Real estate Q&A: Reverse mortgage changes looming

QUESTION: I have been thinking about getting a reverse mortgage for my home, but I heard that the rules have changed recently. What are the new rules?

—Arthur

ANSWER: A reverse mortgage is a loan for people age 62 or older. It gives you money from the equity in your home and does not require repayment of the loan until you move, sell the property or pass away. The homeowner is still responsible for property taxes and insurance. Congress recently passed legislation altering the guidelines for the Federal Housing Administration reverse mortgage program, which accounts for most reverse mortgages. The changes will make it harder to qualify for a reverse mortgage but will provide homeowners more protection if they get one.

Previously, borrowers could qualify with no financial assessment, but now senior citizens will need to show they can pay for their taxes and insurance. If the lender feels the borrower is a financial risk, it could still give the loan, but could hold aside a cushion to pay for the taxes and insurance. Also, the program now will set limits on how much cash the borrowers can receive at closing, leaving the rest of the proceeds available later.

In the past, some married couples would leave one spouse off the reverse mortgage to qualify for a higher amount. When that spouse passed away, the surviving spouse would need to either pay the loan in full or face foreclosure. The new rules will require both spouses to be on the loan to avoid this issue, but the change will cause decreased borrowing power for the couple. The changes will begin rolling out the end of September and over the following months, so you may want to start the process now.

Gary M. Singer is a Florida attorney and board-certified as an expert in real estate law by the Florida Bar.