Help for Seniors to Prevent a Foreclosure With a Reverse Mortgage
Seniors often find retirement income insufficient to pay the mortgage and eat. Social Security covers about 40 percent of preretirement income, the Social Security Administration reports. If you are a senior with a mortgage, analyze your situation and find a solution that may include a reverse mortgage to avoid foreclosure on your home.
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Foreclosure Avoidance Counseling
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Foreclosure prevention counseling by nonprofit housing counseling agencies who are working with the federal government is available for free. States and local governments also have housing counselors to assist in some areas. Many of these resources are available on the U.S. Department of Housing and Urban Development website. The HopeNow website also has free housing counselors. The Home Ownership Preservation Foundation offers free telephone or online counseling services. HUD recommends foreclosure counseling service to learn about your options.
Consider Alternatives
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If your finances are insufficient to pay the mortgage, think through your assets and decide what you can sell. Extra vehicles, jewelry or property are possibilities. Consider renting a room in your home or finding a job. Selling the house and downsizing or renting might save you money and solve your financial problem. A reverse mortgage should not be the first option, but it is an option to save your house and allow you to live in it.
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Contact Your Lender
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If you cannot make your mortgage payments, contact your lender and discuss the problem. Many lenders have developed options to assist customers whose financial situations have changed. Seniors who have a good payment record are ideal candidates for lender assistance. Ask for assistance from the housing counselor or HopeNow website if you cannot get the lender to work with you.
Reverse Mortgage
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The HECM or Home Equity Conversion Mortgage is a reverse mortgage available through an FHA lender and insured by the U.S. government. This mortgage requires counseling to tell you of alternatives and the financial ramifications of the reverse mortgage. It has high fees on the front end, including about a 2 percent mortgage premium. The amount you can receive depends on the equity and the value of the home. You will have to live in the home to keep it, and if you are gone for more than a year, you must repay the entire reverse mortgage. You will have to pay all taxes and keep the insurance current, along with keeping up repairs. You have no tax advantages, since interest is not deductible for the duration of the reverse mortgage. The HECM Saver reverse mortgage has a lower up-front cost but also offers less income to the senior.
Halt the Foreclosure
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Whatever you choose to do will likely require assistance. You may have two transactions taking place at the same time--the reverse mortgage and the foreclosure. If you do not negotiate well, have someone from the counseling group, Legal Aid or a senior advocate work with you and your lender to negotiate a payoff for your mortgage while the reverse mortgage paperwork is in process.
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References
- U.S. Department of Housing and Urban Development: Tips for Avoiding Foreclosure
- AARP: Reverse Mortgage Alternatives
- U. S. Department of Housing and Urban Development: Foreclosure Avoidance Counseling
- Social Security Online: Publication 05-10035 -- Retirement Benefits
- AARP: Social Security Alone Isn't Enough
- AARP: Reverse Mortgages -- An Escape Route From Foreclosure
