Is Reverse Mortgage Possible After Refinancing
by Warren from Mableton, GA and by Robert from Hyde Park, NY
Ask Kate if it is possible to get a reverse mortgage following a refinance of your home: Warren would like to proceed with a refinance to get a lower mortgage rate. But he's concerned that refinancing his home today will keep him from getting a reverse mortgage next year. Additionally, Robert's elderly friend with a reverse mortgage went into a nursing home.
Will the lender take back the home if the borrower remains in the medical facility? Or, in lieu of foreclosure, can the property be sold for less than the loan balance?
Refinancing a Year Before Reverse Mortgage By Warren N. from Mableton, GA
I refinanced my mortgage in April 2014.
Now I would like to refinance again to get a lower rate than my 5%.
But will refinancing in 2015 have any negative effect on me trying to do a Reverse Mortgage?
I will be 62 in 2016.
Ask Kate answers: Refinancing a Year Before Reverse Mortgage
The amount of equity in a home is paramount when qualifying for a reverse mortgage.
So, unless you have an abundance of equity, I would advise against increasing your loan amount during the refinance (this is called cash-out refinance) any more than necessary.
Refinancing a mortgage to extract equity in the form of cash becomes wildly popular during strong real estate markets. Go here to read more about this method of refinancing a home at Cash-out Refi: No Closing Costs vs Lower Rate
Consult with an FHA Reverse Mortgage Counselor
There are new qualifying parameters recently added to reverse mortgage loan approvals as of spring 2015. For example, credit history now gets reviewed and debt ratios are considered to ensure that the senior homeowner can afford to pay property taxes and maintain the integrity of the home.
I also wouldn't want any roadblocks to be overlooked that could be caused by a refinance of your home. So even though you may need to repeat the session next year, meeting now with a reverse mortgage counselor might be prudent.
Call 800-569-4287 to locate an FHA reverse mortgage (also called Home Equity Conversion Mortgage or HECM) counselor.
Beware of Prepayment Penalties
If you decide to go forward with the traditional refinance, be on the alert for prepayment penalties. Lenders sometimes penalize borrowers for paying off a mortgage too soon. This penalty can be very costly and devour even more of your equity.
So read the fine print on the loan disclosures carefully to assure yourself that you will have the freedom to pay off your home without any prepayment penalty when you get a reverse mortgage next year.
Is Refinancing Worth the Cost
Lastly, do the math to know if the closing costs from the refinance will exceed the savings you'll receive from a lower monthly payment. If this is the case, you might consider sticking with your current financing until getting a reverse mortgage.
Homeowner with Reverse Mortgage in Nursing Home By Robert from Hyde Park, NY
My friend with a reverse mortgage went into a nursing home. He is 81 and has his house for sale for about $250k.
His reverse mortgage payoff figure is about $205k but the house is only worth approximately $175k to a buyer.
When is he determined not to be occupying the property?
Can it be sold for less than the reverse mortgage loan balance? If yes, is difference forgiven?
And since he is now in a nursing home and not expected to return to his home (note: all his belongings are still at the house), when does bank that gave him the mortgage take or put a claim on the property?
Thank you Kate.
Ask Kate answers: Homeowner with Reverse Mortgage in Nursing Home
Yes, your friend can expect some changes in his life if he is no longer living in his personal residence secured by a reverse mortgage.
Assuming he has financed with the common program, the FHA reverse mortgage, (skip back up the page to FHA reverse mortgage link)
he must continue living in the home to keep his current financing.
When Happens to a Reverse Mortgage When Borrower Moves Out As the sole borrower, once he has moved out of the house for medical reasons, he has up to a year before he's required to pay off the reverse mortgage with cash, by traditional refinance methods, or by selling it. Otherwise, the lender generally has the right to foreclose.
Who Owes When a Reverse Mortgage Is Paid Off But the glimmer of good news here is that neither your friend nor his heirs owe the lender if the reverse mortgage balance is greater than the sale price of the home. Best wishes,
Important: Senior homeowners should consult a financial planner, tax accountant, and/or attorney as applicable to evaluate their circumstances before financing with a reverse mortgage. Even if not a loan requirement, reverse mortgage counseling is highly recommended.
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