Reverse Mortgage Rules
Reverse mortgages are a very attractive financial tool for people of 62 years of age and older, who have a home they are occupying as the main residence. Thousands of seniors have made use of the reverse mortgage to take care of their financial obligations without pressure. However, there are certain rules bordering on the qualification for and regulations on the reverse mortgage; below are the follow.
Basic Reverse Mortgage Rules
- The borrower must be at least 62 years old.
- The borrower must have a home, and it must be the main or primary residence.
- There must not be an existing mortgage on the home; and if there is an existing mortgage, the balance must not be too large.
- There are detailed underwriting requirements that applicants will be made to fulfill; some of them are tougher than the standard mortgages.
- Any applicant that fails to meet the underwriting criteria will have another option called Fully-Funded Life Expectancy Set-Aside. The Set-Aside is earmarked for the payment of property taxes and insurance by the lender to ensure that the required payments can be paid during the life span of the borrower.
- The borrower cannot be absent from the home for more than twelve consecutive months.
- The borrower must maintain and repair the home always to be in good condition.
- Other rules that the lender provides should be carefully reviewed and understood.
FHA Rules on Reverse Mortgages
- Before loan approval, the applicant must attend a compulsory reverse mortgage lessons at approved venues to ensure proper understanding of all available options including the reverse mortgage.
- In the first year of the loan, only 60% of the approved amount or the amount needed to offset existing mortgage plus 10% (whichever is greater) can be accessed.
- Lenders must not make obtaining other financial products a prerequisite for the borrower’s access to a reverse mortgage.
- The lender must appraise the financial capability of the borrower to see if the borrower would have difficulty in paying mandatory obligations such as taxes, insurance, etc.
- The borrowers have three business days after loan closing to cancel the reverse mortgage loans if they changed their minds during which the lender cannot charge any interest.
To be eligible for the reverse mortgage loan, the home must be one of:
- a single family home or 2-to-4-unit multiple family homes with one of the units occupied as primary residence by the applicant
- a manufactured home that meets the requirements of the FHA
- an HUD-approved condominium
Homes that are not qualified include:
- vacation homes or secondary homes
- home on income-producing land like a farmland
The Reverse Mortgage Payoff Rules
When the loan becomes due and payable, the reverse mortgage can be paid off by:
- selling the home by the borrower or the heirs and using the proceeds to pay off the loan (Any remaining equity goes to the borrower or heirs; but if the loan balance is more than the sale price, the borrower or the heirs cannot be made to pay the deficit; according to the FHA regulation.)
- using another means of repayment to refinance the home into another reverse mortgage if the heirs wish to keep the home
- making payments during the life of the loan (This is allowed and attracts no penalty.)
Find out more about Reverse Mortgage Rules
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The services referred to herein are not available to persons located outside the state of California.
Borrower is responsible for property taxes, homeowners insurance, and property maintenance. A HECM is a home-secured debt payable upon default or a maturity event. Some restrictions apply. This material has not been reviewed, approved, or issued by HUD, FHA, or any government agency.