expect to borrow a smaller % of the homes equity since the younger of the borrower’s age is one determinant to how much equity can be released. Example is a 65-year old can borrow around 54.1%, and a 60-year-old would only be able to borrow around 51% of the homes appraised value. Going forward borrowers will not have the ability to not include a younger spouse to increase the amount to borrow. Overall this new rule will dramatically improve the reverse mortgage program and make it more user friendly and safer for borrowers with younger spouses.
Requirements and Who Can Qualify for a Reverse Loan:
At least one borrower has to be 62 years or older (it’s ok to have a younger spouse to qualify)
There has to be enough equity left in the home to cover paying off any existing mortgages should that apply to your case (equity is easy to calculate take the homes value and subtract the mortgage balance from it)
Appraisal will be orders to check the value of the home (FHA appraisal – borrower has to pay for this cost upfront, not the lender)
Income checks and credit scores checks are NOT necessary to get a reverse mortgage. There has been talk of updating the requirements to include checking your financial position, but it is not in effect as of August 4th, 2014.
Tax set-asides are also in the works. The way this will work is that a portion of the equity that you can borrow will be set-aside to cover your taxes should you not have sufficient income/assets.
Currently, there is a limit on how much you can actually spend from the amount you qualify for for the first year. Example: a homeowner eligible to withdraw a total of $200,000 in cash for the first year, would only be allowed to tap into $120,000, or 60% of that amount as the first-year limit applies. The second year this borrower can tap into the remaining balance of his original balance.
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HUD and FHA set the regulations behind the reverse mortgage. Lenders need to be licensed to provide you a quote. Our website has been helping seniors compare lenders for a reverse mortgage for over three years now. Want to find out if you qualify and how much you can borrow? just fill out our forms to get started.