New Rules Coming for Reverse Mortgages

For many seniors who hope to age at home, a reverse mortgage, which is a way for people age 62 or older to tap into their home equity, can be a good option to access the  funds to pay for long term care.  The appeal of a reverse mortgage is that no payments are required while at least one borrower is living in the home, although it does require repayment  when the homeowner dies, moves out (even to a nursing home), or sells the property.

Recently, Forbes reported that the U.S. Senate joined the House in passing legislation giving the Federal Housing Administration authority to alter its Home Equity Conversion Mortgage program (HECM), so that it can better protect borrowers and help the agency avoid a federal bailout.  By the end of this month, the agency is expected to announce exactly how those rules will be changed. The new rules, which could go into effect as early as October 1, will likely make it harder for some people to qualify for reverse mortgages.  However, it is hoped that the changes will protect people who do have reverse mortgages from being forced to leave their homes when one borrower dies or moves out of the home.

Current guidelines require borrower(s) to be at least 62 years old, own their primary residence and have equity in said home.  In most instances, credit and income are not qualifying factors.  However, after January 13, 2014, all loans will be subject to income and credit review. If you believe this change will prevent you from qualifying for a reverse mortgage, you may want to apply before they take effect. Also, if interest rates continue to rise, the maximum amount that a homeowner can borrow will decline. Finally, if you apply  soon, the  National Council on Aging, which is one of the agencies that offers applicants the type of counseling required by law to get a reverse mortgage, has reduced its fee from $125 to $90 through Sept. 30. Call the Council, toll-free, at (800) 510-0301 for details.

This blog will provide more information on the new rules as it becomes known.

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