One of the greatest satisfactions in working in the Mortgage industry has always been the opportunity to fulfill the dream for first time homebuyers, families relocating, and even seniors downsizing. In todays mortgage market, qualifying for a mortgage has become more and more difficult based on the mortgage crisis starting in 2008. No group has felt the tightening restrictions harder than the retired community. With the lack of income, qualifying for a new mortgage has made even downsizing a formidable task for some senior homeowners. In most cases, if the proceeds of the sale of your existing property does not afford you what you are lo0oking to purchase, your options leave you in most cases, are extremely limited. Qualifying for a mortgage on a fixed income, which includes taxes, insurance and any other debts, leaves most seniors on a fixed income, out in the cold.
That is, until HUD ( U.S. Dept. of Housing and Urban Development), developed the Reverse Mortgage program for seniors over the age of 62. The restrictions and qualifications affiliated with these types of loans has opened a new avenue for senior homeowners looking to purchase or stay in their existing home, while being able to tap into the equity which has long lingered without working for them. The Reverse Mortgage program or HECM(Home Equity Conversion Mortgage) as its also known, uses three (3) different qualifications that allow for senior homeowners to qualify. First and foremost, at least borrower must be at least 62 years old. The second requirement is that the property must be occupied as the homeowners primary residence, A person’s primary residence, or main residence is the dwelling where they usually live, typically a house or an condominium. A person can only have one primary residence at any given time, though they may share the residence with other people. The third and probably most important qualification is, having a significant amount of equity in the property. Equity is defined as the difference between how much is owed on a property, compared to the value of the property. For example, if a property has an appraised value of $200,000 and has a mortgage(s) or any types of liens of $100,000, than the equity would equal to $100,000. In the same scenario, if the property has no mortgage(s) or liens, than the homeowner would have full equity or $200,000 worth of equity. Obviously, the more equity you have in the property, the better your chances/option are going to be with any type of loan, specifically, a Reverse Mortgage. The other thing to keep in mind, is that the older the youngest borrower on a Reverse Mortgage, the higher LTV (Loan to Value) the bank will lend you on a Reverse Mortgage. By definition, Loan to value is one of the key risk factors that lenders assess when qualifying borrowers for a mortgage. The risk of default is always at the forefront of lending decisions, and the likelihood of a lender absorbing a loss increases as the amount of equity decrease. One more important factor in qualifying for a Reverse Mortgage is the property type. Single family residences, 2-4 units, FHA approved condominiums( https://entp.hud.gov/idapp/html/condlook.cfm) and Manufactured homes that meet strict guidelines are eligible for financing under the Home Equity Conversion Mortgage or Reverse Mortgage as its known.
For more information, we recommend www.reversemortgagespace.com as a wonderful tool to help educate and inform senior homeowners on their current options. Their site is extremely informative and education based to explain all of the benefits and possible pitfalls of navigating through the Reverse Mortgage process. As with all consumer based products, and educated consumer will always end up with the best possible results.