Question from Fresno, CA: Why is My Reverse Mortgage Different Than My Parents?
Many seniors often have questions about reverse mortgages. Many of the baby boomers that are retiring helped their parents get reverse mortgages 15 to 20 years ago. They are often confused as to why their parents got such a better deal than they did.
Just as rules and regulations are continually changing with traditional mortgages, so are the rules of reverse mortgages. Reverse Mortgages are FHA Loans (Federal Housing Administration). They are continually adjusting and changing the rules of reverse mortgages to make things better. Sometimes it is better and sometimes it isn’t.
Let’s start with the most recent change. As of April 27, 2015, borrowers are now required to go through financial assessment. This financial assessment will show their willingness and ability to meet the terms of the loan. They need to have documents to show that they are current on property taxes and home owner’s insurance. If any payments have been missed they must write a letter explaining why.
Also needed is verification of income and financial assets. These things determine risk of the individual. If they are determined to be a risk, they are required to have money set aside to pay for the upkeep, property taxes, and homeowner’s insurance. Some critics say that this is too much and cuts back on the advantages and benefits of a reverse mortgage.
Seniors are often surprised that we are asking for income verification. Just like a traditional mortgage, we need to see bank statements, paycheck stubs, social security statements, and anything else the underwriter asks for.
Then in 2013 another major change happened in regards to Reverse Mortgages. The FHA capped the amount borrowers can access their first year at 60%. If the reverse mortgage is paying off an existing mortgage, the borrower can get an additional 10%. Again, this cut back on the reverse mortgage being as appealing to seniors.
While these are not huge changes, I oftentimes find that borrowers are surprised when they are given a quote on a reverse mortgage and they find out how much they can get in their line of credit. Many compare it to people they know who got a reverse mortgage 10 or 15 years ago. It can be very disappointing. However, overall the reverse mortgage is a good deal for seniors looking to tap into their home equity.
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