Reverse Mortgage With One Spouse Under 62
One of the fundamental requirements that must be met in order to qualify for a reverse mortgage is that all borrowers must be at least 62 years of age. This program was designed to allow older homeowners to access the equity in their homes at a time when they may have difficulty being approved for a conventional mortgage or taking on the additional monthly expense of a mortgage payment.
It can become complicated when one borrower meets this age requirement, but his or her spouse is under the age of 62. If the home is owned solely by the older spouse he or she may technically be able to take out a reverse mortgage in his or her name only. And, thanks to changes from the Department of Housing and Urban Development (HUD), non-borrowing spouses are now protected from facing foreclosure or eviction due to the borrowing spouse passing away before them. Read our related article, Reverse Mortgages and Surviving Spouses to learn more about these changes.
Once all borrowers are no longer living, or are no longer living in the home as a primary residence, the reverse mortgage may be called due. The amount borrowed, interest accrued over time, and any applicable fees must be repaid at that time. Heirs often choose to sell the property that was mortgaged in order to pay off the reverse mortgage balance. Again, spouses who are not listed as a borrower on the mortgage agreement will not necessarily be forced to sell or leave the home at this time. Speak with one of our reverse mortgage specialists or a HUD-approved reverse mortgage counselor for details.
Another concern with reverse mortgages and younger borrowers is that if the home equity is accessed early on in retirement, or even prior to retirement that the funds might not be sufficient to last and provide financial security for the remainder of the homeowners’ lives. This will of course depend on many factors such as the amount of equity in the home, the borrowers’ financial needs, how long they remain living, and the amount of other income, savings, or assets available, but it is something to think through carefully.
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Reverse Mortgage Options For Younger Spouses
Many homeowners want to know, what are the options for couples when one spouse is younger than 62? When facing financial hardship, it is tough to simply hear that you don’t qualify for the reverse mortgage. It may be helpful to discuss the options with a financial planner specializing in planning for retirement and working with aging clients and/or with a HUD approved reverse mortgage counselor.
Take Cash Out With a Traditional Refinance
Homeowners who are too young to qualify for a reverse mortgage may find they can be approved for a traditional refinance. Though there is no minimum age requirement, qualification will be based on other criteria such as credit history and income requirements. Social security, IRA or pension distributions, and other retirement income can often be used to qualify for a traditional mortgage, though it must be documented, and sufficient to show that the borrowers’ will be able to repay the loan as agreed.
A cash out refinance can be used to access some of the equity in the home in a lump sum. Unlike with a reverse mortgage, with a traditional refinance monthly payments will be required soon after closing and for the duration of the loan term. It can take careful planning to ensure that the sum borrowed is enough to make these monthly payments as well as help cover day to day expenses until the homeowners are no longer living, or are ready to sell the property.
Another difference between this type of loan and a reverse mortgage is that a reverse mortgage is a “non-recourse loan.” This means that the borrowers or their heirs will never be responsible for paying off more than the value of the property at the time the loan becomes due. When repaying a traditional home loan the full amount borrowed plus interest fees will be due. If the home has lost value over time it is possible that additional funds could be required to pay off the loan, over and above the proceeds of the sale of the property.
Alpha Mortgage does offer traditional (forward) refinancing solutions as well.
Take Out a HELOC (Home Equity Line of Credit)
Another alternative is a home equity line of credit. This type of loan also allows homeowners to tap into some of the equity in their homes, but instead of receiving a lump sum, they receive a line of credit that can be accessed as needed, up to the maximum loan amount. Monthly payments are required, but only on the amount used. A HELOC could be a good short term safety net for younger borrowers who plan to apply for a reverse mortgage once they both meet the age requirements.
Selling the Home or Downsizing
The goal of a reverse mortgage is to allow seniors to remain in their homes throughout their lives, and it is often a wonderful thing not to be forced to sell the family home before the owners are ready. In other cases, however, selling a large home and moving to a smaller property may be an attractive option. Home maintenance (particularly on older homes), landscaping, and cleaning rooms that are rarely used can be an increasing burden to aging homeowners. The cost of outsourcing these duties can quickly add up, eating into funds needed for other expenses. The cost of making a home accessible to someone in a wheelchair or who can’t easily or safely climb stairs is often prohibitive. It is of course a significant and often difficult decision to sell, but often worth at least considering when weighing competing options.