Reverse Mortgages and Foreclosure

Being a reverse mortgage loan officer, I often talk with homeowners that find themselves in financial trouble and fearing foreclosure. Many of them share the same problem; they bought their homes within the last five years and watched the prices rise rapidly. When they secured their big mortgages, they expected to pay the mortgage for just a little while, then refinance or sell the home at a sizable profit. Frequently, they withdrew part of their equity by financing. No matter what the reason, fired or laid off from work, loss of retirement funds or simply inadequate arrangements, many find themselves struggling to pay their mortgage.

Will a reverse mortgages be able to assist people with this problem? It is hard to say; it really depends on the particular case. It may be a good idea, if they have a lot of equity and are older than 62 years of age. A reverse mortgage will pay off all current mortgages if they qualify and they'll never have to make another monthly mortgage payment again. And then foreclosure risk is gone! The most important issue is determining if someone can actually qualify for a reverse mortgage.

For example, in most cases, the homeowner (62 years +) has drawn one or more loans that total $500,000 against a house that is now worth $600,000. In this case, this person would not be eligible for a reverse mortgage. In order to qualify for reverse mortgages, there needs to be a large amount of equity in the home. This is because the homeowner can't be asked for a mortgage payment by the lender while the homeowner is living in the house. Lenders expect to be paid interest on their loan, and thus add the interest to the mortgage principal. Most lenders don't give a large amount of the home's value beforehand, as they don't like to actually own the properties. Thus the loan amount stays at a reasonable proportion of the home's Loan To Value (LTV), even though it will increase as time passes.

But I am getting off of the subject at hand. . . At what times can a homeowner who faces foreclosure be assisted by a reverse mortgage? When they qualify. Having a substantial amount of home equity will help the homeowner qualify for the reverse mortgage. Once more, the amount can vary. One variation is age; they younger you are, the more equity required and the older you are less equity is required.

Money available from a reverse mortgage is usually between 30%-60% of the home's value, and is determined by the current interest rates (set by the Federal Reserve) along with, more importantly, the age of the owner and the location. The reverse mortgage is an excellent tool to allow the senior homeowner to pay off all existing mortgages on a piece of property, if that homeowner qualifies for a large enough mortgage. The reverse mortgage is required to pay off all loans, especially second mortgages, because they are not permitted to remain or be borrowed after the reverse mortgage. All unpaid liens must be paid off, including all overdue taxes and judgments. It won't work, however, if the grand total of all those debts is greater than the total loan amount available under the reverse mortgage. However, the senior will have a chance at the reverse mortgage if he can pay down enough of the debt for the reverse mortgage to cover the rest.

Many homeowners facing foreclosure can benefit from a reverse mortgage for seniors. Those homeowners who are under 62, and are thus considered to be "too young," and who have not established adequate home equity, will be forced to look other places for help.