New Reverse Mortgage Rules Won't Hinder May-December Romance
Reverse mortgages can be a way for long-time homeowners to fund their retirement by using the equity in their homes to get a loan that is repaid, with interest, only when the borrower moves or dies. If the home is sold for more than the loan amount, then the borrower or the borrower's heirs will get%VIRTUAL-pullquote-Being a surviving spouse under 62 no longer means being pushed out onto the street when married to a reverse-mortgage borrower.% the difference. The borrower can take out the money in a lump sum, monthly payment or as a line of credit.
Homeowners must have substantial home equity and be 62 or older to get a reverse mortgage. Such borrowers with younger spouses, however, had difficulty qualifying for a reverse mortgage under the old rules of the U.S. Department of Housing and Urban Development.
Other rule changes released in HUD's Home Equity Conversion Mortgage, or HECM, this year were meant to protect older Americans with reverse mortgages by lowering loan amounts and reducing withdrawals -- to help ensure that they could stay in their homes and could afford property taxes and other expenses of owning a home. A reverse mortgage can eliminate a monthly mortgage payment, making it easier for older people to afford to stay in their homes during retirement.
While a May-December romance, where there's a considerable age difference among the couple, may not necessarily apply because it can imply an ulterior motive, the new Federal Housing Administration rules do make it easier for younger spouses of those with reverse mortgages to keep their homes. Being a surviving spouse under 62 no longer means being pushed out onto the street when married to a reverse-mortgage borrower.
Loans previously often denied: Updated rules published in April by the FHA started catching on with reverse mortgage lenders in August, says Sean McGeehan, a mortgage loan officer at Peoples Home Equity in Homer Glen, Ill. Before April, a married couple applying for a reverse mortgage -- when one spouse was under age 62 and the other older than 62 -- was typically denied, McGeehan says. And those who weren't, ran a sizable risk.
"There were a select group of lenders that would close these transactions and it would cause major problems for the spouse under 62 if the other one passed away," he says.
Because the survivor wasn't listed on the loan, he or she would have to sell the house, refinance it or pay it off in full. Refinancing was difficult for some non-borrowing spouses, leaving few viable options for them to stay in the house that they had shared with their spouse, according to the FHA.
But although the new guidelines allow the non-borrowing spouse to remain in the house after the death of their partner, even if under 62, the rules don't apply to existing loans.
McGeehan says that he had a client, a 65-year-old man, who applied with him in February for a reverse mortgage and was denied. There wasn't much of an age difference between him and his spouse -- only five years -- but because the wife was under 62, that was enough to prevent them from getting a reverse mortgage then. The new guidelines will allow the man to do a reverse mortgage, though, which should close by the end of September.
For some people, that can be the difference between retiring comfortably or not at all.
Aaron Crowe is a freelance journalist in California who specializes in writing about real estate and personal finance topics.