Few lenders offered this option until recently.
They’re waiting on the government to issue appropriate underwriting guidelines.
Reverse mortgages can’t buy co-ops in New York, which is slowing the introduction of this financing to this populous state.
Reverse mortgages, which are offered through the home equity conversion mortgage (HECM) program run by the Federal Housing Administration, an arm of HUD, had previously been available only for refinance transactions. In order to qualify, borrowers must be 62 or older.
Bronwyn Belling, who recently retired as the national program coordinator of the AARP’s reverse mortgage education project, said the recent guideline changes would help borrowers improve their living circumstances without forcing them to relinquish all their savings for a new home. She noted, though, that the loans can be complicated.
Here’s how a typical transaction might work: Let’s say a 75-year-old woman lives in a home valued at $700,000, with an outstanding mortgage of about $100,000. She sells the home for $700,000 and finds another — closer to the grandchildren, with no staircases and minimal upkeep — for $625,000.
Instead of securing a traditional “forward mortgage” for the new property, she could obtain a reverse mortgage.