Foreclosure Prevention with a Reverse Mortgage

California homeowners who are close to foreclosure are increasingly turning to reverse mortgages for help. They have owned their home for the last two to five years while the real estate market was great and the value of their home was rising rapidly. They often got a large mortgage, feeling confident they could afford it for some time and planned to later refinance or sell the property and see a profit through appreciation. But many of them took cash out of their home’s value when they refinanced. In every instance they are now finding it tough to pay their mortgage, whether because of a loss of employment, loss of income due to retirement, or just poor planning.

Will a reverse mortgage be able to assist people with this problem? It is hard to say; it really depends on the particular case. It may be a good idea if they have a lot of equity and are older than 62 years of age. A reverse mortgage will pay off all current mortgages if they qualify and they'll never have to make another monthly mortgage payment again. And then foreclosure risk is gone! The most important issue is determining if the homeowner can actually qualify for a reverse mortgage.

In many cases, the homeowner has taken out a $500,000 loan (or combination of loans) against a house worth $600,000. And in those cases, the answer is unfortunately, no. Reverse mortgages require a lot of home equity in order to qualify. The reason is that the lender cannot ask the homeowner for a mortgage payment for as long as the homeowner lives there. Since lenders have to get interest on their loan, they just add the interest to the principal balance of the mortgage. Most lenders do not like to own homes, so they don’t lend a high percentage of the home’s value upfront. In this way, even though the loan balance will grow significantly over time, they maintain a reasonable loan amount compared to the value of the home (also known as Loan to Value or LTV).

In what situations can a reverse mortgage assist the homeowner dealing with foreclosure? In brief, a person can qualify for a reverse mortgage once they have built up a great deal of equity in their home. Fortunately, reverse mortgage do not require good credit, any income or assets other than home equity. But the homeowner will need more equity in their home if they are relatively young. If they are more advanced in age then less equity is required. Other factors include the home's location and age, and to a smaller degree current interest rates. Depending on these variables, the amount of money available from a reverse mortgage is usually between 30 and 60 percent of the value of the house.

The reverse mortgage is an ideal solution for preventing a foreclosure if the homeowner qualifies for enough cash to satisfy the amount of all their existing mortgages. But it must satisfy all balances owed on the property - no second mortgage can survive or be granted after the reverse mortgage is in place. All debts against the property, such as liens and any delinquent property taxes, need to be paid off with the reverse mortgage proceeds. This will not work if the sum total of all debts is above the maximum loan amount that the homeowner qualifies for.

A homeowner who is facing foreclosure can be helped immensely by a reverse mortgage. With that said, younger homeowners (under 62) and those without adequate equity will not qualify for a reverse mortgage and will have to find other means to stop a foreclosure.

Reverse-Mortgage-Info.net is a division of FutureSafe Financial, specializing in California reverse mortgages and providing qualified reverse mortgages for seniors 62 years and older. Please contact Reverse-Mortgage-Info.net for more information and a free reverse mortgage quote.