How do you qualify for a reverse mortgage?

The separation of borrowers into risk averse and risk takers.is an important one for banks and other lending institutions.  However, such a policy’s ramification on the senior members of our society has been and will be that they may never acquire loans, unless, of course, they have security.

In the year 2000, Congress passed a law whose purpose was to meet the special needs of the elderly homeowners by the reduction of economic hardship thus enabling them to meet their everyday basic needs.(Cornell University Law Review)

Legal requirements of Reverse Morgage

The American Homeowner Ownership And Economic Opportunities Act of 2000 provides at Section 201 that this facility can only be accessed by elderly homeowners and homeowner.  Pardon the “repetition” in the language of the statute.  

The terms “elderly homeowner” and “homeowner” mean, according to this Act, any homeowner who is, or whose spouse is, at least 62 years of age or such higher age as the Secretary may prescribe.

It is therefore deducible from the above provision that an applicant must meet the following conditions:

1. 62 years

They must have attained the minimum age which is 62 and the reason behind this limit is anyone’s guess.  Only the secretary has been given the power to consider an application that does not meet this requirement.

It may be beneficial to note that once it is proved that one of the spouses has attained this age then both will automatically qualify for the reverse mortgage. Indeed, commercial practice witnessed in the United States point to the fact that mortgagors prefer to advance this sums to mortgagees whose age is well beyond the statute set age.

The perceived possibility of lesser exposure to “risk” by the mortgagee is the main motivation behind this craze, older people will prefer to live in their homes due to emotional attachment to the property and a lesser physical mobility. (Dr Kalyan Bhatta)

• Ownership of a home

An appraiser in a reverse mortgage will also look to see that the elderly actually own a home in which they have substantial home equity.  It is therefore true to imagine that the mortgagor in a reverse mortgage will be an individual or individuals with a substantial stake in terms of real property, and especially the home.

Home equity is always the difference between the owners’ unencumbered interest and any unpaid balance of the loan (www.wikipedia.com).  The unseen rule is that these homes must be single family, condominium or townhouse.  Some permanent mobile homes and non-permanent mobile homes may not qualify.

The reverse mortgage appraiser will prefer a situation where the value of the owners’ equity in the home is substantial in order to advance any money.

• One month

The applicant must live in the particular reverse mortgage security house for a period not less than one month in a given year.  Statute has provided this to be the reasonable period for gauging permanency of ones place of abode.  The days to be considered in the count do not have to be consecutive.

• Primary place of Residence

It must be ones primary place of residence. This means that the applicant will have to prove to the reverse mortgage appraiser that they spend most of their “life” living in the particular house.
From the foregoing, the spirit and letter of reverse mortgage provisions is to limit the stringent requirements usually placed on borrowers, especially senior citizens.

References
American Homeownership and Economic Opportunity Act of 2000
http://www.wikipedia.com