What would disqualify someone for a reverse mortgage if they have ample equity?

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My mom has over 200k in equity in her house. it’s valued at approx. 450k. she has a 50k home equity loan (which is the concerning part about the reverse mortgage). her mortgage pymnts including loan are 2.2k/month – unmanageable for her so the house is on the market. she can sell it though it needs more time on the market. i was hoping a reverse mortgage could buy her more time. anyone with experience please advise. she cant make payments & has received a foreclosure notice (3 months). i understand that it will be one month for the bank to turn it over to a lawyer and then the foreclosure proceeds. will a reverse mortgage give her time? please help.

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7 Comments
  1. Reply
    Lisa L
    May 16, 2011 at 4:50 am

    Reverse mortgages are expensive & also only for people who owe very little on their mortgage. You don’t say if she has a first mortgage or only a HELOC. She is close to foreclosure. From what you are saying she would not qualify.

  2. Reply
    Cold
    May 16, 2011 at 5:37 am

    Just keep in mind that a reverse mortgage is the worst financial decisions a person close to retirement can make. Money Magazine.
    You are aware that the bank will now own the home.
    She will not own anything.
    Please continue reading about reverse mortgages and their expenses.
    Guide her through this, and tell her the extreme consequenses of what she may be doing..

  3. Reply
    jmaria67
    May 16, 2011 at 6:26 am

    She has enough equity. A reverse mortgage will give her time and the process generally does not take as long as regular mortgages. She has to be at least 62

  4. Reply
    Bill
    May 16, 2011 at 6:34 am

    She should lower the price for a quick sale! It would be better to come out with only $ 50-$ 100k than to have it go into foreclosure. Can’t you or some of the other relatives help her out until the house sells? If she could get a reverse mortgage she probably wouldn’t come out with any cash but could live in the house and only have to pay taxes,insurance and maintenance. Your information was not clear does she owe $ 250k+$ 50k totaling $ 300k and is the $ 450k figure an appraised value or a wish. A Reverse lender works on minimum values especially in today’s housing market. Good Luck Don’t let the house go into foreclosure!!!!!!

  5. Reply
    Landlord
    May 16, 2011 at 7:16 am

    She does not have enough equity once you take that 50k into account, and the fact that she is not making her payments would also prevent a reverse mortgage as she is likely screwing others too, and that means there are liens in the horizon.

    She needs to sell and pay cash for a new place.

  6. Reply
    MRA
    May 16, 2011 at 7:55 am

    What could disqualify your mother are: she is not 62; she is not on title; she doesn’t live in the house; the house is in an irrevocable trust; the house is a co-op / condo / manufactured home that does not meet FHA standards; she does not own the land (trailer); she owns another property that already has an FHA loan on it; she is currently going through bankruptcy; there are too many required repairs that makes the home ineligible; the house does not appraise for what you think and she is in too much debt.

    Regarding too much debt, that doesn’t necessarily disqualify her per se. It just means that she has to bring money to the table in order to close. There can be no liens on the property at closing. For some folks, just getting rid of the monthly mortgage is all they need to balance their budget and finding that cash to pay down the shortage, with the help of some family and friends, a gift, selling some stock or selling a car, lets them accomplish it.

    A reverse mortgage (RM) can definitely buy your mother some time; but it will cost her. If it turns out that she does have $ 200k in equity, then it may well be worth her while. It also could mean that she does not have to sell the home after all if that is her preference, assuming that once the two mortgages are paid off, her monthly income is sufficient to cover her budget (including property taxes and insurance) and unexpected emergencies.

    A RM can be done in about a month; assuming no hiccups. A foreclosure takes about 3 months. But you need to get the ball rolling as soon as possible. I would strongly recommend you start talking to a RM broker in your state ASAP. A broker will be able to find you the best rates among the various lenders with the most payout. Your local bank will only tell you what they offer. Concurrently, I would also talk with the existing lenders to see if they are open to re-doing the loan either to lower the rate, lower the payment, extend the terms, or forgive some of the debt. This should be done first, actually. I would also find out what the most current payoff amount is; the balance shown on the statement is not the most accurate. Each month that she does not make the payment will increase her loan balance further, plus penalties. I would also try to find out if there are any other liens on the property which will have to paid off, e.g. defaulted taxes (may be able to do this online). I would also contact at least 3 realtors who work your immediate area to get a Comparative Market Analysis (CMA). Be wary of a realtor who gives you a value that seems to-good-to-be-true. Unfortunately, some will do that in order to gain your listing, which is why you want to contact 3. Sometimes the lower value is the more realistic one, and therefore the more honest.

    Your question did not give sufficient information to give you a complete answer. You did not give her age and that information is critical as to how much she can get. It appears she has two loans, one for $ 200k, and a line of credit (LOC) for $ 50k. Did she spend all the LOC? What do you find concerning about it? All mortgages and liens on the property will be required to be paid off and closed, including the line of credit.

    If your mother is 62 and the home appraises at $ 450k, she would qualify for about $ 260,000 NET after closing costs under the Fixed Standard program. If she is older, she may get more; if the home appraises for less, she gets less. If these assumptions are wrong, please let us know.

    P.S. There could be many reasons why your mother can no longer afford the mortgage payments. I am sorry for the nasty remark of Landlord.

  7. Reply
    Sandy
    May 16, 2011 at 8:10 am

    The only thing most seniors know about a reverse mortgage is the magic illusion they hear in television commercials. Before anyone gets a reverse mortgage they must know the consequences for their personal circumstances, financial situation, long term need, and health. No one is helping the senior understand the consequences for their personal situation which is why so many are in default. I would advise your mom to meet with a financial advisor or real estate attorney about her options other than a reverse mortgage. What is the breakdown of her monthly expenses, for mortgage, line of credit, etc.. What is her income? What is making her monthly expenses unmanagable? Sandy Jolley

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