If you’re a homeowner, aged 62 or older, now is the time to consider getting a reverse mortgage loan before the Department of Housing and Urban Development (HUD) changes the financial assessment requirements in next 45 to 75 days. HUD is implementing these new financial assessment rules because of an increase in property tax and homeowner’s insurance defaults.

A reverse mortgage loan is a home loan that enables homeowners, aged 62 and older, to convert a portion of the equity in their home into cash payments. It’s called a reverse mortgage loan since the traditional mortgage payment process is reversed. Instead of the borrower making monthly payments to the lender, the lender makes payments to the borrower. The Home Equity Conversion Mortgage (HECM) is the Federal Housing Administration’s (FHA) reverse mortgage program.

Once HUD’s financial assessment changes go into effect on HECM loans, lenders will be required to assess your credit worthiness and determine if you can meet your financial obligations after you’ve obtained your reverse mortgage. If you’ve had any credit issues in the past, such a foreclosure, late mortgage payments, defaults or late property charge payments, the lender must determine if these credit issues were due to documented extenuating circumstances or your inability to manage your financial obligations.

When HUD’s changes go into effect, satisfactory credit will be defined as having:

• Made mortgage or installment debt payments on time in the previous 12 months.
• No more than two 30-day late payments on any mortgage or installment debt in the previous 24 months.
• No major derogatory credit issues on revolving accounts in the previous 12 months. Major derogatory credit on revolving accounts includes any payments made over 90 days past the due date, or three or more payments made over 60 days after the due date.

If the lender determines your credit issues at not due to extenuating circumstances and you’ve not shown a willingness to meet your financial obligations, the lender will require a fully funded Life Expectancy Set-Aside. This means the lender will set aside proceeds from your HECM loan to pay property taxes and insurance premiums.

Plus, if you don’t have enough equity in your home, your loan request will be denied.

Therefore, if you’re interested in obtaining a HECM loan before these financial assessment changes go into effective, contact the mortgage specialists at Grandview Lending in Indianapolis. They can answer any questions you may have about reverse mortgage loans and discuss your options.

Note: These materials are not from HUD or FHA and were not approved by HUD or a government agency.

Update: The financial assessment requirements are effective as of April 27, 2015

Photo credit: iStockphoto/Auris