There are many kinds of homeowner; there’s the young couple just starting out looking for their first home, there are mid-career professionals who need to relocate or upsize their living conditions, and there are older home owners looking to cash in on equity they have worked hard to build up in the home.
What kind of FHA loan options are open to the older home owner who wants to keep their home but cash in on the increased value of their property?
FHA Cash-Out Refinance Loans For Older Home Owners
Before we start discussing the FHA cash-out refinance loan option for seniors, it’s important to point out that FHA cash-out refinance loans are for any financially qualified borrower; these loans are NOT restricted to older home owners.
FHA cash-out refi loans are great for any borrower, but older home owners may have an advantage. In many cases the older home owner’s mortgage has been paid on for quite some time, making the amount of cash out available greater assuming the loan balance has been paid down over time. The closer you get to paying off the home, the more borrowing power you potentially have with a cash-out refi.
Cash out refinance loans require an appraisal and the actual amount of money you get back in cash will depend on both the appraised value of the home and the remainder of the original loan which must be paid off with the refi loan.
The less money you still owe on the mortgage, the greater your potential payout (assuming the borrower financially qualifies and makes the right loan choices with regard to financing of closing costs, etc.)
Ask your loan officer what arrangements will work to your advantage when it comes to the amount of cash you will get back on the refi loan; which closing costs to finance or avoid financing, etc.
FHA Reverse Mortgages
FHA reverse mortgages are another home loan product senior home owners should consider. Unlike FHA cash-out refi loans, the FHA reverse mortgage is not available to all borrowers but only to financially qualified seniors aged 62 or older.
Reverse mortgages work by having the home appraised, setting a loan amount based on the appraised value and determining how much cash comes back to the borrower based on the value of the home plus the nature of the loan with an adjustable or fixed rate mortgage.
Reverse mortgages offer cash to the borrower, no monthly mortgage payments, and the home secures the loan so that when the borrower dies, sells the home, or no longer uses it as the primary residence the loan comes due in full. The lack of monthly payments and an amount of cash offered to the borrower to be used any way he or she sees fit is a very attractive option for those who qualify and are looking to cash in on the value of the home.
Requirements For FHA Loans Offering Cash Back To The Borrower
Both types of loan, the FHA cash-out refinance and the FHA Reverse Mortgage, require occupancy as a condition of loan approval. FHA mortgages do not allow borrowers to be absentee owners.
For Reverse Mortgages, FHA loan rules state that ther borrower must stay current on all financial obligations associated with home ownership including property taxes, any home owner association dues, etc. Failure to do so, or failure to use the home as the primary residence can result in the loan being declared due in full.
Ask your loan officer about how an FHA cash-out refi or reverse mortgage can work for you.