Reverse mortgage popularity grew slowly from the start of the Federal Housing Authority’s (FHA) insured program in 1988 until the early 2000’s. The growth of reverse mortgages accelerated from 2006 through 2009 with the increase in home values. During the recession, the number of new Home Equity Conversion Mortgages (HECM) issued under the FHA reverse mortgage program decreased sharply as did the value of homes. According to NewView Advisors LLC, initial principal limit (see below) decreased further to $8.6 billion dollars in 2012 and rebounded slightly to $9.6 billion in 2013.
Who qualifies for a reverse mortgage?
To qualify for the FHA’s HECM program, the FHA has borrower, property and financial requirements which the prospective borrower must meet. Some of these requirements include:
The borrower (or the youngest co-borrower) must be at least 62 years old. The loan must be paid off when the last borrower on the loan dies. This usually occurs by selling the home. If you are married, you should consider the need to have both spouses on the mortgage. This ensures the surviving spouse will not have to sell the house to pay the loan upon the death of the borrower. If you have children or others living in the home, they should be made aware they will have to leave the home should you die or move out. A reverse mortgage makes more sense economically the longer you plan to stay in your home. If you plan to move soon or your physical ailments may require you to move in the not too distant future, the cost of a reverse mortgage may be significant.
The borrower must pay off any existing mortgages at or prior to the closing of the reverse mortgage. Monies from the reverse mortgage can be used to pay off the debt.
The borrower must have title to the property and occupy the property as his/her principal residence. If there are two borrowers, one of the borrowers must be living in the home. If the borrower does not live in the home for more than 12 months the loan becomes due and payable. This could result in foreclosure proceedings.
The borrower must maintain the property. This includes, for example, having the funds available to make timely payments for property taxes, insurance, repairs and homeowner association dues. You could face foreclosure if you do not have adequate funds to maintain the property.
The borrower must participate in a consumer information session given by an approved HECM counselor. To find information about HECM counselors, visit the U.S. Housing and Urban Development website.
The mortgaged property must be a single family home or a 2-4 unit home with one unit occupied by the borrower. The property must also meet minimum quality housing standards prior to closing.
Do you qualify for a reverse mortgage? If so, what do you believe are the most significant positive and negative factors to consider before entering into a reverse mortgage?
This, and other articles in this reverse mortgage series focus on:
Providing an historical perspective. Who qualifies? How is the amount of money you can receive calculated? What are the costs? What can the funds be used for? Are financial counselors available to help? How do you draw-down the funds? What are the types of scams? What are some common reference sources? Should reverse mortgages be part of your financial plan?