Can You Use a Reverse Mortgage to Prevent Foreclosure?

A reverse mortgage can be a way for homeowners to avoid foreclosure. This is especially true when the homeowner has some equity in the home. However, if a homeowner is truly on the verge of foreclosure, the reverse mortgage process will proceed a little differently. This is because the homeowner will most likely have to get a short-pay agreement with the lender, in which the amount the homeowner owes on the mortgage is reduced.

Start the Application Process as Soon as Possible

If you (or someone you know) are a homeowner facing foreclosure, the best advice I can give you is to contact a reverse mortgage specialist as quickly as possible. It takes 30 days on average for the loan to close, but it can often take much longer than that to negotiate with the bank. And time is something that homeowners facing foreclosure usually don't have a lot of. However, I have seen reverse mortgages be completed in a week and the process sped up considerably for loans in situations where the homeowner is at dire risk of losing his or her home. The earlier the process starts, the easier it will be.

Does Foreclosure Affect the Reverse Mortgage Application Process?

It is important to note that homeowners still must qualify for a reverse mortgage in order to apply for one—even if they are on the brink of foreclosure. All borrowers on the loan must be 62 or older, the home must be owned, and the home must meet the property requirements outlined by the Federal Housing Administration (FHA). Facing foreclosure will not make a 55-year-old eligible for the loan, nor will a property qualify if it is a co-op or bed-and-breakfast. If the homeowner and the property would not qualify for a reverse mortgage under normal circumstances, it is best to explore another option in order to prevent foreclosure.

Once a reverse mortgage is approved, it is important to remember that the homeowner must keep the taxes and insurance on the home current to avoid the risk of foreclosure again. But a reverse mortgage will keep the homeowner from having to make further mortgage payments, and will (assuming the taxes and insurance are kept current) allow him or her to live at home as long as they wish.

Can I Still Apply If I File for Bankruptcy?

Yes, it is possible to obtain a reverse mortgage even if the homeowner is in bankruptcy. If the bankruptcy is a Chapter 7 bankruptcy, the homeowner must have discharge papers in order to complete the reverse mortgage. If the bankruptcy is a Chapter 13 bankruptcy, the reverse mortgage must be approved by the court and the trustee. A reverse mortgage does not require a credit check, so poor credit should not prevent a borrower from applying for the loan.

For more information, contact a local reverse mortgage specialist, or read Foreclosure Prevention at ReverseMortgageGuides.org.

Posted in Handling the Economic Crisis, Reverse Mortgages, Reverse Mortgages as an Option