Retirees Disappointed Due to Home Equity

A daily occurrence for those of us working in the Reverse Mortgage industry, is breaking the news to senior citizens interested in applying for this type of home loan that they simply do not have enough equity in their homes to qualify for a reverse mortgage.

It’s a hard cold fact that “Equity is the Key” to qualifying. The amount of equity is the most important leg of the 3 legged stool that makes up the criteria for qualifying. The other two legs are, age of youngest homeowner and the current interest rate.

Two Extremes of Misunderstanding

who qualifies for reverse mortgage
It’s interesting to note that there seem to be two extremes to the level of knowledge that a typical senior has about what a reverse mortgage is.

On one extreme we hear from the folks who say they think the home has to be free and clear, no mortgage balance at all in order to qualify.

This of course, is NOT the case. There has to be roughly 40 to 50%
equity in the home. The reverse mortgage can then be used to pay off the existing mortgage balance, leaving the owners with no monthly principal and interest payments…the homeowners are still responsible for property taxes, insurance and maintenance.

Then on the opposite extreme we hear from the folks who are under the impression that the ONLY requirement is to be age 62. They are completely unaware of the substantial equity that is needed in addition to the age qualification.

The decimation of Trillions of dollars of home equity over the past five years is truly taking its toll on the Boomer and older generations who either need a reverse mortgage to make ends meet or were planning to use this type of home equity loan as part of an overall retirement strategy…which according to AARP, is what many Baby Boomers were counting on.

An article published in The Daily Transcript and written by Samantha Henry, does an excellent job of describing this scenario in detail.

“Some seniors who were looking forward to blowing out 62 candles on their birthday cake and qualifying for a reverse mortgage were surprised to find out they didn’t qualify for one because the value of their home dropped.

When home prices were falling in San Diego County, John Olbrich, president of American Security Mortgage, said “fewer were eligible because they didn’t have the equity required.”

“That’s just as important as being 62 years of age is that you need to have equity,” Olbrich said. “The FHA (Federal Housing Administration) needs to know that they’ve got an asset that’s covering their loan.”

The equity in a home affects the loan more than the senior’s age. The older a senior ages, the more they qualify for.

“Seniors were finding that they were able to qualify for less, even ones who checked into it a couple years earlier to see how much they could qualify for. They checked in a couple years later and were wondering why, even though they’re older, they were qualifying for less,” Olbrich said. Continue reading her articlehere.

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