Many homeowners opt to take out a reverse mortgage on their homes in order to finance large home repairs and other major family expenses, such as their children’s college tuition. Others view reverse mortgages as an additional retirement funding opportunity. The recent announcement of possible changes to reverse mortgage qualification criteria, however, may require people to do some extra planning before opting for this kind of home loan.
Previous and Current Trends
Prior to the housing market crisis in 2008, reverse mortgages were fairly easy to get—and when compared to the process of taking out a first mortgage, they might even have been called a breeze. While banks and credit unions are a bit more cautious about doling out these loans, they are still relatively simple to apply for; in fact, in some cases, homeowners do not even need to undergo a credit check. This makes reverse mortgages one of the most popular loan options for people of all ages and economic standings.
Recent Minor Changes
In recent months, the Federal Housing Administration has rolled out some changes that could change the face of the reverse mortgage process. The most significant alteration has been the elimination of the lump sum option. This particular kind of reverse home loan is fairly self-explanatory: it allowed individuals to cash out their entire loan at once, which gave them the chance to immediately pay off debts or put the money into a savings account for retirement funds.
Expected Future Changes
The elimination of one of the most popular reverse loan mortgage options is, according to many economists, just the first of many attempts by the FHA to cut costs and more closely manage the federal housing loan budget. It is predicted that the FHA will continue to raise fees associated with reverse home loans, reduce the amount of money homeowners can take out at once, and begin requiring background credit checks prior to loan approval. Moreover, borrowers will have to produce documented proof that they can pay both their homeowner’s insurance and taxes before being considered for a reverse home loan.
What This Means For You
If you have been counting on the funds from a reverse mortgage to fund repairs, cover debt, or pay for basic expenses during retirement, don’t panic: the changes to reverse mortgages do not mean that it will be impossible for you to receive such a loan. These alterations do, however, mean that you may have to recalibrate your budget in the event that you are asked to pay more in loan fees and interest, or in the event that you must receive the loan in specific installments over time rather than in a lump sum.
If you are close to retirement and are planning on taking out a reverse mortgage to cover expenses, it’s also important to get a good sense of the value of your home, as this will be a deciding factor in the loan amount you are offered. It’s also essential to make sure you have all of your financial affairs in order, with no interest, tax, or loan payments in default, so you can ensure you will receive the loan even if the FHA’s proposed changes go into effect.
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