Reverse Mortgages, whether discussing the HECM Government Insured or the Private Label Jumbo for higher priced homes, have not gotten any easier although the new tax bill that just took effect holds some promise.
Since the 2017 major industry program changes administered by FHA, I always like to say that a Reverse Mortgage is no longer an entitlement but rather a privilege. That sounds a bit harsh, but they are no longer non-qualifying loans based on age and home equity. They are tightly tied into updated and closely monitored Social Security life expectancy tables and scrutinized based on credit history, debt levels, residual income qualifications, and property tax and insurance payment histories. Any one of these items can tip the scale and send your loan into what I term the “restricted approval” category. This is where most people realize maybe they should have planned a bit better. Having said all of this, there still is hope.
The residual income requirement is a particular onerous measure that renders many people ineligible for a Reverse Mortgage just at the time they had their heart set and decided to get one. Most people primarily qualify for Reverse Mortgages based on their existing Social Security income. Residual income is based on family size, debt levels, home size, and home expenses such as real estate taxes and homeowners’ insurance costs. It’s the money you have left over after covering all these monthly expenses. The residual income test makes it tougher for your average homeowner to be eligible for any type of Reverse Mortgage, both HECM government insured or Private Jumbo. The good news is that the new tax bill will not be taxing Social Security income in the way it has in past years. The industry is a bit frozen on this new development with a staunch wait and see attitude. Much like the Federally guaranteed VA loan program, non-taxable income is allowed to be grossed up, thereby expanding the borrower’s buying power. HECM Reverse Mortgages are not Federally guaranteed like VA loans, but they are Federally Insured. In other words, let’s not split hairs, the Federal Government is determining the eligibility rules for both loan program categories. I remain hopeful and firmly believe that at some point soon we all may be pleasantly surprised to find out that some of the same allowances for non-taxable Social Security income for Reverse Mortgages may have similar advantages. It all starts with HECM government insured loan changes and then the industry customarily follows along for all Reverse Mortgage types. This will relieve significant pressure on homeowners that have been plagued with residual income issues rendering them ineligible for a Reverse Mortgage.
George H. Omilan
President-CEO - NMLS# 873983
Jefferson Mortgage Group LLC - Mortgage Specialists
Programs: Traditional QM (Fannie Mae, Freddie Mac), government insured HECM Reverse Mortgages, and Non Traditional Non-QM Mortgages commonly referred to as Specialized Forward Mortgages including “Alt-A Investor loans” and DSCR (Debt Service Coverage Ratio) loans up to 85% LTV, both Full doc and No Income-No Employment (No Doc) for the investor community. Our expanded niche products also focus on the more traditional FHA & VA with Lower Score and higher Debt-to-Income Options, Fixed & Variable Jumbo loans, and Private Label Reverse mortgages for higher priced homes. We are also highly focused on specialized loans for the Self-Employed borrowers with our Bank Statement & Asset Dissipation Programs. We are committed to offering a full range of “Non-QM Loans” for expanded qualification, where the banks and large-scale lenders dare to go.
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