Reverse Mortgage loans have new regulations effective September 30, 2013. Because of these changes it could cause a greater number of borrowers to no longer qualify.
Reverse mortgages have been a growing source of additional income for people 62 years or older. With the new requirements it will cut into how much equity a person can get to. The older someone is the greater percentage of money can be withdrawn from their equity. The younger borrowers may be precluded from getting what they need to make it worth their while.
FHA is making the tighter guidelines to strengthen the overall program. After the first of the year additional guidelines will go into place to require borrowers to qualify with more stringent credit criteria. The purpose is to ensure seniors who are tapping into their equity will do so at a much slower pace than all at once and ensure they can afford to pay their property taxes and insurances.
The new equity withdrawal limitation is for the first year of the loan. After that, a borrower can access their additional equity. As an example, someone eligible for a $300,000. loan can only access 60% or $180,000 upon loan closing. If there is a current mortgage in place they may be eligible for more funds, however the new guidelines may make so it is not worth their while or not be able to meet their needs.
The credit standards to go in place after the first of the year will require lenders to ensure borrowers will have the necessary funds from income sources such as pensions and social security to pay the annual taxes, insurances and other obligations. The greatest number of foreclosures under the reverse program stems from individuals defaulting on their property taxes. Lenders will have the option to withhold more funds at closing to pay future real estate related expenses.
In addition to the above FHA is increasing the upfront mortgage insurance premiums to 2.5% of the appraised value for anyone with extenuating circumstances that may be able to exceed the 60% first time withdrawal. Anyone taking less than 60% will only have to pay .50% of the appraised value.
Should anyone like further information please feel free to contact me at 203-257-9083 or tmtiii@msn.com.
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