FHA Mortgage For Seniors
Are you a senior looking to purchase a new home? Perhaps you need money to pay off debts, rebuild a nest egg after a major event required spending a large amount of money or you just want cash for relaxation or a much-needed vacation. Seniors looking for a loan do have options without having to worry that they cannot receive a mortgage because of their age or the fact that they live on a fixed income.
Some seniors discover that a FHA mortgage for seniors is the right option for them. Is it the right option for you? Learn about FHA mortgages for seniors, and how to qualify, along with information about benefits and drawbacks.
What is a FHA Mortgage?
Seniors sometimes discover they need money to pay off medical bills not covered by Medicare or other insurance or to pay off other debts. Seniors that want to increase their available cash on hand or supplement their income sometimes consider a FHA mortgage specifically geared towards seniors.
The U.S. Department of Housing and Urban Development (HUD) explains that reverse mortgages recently began increasing in popularity. They also explain that the “Only reverse mortgage insured by the U.S. Federal Government is called a Home Equity Conversion Mortgage (HECM) and is only available through an FHA-approved lender.” What does this mean? The Federal Housing Authority (FHA) scrutinizes lenders and only approves those that meet the high standards of the FHA.
An FHA-approved lender offers the reverse mortgage to the senior that owns the home. The lender pays the homeowner rather than the homeowner paying the lender, the process occurring with a regular mortgage. This is why the industry refers to this process as a ‘Reverse mortgage.'
Qualifications for a FHA Mortgage
Qualifying for a reverse mortgage through a FHA-approved lender is somewhat different than qualifying for a regular home mortgage. These are some of the qualifications, listed by HUD:
- You must own your home outright or have considerable equity in the home
- The property is a single family home or 2-4 unit property and you live in one of the units, or is a manufactured property owned by you that meets HECM FHA requirements
- The home must be your primary residence
- You must be 62 years of age or older
- You have to have financial means to continue making all timely payments on property taxes, home insurance, Homeowner’s Association fees and any other related costs
- You are not delinquent on any type of federal debt
- You must attend a consumer information session given by a HUD-approved HECM counselor
If you meet these qualifications, chances are that you potentially qualify for a FHA mortgage for seniors.
Some seniors try to go the regular route for obtaining mortgages, potentially finding themselves disappointed when notified they do not qualify for a conventional type of mortgage, perhaps due to limited income associated with their fixed income or other factors often affecting seniors.
The amount you receive upon approval depends on several factors including:
- Lesser of appraised value of the home, or HECM FHA mortgage limit
- Age of the youngest borrower or spouse of the borrower
- Current interest rate
- Initial mortgage premium
The loan is paid off when you, your spouse or other last homeowner either passes away, moves or fails to meet obligations of the reverse mortgage.
FHA-Approved Reverse Mortgage Benefits
An FHA mortgage for seniors comes with several benefits that likely appeal to some seniors. The National Council on Aging (NCOA) points out that an FHA mortgage for seniors is often less expensive than other types of home equity loans. While closing costs of a reverse mortgage are possibly higher than closing costs of a home equity loan, you do not make payments to the FHA-approved lender. You receive the payments.
Another benefit is the fact that reverse mortgages are often used in ways that allow homeowners to stay in their own home longer. This occurs because the reverse mortgage allows senior home owners the means to supplement their monthly income.
Some seniors use the funds to purchase a new home while others use it as a means of saving for future emergencies, preventing a shock to their current retirement nest egg.
There are other benefits to a FHA mortgage for seniors. A Market Watch article refers to these loans as “A powerful financial tool in retirement.”
Downsides of a FHA Mortgage for Seniors
There are downsides to taking out a FHA mortgage for seniors, just as there are downsides to other situations. One issue is the fact that this mortgage does not absolve homeowners of possible foreclosure action. Homeowners that fail to meet all obligations of the FHA loan for seniors, including maintaining the home in good state of repair, paying all taxes and insurance costs are still subject to foreclosure. Homeowners that spend the money from the reverse mortgage quickly face possible foreclosure when they find they no longer have means to meet all of the requirements.
Since 2015, there is greater scrutiny for obtaining this type of mortgage. Simply meeting age and property requirements is no longer a guarantee of approval. Seniors undergo a financial assessment where the lender reviews your household debt, payment history, credit reports or other pertinent information before approving the FHA loan for seniors.
Another downside is the fact that there are often higher fees associated with this type of loan. Appraisals, title search and third-party closing costs are examples of some of these higher fees. Recent changes to FHA mortgages for seniors potentially prevent some seniors from qualifying that would have qualified under previous regulations.
The FHA recently began requiring a second appraisal on some properties to avoid the potential for inflated property values. Another reason for requiring a second appraisal in some cases is that doing so purportedly strengthens the soundness of the FHA-approved reverse mortgage program.
There are several companies that advertised reverse mortgages in the media over the past several years. Some apparently conducted shady practices, resulting in stricter guidelines and oversight for FHA mortgages for seniors. The FBI warns against reverse mortgage scams targeting seniors, reinforcing the fact that the only government-approved reverse mortgage is a legitimate HECM mortgage approved by the Federal Housing Authority or FHA.
When Seniors Should Consider a FHA Mortgage
Seniors prefer paying a mortgage, says a New York Times writer. Some seniors have better chance of receiving FHA mortgage for seniors approval, compared to the likelihood of receiving approval for a conventional loan. Limited resources, fixed income and credit score all play into potential that a senior will receive a rejection when applying for a new mortgage or traditional home equity loan.
The FHA mortgage for seniors provides opportunity for supplementing an individual’s or senior couple’s retirement income by tapping into their home equity. Empty nester home owners or seniors looking to downsize and those with medical bills typically fit the profile of seniors considering a FHA reverse mortgage.
Is a FHA mortgage for seniors the right choice for you? The HUD website article ‘Home Equity Conversion Mortgages For Seniors' provides links for seniors looking for reputable FHA lenders and provides additional information regarding a FHA loan for seniors.