Home Refinancing Programs Best For Seniors
In the past, many seniors would sell their family home after retirement, either to get the money ”out” of their home or to pay off any remaining mortgage balances. However, there is an alternative to selling your home called a refinance mortgage, which can save you money or put some cash in your hands.
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With a mortgage refinance, you can get that money or save on your payments, without having to sell and leave your home. Although you can do basically the same thing by getting a second mortgage, that option will increase your monthly payments, which is not wise for many seniors. While there are numerous banks and private lenders who refinance mortgages, there are several government refinancing programs that could prove beneficial for many seniors.
There are some basic reasons to get a refinanced mortgage, with the main one being able to stay in your current home. The other reasons are to get the money (equity) into your hands and/or to lower the interest rate and monthly payments from your existing mortgage. The main refinance mortgage type that is designed for seniors is commonly called a “reverse mortgage”, which will be discussed below. There are also some states that have special refinance programs for their senior residents. The other programs that are available are for all adult homeowners, but the ones discussed below all can be beneficial to certain senior homeowners.
Reverse Mortgages
This a special type of refinance designed for senior homeowners. It unlocks the home equity you’ve accumulated so you can access it as a lump sum, a line of credit, or a stream of monthly payments. The big feature with a reverse mortgage is that you don’t have to make any payments on it as long as you live in the home as your main residence. However, you are required to pay off any existing mortgage and if you die or permanently move out, the loan must then be repaid, usually by selling the home.
The most common type of reverse mortgage is called a Home Equity Conversion Mortgage (HECM), and it is administered and insured by the Federal Housing Administration (FHA). It is available only through FHA-approved reverse mortgage lenders. You can use the proceeds from these loans for any purpose. The basic qualifications to be eligible for this loan are:
• Be at least 62 years old
• Live in the property as your main home (a separate vacation home may be allowed)
• Be able to afford ongoing homeowners expenses such as property tax.
• Have at least 50% equity in your home
• Participate in a FHA-approved reverse mortgage counseling session
• Not be delinquent on any federal debt (such as taxes or student loans)
The amount of money you can receive in a reverse mortgage depends on the following four factors:
– Your age: Younger borrowers receive less money due to their life expectancy being longer.
– Current interest rates: Higher interest rates reduce borrowing power.
– The value of your home: The amount you can borrow is partially based on your home’s appraised value.
– How much you owe on your current mortgage (if applicable): You must have at least 50% equity in your home.
Traditional Refinance Mortgages
These loans are designed to lower payments and interest on an existing mortgage and don’t put cash in your hand from your home’s equity. These must meet Fannie Mae or Freddie Mac’s underwriting requirements and can be the least expensive way for seniors in good financial standing to refinance their home loan. This is largely because you usually don’t have to pay for private mortgage insurance, and these loans don’t have the additional costs that FHA and VA loans do.
Fannie Mae HomeReady
This program is for low-income homeowners whose existing mortgage is owned by Fannie Mae. To qualify, your income can be no more than 80% of the local median income. You also need to have an active credit file (there is no set minimum credit score) and only 3% equity is required.
Fannie Mae RefiNow
Another program for homeowners with a Fannie Mae mortgage, will allow any closing costs to be financed, providing your new mortgage payment and the interest rate is lower, plus Fannie Mae pays for the appraisal. Requirements include a clean mortgage payment record for the prior six months and a minimum credit score of 620. Your debt-to-income ratio (DTI) can be as high as 65%, which is higher than usually allowed.
Freddie Mac Enhanced Relief
For homeowners with a Freddie Mac mortgage, this program can help for those with payments they can’t afford and even if they have negative equity (being “underwater”). This mortgage can help you stretch your limited resources by providing a lower rate, shorter term, or fixed rate instead of an adjustable rate.
FHA Streamline Refinance
This program is for homeowners with an existing FHA mortgage and doesn’t require an appraisal or credit check, which can allow you to refinance even if your home’s value has decreased or your credit has gotten worse. It provides a lower interest rate or payment stability.
