The reverse mortgage loan has continued to evolve since its introduction in 1961 and only grows stronger and safer with each year. This is primarily due to rules and regulations set by the Federal Housing Administration (FHA). The FHA continually updates and regulates reverse mortgages with new guidelines to protect you as a borrower. So what exactly are the current rules and requirements of the reverse mortgage loan product in 2017?
The reverse mortgage loan began as a way to help seniors use their equity to age in their home. Therefore, the four most important borrower rules for reverse mortgages are as follows:
Once you satisfy these eligibility requirements and after you obtain a reverse mortgage, you still have obligations to uphold. In order to enjoy all the features of a reverse mortgage loan, and ensure that you do not default on the loan, you are responsible for:
The regulations about loan payback are quite important as well. Luckily, the popular government insured reverse mortgage loan, also called a Home Equity Conversion Mortgage (HECM), is non-recourse. This means that:
In addition, the FHA has set some additional safeguards to protect borrowers and encourage responsible reverse mortgage loan use.
Two new rules were implemented in 2014 and 2015 for the reverse mortgage loan program. Still in effect for 2017, these rules regarding non-borrowing spouses and the borrower’s financial assessment add new layers of protection for all borrowers.
This rule makes it easier for the non-borrowing spouse to continue living in the home following the death of a borrower. The non-borrowing spouse will inherit the responsibility for the reverse mortgage loan as well as the home’s ownership. Borrowers should be aware, the age of the non-borrowing spouse may effect some loan terms such as the amount available to borrow.
This rule mandates that lenders financially assess all reverse mortgage loan applicants. Borrowers are required to submit documentation regarding income, taxes, assets, payment history, and other debt to lenders. The purpose of this rule is to ensure that borrowers have the financial capability to fulfill their loan obligations, such as continuing to pay property taxes and home insurance.
Although the FHA’s rules and regulations for the reverse mortgage loan may seem stringent to some, they are designed with the borrower’s best interests in mind and are truly beneficial to you as a borrower. These regulations and rules are meant to encourage borrowers to use this great financial tool as part of an intelligent retirement planning strategy, which in turn solidifies the overall strength of the reverse mortgage loan product.
“Reverse Mortgage Issues/Obligations After Closing.” Hud.gov. n.p. n.d. Web. 17 Jul 2014. http://portal.hud.gov/hudportal/documents/huddoc?id=7610-0_5_secE.pdf
“Most Frequently Asked Questions.” ReverseMortgage.org. n.p. n.d. Web. 17 Jul 2014. http://www.reversemortgage.org/GetHelp/MostFrequentlyAskedQuestions.aspx#right
Alderman, Jason. “Rule Changes Tighten Reverse Mortgage Eligibility.” PracticalMoneySkills.com. n.p. n.d. Web. 17 Jul 2014. http://www.practicalmoneyskills.com/personalfinance/experts/practicalmoneymatters/columns_2014/0124_RuleChanges.php
“Reverse Mortgages: New Rules Ensue.” NetEquityMtg.gov. n.p. n.d. Web. 1 Apr 2015. http://www.netequitymtg.com/2015/01/22/reverse-mortgages-new-rules-ensue/