Can I Use a Reverse Home Mortgage to Avoid Foreclosure?
The recent popularity of reverse mortgage lending is causing a stir among many retired Americans who own their home but still struggle to pay their real estate taxes and other bills.
Real estate taxes are a particular source of anxiety for many, because a home can be foreclosed due to delinquent tax payments - even if the owner no longer has a mortgage.
Many seniors are now considering the use of reverse mortgage program as a foreclosure prevention device and using a reverse mortgage to pay off delinquent real estate taxes and even mortgages.
Can a reverse mortgage legally be used to satisfy late tax or mortgage payments? The answer is yes. Homeowners can use their reverse home mortgage funds for any necessary financial obligation.
Of course, homeowners must meet the general criteria of a bank reverse mortgage: be 62 or older, own their home or owe very little, and live in that home as their primary residence. Although homeowners do not need a good credit score to qualify, they must have any pending bankruptcies discharged and be clear of any other liens on the property.
Before applying for a reverse mortgage loan, all candidates must also complete third-party reverse mortgage counseling from a Department of Housing and Urban Development-approved counseling agency. These financial experts can provide homeowners with valuable advice on other options that will help them stay in their house and pay off critical real estate debt. Some of the alternate options counselors may suggest include:
Reinstatement. The delinquent tax and/or mortgage payments can be consolidated and paid on a future date.
Loan Modification. This may involve changing your late payments into a fixed- rate mortgage or even extending the time required to pay off the amount.
Repayment Plan. The lender can set up a payment plan that is similar to a loan for a fixed period of months.
Using a reverse loan to avoid foreclosure also relies on how much equity is in the home, as well as the value of the home itself. If the remaining balance of the mortgage is $65,000, and the value of the home is $140,000 a reverse mortgage is not only the wrong solution to avoid foreclosure, but the homeowners will probably not qualify anyway.