Reverse Mortgages and Foreclosure

As a reverse mortgage loan officer in California, homeowners who are getting close to foreclosure seek my help almost daily. These Californians have owned their home for the last two to five years while the real estate market was great and the value of their home was rising rapidly. They often got a large mortgage, feeling confident they could afford it for some time and planned to later refinance or sell the property and see a profit through appreciation. But many of them took cash out of their home’s value when they refinanced. In every instance they are now finding it tough to pay their mortgage, whether because of a loss of employment, loss of income due to retirement, or just poor planning.

Is the reverse mortgage a possible solution for them? Perhaps. It may help, if the homeowner is over 62 and has lots of equity. If they do in fact qualify for the reverse mortgage, then it could pay off a current mortgage, thus ridding them of a mortgage payment altogether. The result – No foreclosure! The main issue at hand is whether or not they qualify for a reverse mortgage.

For example, if the senior homeowner took out a loan totaling $500,000 on a house with an appraised value of $600,000, then no, a reverse mortgage would not possible. The qualification criteria for reverse mortgages require a lot of home equity. This is because, so long as the homeowner lives there, the lender cannot ask the homeowner for a mortgage payment.

Reverse mortgage lenders simply include the interest with the principal balance of the mortgage, since they must get interest on their loan. Most lenders, not wanting to own residences, do not lend a high percentage of the home's value to begin with. In this way, they keep a reasonable mortgage balance in comparison to the home's value (also known as Loan to Value or LTV) despite the fact that the loan will increase over time.  

Back to the initial question ... When can a homeowner fearing foreclosure obtain help from a reverse mortgage? It will help when the homeowner has a lot of equity in their home and qualifies for a reverse mortgage. What is required? The answer depends on many issues. For example, a younger person is required to have more equity than an older person. The initial amount of money available is figured by age, location of the home, and, to a smaller extent, current interest rates. Thus the amount available to pay off any existing mortgages is ranges from thirty to sixty percent of the home's value.

The reverse mortgage is the ideal solution for preventing foreclosure if the senior homeowner is qualified. But it must satisfy all existing loans on the property - no second mortgage can survive or be granted after the reverse mortgage is in place. Any and all unpaid judgments and property taxes have to be paid in full. If your total sum of debt exceeds the maximum amount of the loan available under the reverse mortgage, you lose. That is unless the senior can find a way to pay off the other debts themselves, the remainder being paid off by the reverse mortgage.

Many senior homeowners facing foreclosure can take advantage of the reverse mortgage. Homeowners with too little equity or who are less than 62 years old should explore other options.