Potential Problems for Senior Mortgage Borrowers
Senior citizens with a mortgage may have a hard time qualifying for a home refinance, particularly if they are no longer in the workforce. A refinance can allow a homeowner to pull equity out of their home for practical purposes, such as bill paying, or to lower their current monthly payment. However, tapping into equity via a traditional cash-out refinance or home equity loan can raise monthly payments, making it harder to qualify and continue paying. Refinancing to a lower interest rate without pulling money out may lower the monthly payment, but also may require more income and equity than a senior has.
Government and Lender Mortgage Help
A non-traditional refinance or a loan modification offered by the federal government or a lender has more flexible income and equity guidelines. Making Home Affordable, a temporary government initiative, works with lenders to refinance or modify mortgages with little or no equity. The Home Affordable Refinance Program and the Home Affordable Modification Program can lower payments to less than 31 percent of a senior citizen's gross income. Seniors must prove they can make the new payment. They can qualify with non-employment income such as Social Security or disability. However, HARP is set to expire on Dec. 31, 2015 and HAMP expires on Dec. 3, 2016.
Lenders also can offer seniors non-government proprietary loan modifications. Program availability and guidelines vary by lender. Seniors must contact their lender directly to discuss mortgage forbearance, deferment and modification plans.
Tapping Into Equity With Reverse Mortgages
The federal government and certain lenders offer reverse mortgages. The Home Equity Conversion Mortgage is backed by the Federal Housing Administration, or HECM. Reverse mortgages allow senior citizens to use their home equity and remain in the home without monthly payments. The lender disburses payments to the homeowner via periodic installments or in a lump sum. Seniors repay the lender when they stop living in the home. The loan isn't due until the last reverse mortgage borrower dies or moves out of the property.
State Assistance for Reverse Mortgage Borrowers
The federal government issued the Hardest Hit Fund for states experiencing a severe housing downturn. States such as Florida and California have used the federal funds to help senior citizens with a reverse mortgage who have fallen behind on property-related expenses. Seniors can get $25,000 to pay off their delinquent housing bills and cover 12 months of these future bills.
Although seniors don't make payments on a reverse mortgage, they can still fall behind on property taxes, homeowners insurance and homeowners association dues. Failing to pay these expenses can cause a senior to lose the reverse mortgage and their home.
Tips and Warnings for Seniors
Senior citizens should consult with a financial adviser, an attorney and their lender when considering mortgage assistance. A housing counseling agency approved by the Department of Housing and Urban Development can also help seniors sort out program options. HUD warns seniors about scams and reverse mortgage schemes. Seniors should also consult an attorney and real estate agent if approached with unsolicited purchase offers or loan modification help. Scammers may try to get struggling seniors to sell their homes for far less than market value or deed their homes over to them.