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Reverse mortgage requirements get tighter

3-10-2015 - Effective April 27, it will be tougher to qualify for a HECM reverse mortgage (the most popular type of reverse mortgage, insured by the federal government). Applicants will be required to undergo a financial assessment, with lenders examining their credit history and sources of income to determine if the applicant has the ability to continue to pay the insurance and property taxes on the home. Up until now, only the age of the borrower (borrowers must be 62 or older), the value of the home, and prevailing interest rates were used to determine eligibility. 

Borrowers who fail the financial assessment test will be turned down, or in certain circumstances, may be granted a loan if they set aside a portion of the proceeds to cover future taxes and insurance. The set-aside may be fully funded and based on the life expectancy of the youngest borrower, or it may be partially funded. In either case, the set-aside percentage is expected to be steep, so much so as to make the loan impractical for many would-be borrowers.

The new financial assessment requirement comes in response to the increasing default rate, which has resulted in many older individuals being forced from their homes.

Anyone who is considering a reverse mortgage should also be aware that securing a reverse mortgage can impact eligibility for means-tested programs such as SSI or Medicaid. Always check with a Certified Elder Law Attorney before taking any steps.

Read more about reverse mortgages at the HUD website.

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