How MagnifyMoney Gets Paid

Advertiser Disclosure

Mortgage

Refinance Your Reverse Mortgage: What You Need to Know

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

Written By

It may be worth it to refinance your reverse mortgage even though you don’t make a monthly payment — lower rates could help you tap more of your home’s equity. You can also replace your reverse mortgage with a regular mortgage if you can afford the monthly payment and would rather work toward paying your mortgage balance off. Understanding how a reverse mortgage refinance works will help you decide if it’s a good fit for your changing financial needs.

Can you refinance a reverse mortgage?

You can refinance a reverse mortgage if you qualify and there’s a good financial reason to do so. HECM to HECM refinance guidelines allow you to replace a current reverse mortgage with another reverse mortgage (HECM is short for home equity conversion mortgage, the most common type of reverse mortgage).

You can also refinance a reverse mortgage to a conventional loan if you meet the minimum requirements. Borrowers with bumpy credit histories who want a regular mortgage may qualify for a loan insured by the Federal Housing Administration (FHA). Eligible military borrowers can borrow up to 100% of their home’s value to pay off a reverse mortgage if they’re approved for a mortgage backed by the U.S. Department of Veterans Affairs (VA).

Should I refinance my reverse mortgage?

You should refinance your reverse mortgage to a new reverse mortgage if it helps you with your overall financial situation. Homeowners often choose reverse mortgages because they need to supplement their monthly income or don’t have enough fixed income to qualify for a regular loan.

It may make sense to refinance your current reverse mortgage to another reverse mortgage if:

Your home’s value has increased. A higher home value gives you more potential equity to convert to cash, which could help add to your income or give you a bigger cushion if you choose the line of credit option.

Your local HECM loan limits have increased. HECM loans are tied to FHA loan limits, which change yearly. If it’s been a few years since you took out your current reverse mortgage, you may have more borrowing power with the current HECM loan limit rising to $822,375.

You can get a lower interest rate. A lower interest rate won’t affect your monthly payment, as no monthly payment is required. However, there are two major benefits to refinancing a reverse mortgage to a lower interest rate:

  1. You may get a bigger initial payout. Reverse mortgage lenders calculate the amount of equity you can tap based on the current interest rate market, and lower rates typically equal a higher “principal limit,” giving you more money you can convert to cash.
  2. Your equity won’t shrink as fast. One disadvantage of reverse mortgages is that your balance grows over time, and interest is charged on the increasing loan amount. A lower interest rate reduces those charges, leaving more equity in the home to your heirs upon your death.

You want to add your spouse to the loan. If your spouse wasn’t 62 years old when you took out a reverse mortgage, they may encounter some difficulty with the lender after your death. Adding them to the loan gives them protection against a reverse mortgage foreclosure when you die, although the new maximum reverse mortgage will be based on your age.

THINGS TO KNOW

If you took out a HECM, you were required to meet with a counselor certified by the U.S. Department of Housing and Urban Development (HUD). HUD will waive the counseling requirement for you to replace your current reverse mortgage with a new one under the following three conditions:

  1. You sign the HUD Anti-Churning Disclosure (which we discuss later)
  2. You’re increasing your principal limit by at least five times the cost of the new loan
  3. You’re requesting the new HECM within five years of taking out your current reverse mortgage

Refinancing a reverse mortgage loan to a traditional loan

If you took out a reverse mortgage as a temporary solution to bridge a gap in retirement income or pay off some unexpected medical debt, you might want to replace your reverse mortgage with a traditional “forward” mortgage.

This option is worth considering if:

You meet the minimum mortgage requirements. Regular mortgage refinance requirements include vetting your ability to repay the loan based on your credit score, how much debt you carry compared to your income (known as your debt-to-income (DTI) ratio) and your home equity. The table below provides a quick refresher on the common requirements for conventional, FHA and VA loans.

Loan requirementLoan typeMinimum requirement
Credit scoreConventional620
FHA580 with 2.25% equity
500 with 10% equity
VA620 recommended, but VA has no minimum requirement
DTI ratioConventional45% to 50%
FHA43% to 50%
VA41%, but exceptions possible
LTV ratioConventional97%
FHA97.75%
VA100%

You need more cash-out than reverse mortgages allow. A cash-out refinance allows you to borrow more than you currently owe and pocket the difference in cash. Most reverse mortgages require you to have at least 50% equity in your home for approval. Traditional mortgage programs permit a higher loan-to-value (LTV) ratio, which measures how much of your home’s value you can borrow.

Below are the maximum LTV ratios for regular cash-out refinance programs.

Loan programMaximum cash-out refinance LTV ratio
Conventional80%
FHA80%
VA90%

How to refinance a reverse mortgage

The process for refinancing a reverse mortgage to another reverse mortgage is different from refinancing to a traditional mortgage. Once you’ve decided on your refinance goal, below is a side-by-side glimpse comparing how to refinance a forward and reverse mortgage:

Reverse mortgage to reverse mortgage refinance process

  1. Shop for the best reverse mortgage rates
  2. Fill out a loan application
  3. Verify you’re at least 62 years old
  4. Meet HUD’s anti-churning guidelines (see THINGS TO KNOW below)
  5. Verify your home’s value
  6. Verify you have resources to pay your ongoing property taxes and insurance
  7. Get an appraisal to verify your home’s value
  8. Pay loan origination fees of up to $6,000
  9. Pay upfront mortgage insurance premiums of up to 2% of your home’s value
  10. Pay annual mortgage insurance premiums of up to 0.5% of your home’s value
  11. Decide if you want to receive funds as a:
    • Lump sum
    • Line of credit
    • Monthly payment
    • Combination of monthly payments and line of credit
  12. Review your Total Annual Loan Cost (TALC) disclosure and close your reverse mortgage refinance
Reverse mortgage to traditional mortgage refinance process

  1. Shop for the best regular refinance mortgage rates
  2. Fill out a loan application
  3. Verify your credit scores
  4. Provide income and asset information
  5. Get a home appraisal to verify your home’s value
  6. Pay closing costs that typically range between 2% to 6% of your loan amount
  7. Review the final figures on your closing disclosure and close your refinance

THINGS TO KNOW

If you’re replacing your current reverse mortgage with a new reverse mortgage, you’ll have to review and sign a HECM Anti-Churning Disclosure to ensure you are getting a proper financial benefit. Churning is an unethical lending practice whereby lenders refinance borrowers multiple times to earn extra profit, with very little, if any, benefit to the homeowner.

By clicking “See Rates”, you will be directed to LendingTree. Based on your creditworthiness, you may be matched with up to five different lenders in our partner network.

How MagnifyMoney Gets Paid

Advertiser Disclosure

Life Events, Mortgage

Why Lying on Your Mortgage Application Just Isn’t Worth the Risk

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

Written By

Reviewed By

Getting denied by a mortgage lender can be frustrating — but obtaining a mortgage by deception is never worth it.

When you apply for a loan, you’ll submit information about your income, employment and the home you wish to purchase. It can be tempting to fudge the numbers to give you more assurance that you’ll be approved. But there’s a simple term for this action — mortgage fraud. Committing mortgage fraud is a serious federal crime that can land you fines of $1 million or more, plus three decades in prison.

In this article, we’ll go over common types of mortgage fraud and the penalties you might face.

See Mortgage Rate Quotes for Your Home

See RatesSee RatesSee RatesTerms Apply. NMLS ID# 1136

By clicking “See Rates”, you will be directed to LendingTree. Based on your creditworthiness, you may be matched with up to five different lenders in our partner network.

What is mortgage fraud?

Mortgage fraud is a crime committed when a person intentionally makes a misleading written statement to try to get a mortgage. The lie can be a misrepresentation or an omission of pertinent information. When a bank uses this information to make a decision to approve a mortgage or set the terms of the loan, that’s mortgage fraud. Most of the time, mortgage fraud occurs when a borrower lies on their loan application.

Mortgage fraud can occur through a scheme to make money — known by the FBI as “fraud for profit” — or simply to obtain a house, called “fraud for property” or “fraud for housing.”

Fraud for housing most often occurs when someone misstates their income or assets on a loan application to entice a lender to approve their mortgage, as the lender likely wouldn’t have approved the loan if they knew the real information. Fraud for profit usually involves mortgage lenders or brokers and can take the form of identity theft, straw buyers or illegal flipping schemes.

6 types of mortgage fraud

1. Income fraud

With income fraud, a borrower tells a lender that they earn more money per year than they actually do. This makes it more likely they’ll be approved for the mortgage, since lenders look to see whether their borrowers make enough to pay back their loan.

This type of fraud was especially common in the early 2000s before the financial crisis, when banks relied on “stated income loans” to boost profits. With these loans, lenders relied solely on the information given to them and did not attempt to verify a borrower’s income.

2. Occupancy fraud

In this type of mortgage fraud, a borrower says they’ll live in the home they’re buying, but they’re actually purchasing it as an investment property. This is a big deal because many mortgage programs are exclusively used for buying a primary residence.

In addition, mortgages for investment properties are more expensive, and lenders typically require a larger down payment for a home that isn’t one’s principal residence. The interest rates for an investment property are usually higher, too.

3. Employment fraud

Employment fraud occurs when a person submits incorrect information about their job history on their mortgage application. With this type of fraud, a person may put down a company they didn’t really work for, or invent a company altogether.

Lenders want to see steady employment, and often attempt to verify a person’s career history when underwriting a loan.

4. Down payment fraud

This can occur in several different ways, but generally involves misrepresenting the source of the down payment made when buying a home. When this happens, a lender may issue a mortgage for an artificially high price.

This can happen if a person who doesn’t have the money for a down payment convinces a home seller to report a higher sales price, or if a person loans a borrower money for a down payment but falsely calls it a gift. This could also include a home builder who tries to sell properties by giving down payment assistance to buyers who don’t disclose it.

5. Straw borrower fraud

If someone other than the person who’ll be living in the home applies for the loan, that can lead to straw borrower fraud. For example, if a person is denied a loan, they may ask their parents to apply in their stead. If the parent claims on the mortgage application that they’ll be the ones living in the home, when it’s really the child — that’s fraud.

6. Illegal property flipping

This mortgage fraud scheme involves buying a home, then quickly selling the property after submitting a fake appraisal at an artificially high price. The lender issues a mortgage based on the higher price and the fraudsters keep the profits.

This is different from legal property flipping, in which a person buys a home, fixes it up and sells it for a legitimately higher price based on the improvements.

Consequences of falsifying information on a mortgage application

If you make a typo or mistake on your mortgage application, it’s not the end of the world. Contact your lender as soon as possible to get it corrected. Your closing may be delayed, but all of your paperwork needs to be in order.

But if you try to intentionally mislead your lender, you will get into trouble. Mortgage fraud is illegal and investigated by the FBI. Misleading your lender about any aspect of your mortgage application can lead to foreclosure or criminal charges. Bottom line: Obtaining a mortgage by deception just isn’t worth it.

Mortgage fraud penalties can include:

  • Foreclosure. If you misrepresent aspects of your loan application, your lender may have the right to “call the loan” if this is discovered. When this happens, the entire balance of the loan is due immediately. If you can’t pay, the lender may begin foreclosure proceedings.
  • Fines. Federal penalties can include up to $1 million in fines for mortgage fraud.
  • Prison time. You may face up to 30 years in federal prison for mortgage fraud. States also have penalties that can apply.
  • Civil penalties. Mortgage fraud can be punished by civil penalties as well as criminal ones. Civil penalties can include fines of $5 million or more.

By clicking “See Rates”, you will be directed to LendingTree. Based on your creditworthiness, you may be matched with up to five different lenders in our partner network.

How MagnifyMoney Gets Paid

Advertiser Disclosure

Mortgage

Can You Buy a House with Student Loans?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

Written By

Reviewed By

You can get a mortgage with student loan debt as long as you know the rules set by the different loan programs. Most lenders offer a variety of income-based repayment mortgage options if you’re considering buying a house with student loan debt.

How to buy a house with student loan debt

Buying a house with student loans requires you to provide copies of your student loan paperwork to your lender. However, lenders also need to see how student loan information is reflected on your credit report to determine which loan program is the best fit for you.

For example, qualifying for a mortgage if you’re on an income based student loan repayment (IBR) plan is different from buying a house with student loans in deferment. In general, you should have the following ready if you’re trying to get preapproved for a mortgage with student loan debt:

  • A copy of your income-based repayment plan
  • A credit report that shows the monthly payment for each student loan (if any)
  • A copy of the terms of repayment for all of your student loans, even if they’re deferred
  • Proof of how long your student loans are deferred if you haven’t begun repaying them

Rules for buying a house with student loan debt

Lenders look at student loans in repayment differently than if they’re in deferment. In most cases, you’ll qualify for a bigger loan if you can document some sort of payment schedule than if your loans are still deferred. Here’s how the most common home loan programs evaluate borrowers trying to get a mortgage with student loans.

Qualifying guidelines if your student loan is in repayment

Conventional Fannie Mae loans. Fannie Mae is one of two government-sponsored enterprises that set rules for conventional loans. Conventional lenders may qualify you for a Fannie Mae mortgage with student loan repayments based on:

  • The monthly payment on your credit report
  • The student loan documentation you provide
  • The payment on an income-based repayment plan, even if it’s $0

Conventional Freddie Mac loans. The rules are the same as Fannie Mae with one exception: If your IBR payment is $0, Freddie Mac lenders must use 0.5% of your student loan balance to qualify. That means a Freddie Mac conventional lender counts a payment against you even if you’re not required to make one on your current IBR plan.

FHA loans. Loans backed by the Federal Housing Administration (FHA) typically use 1% of your student loan balance to calculate your monthly payment, regardless of any income-based repayment schedule you provide. FHA student loan guidelines also require the lender to use a higher payment if it shows up on your credit report.

VA loans. The U.S. Department of Veterans Affairs (VA) guarantees VA loans, and uses the student loan payment reflected on your credit report with supporting documents. If the credit report doesn’t reflect a monthly payment, VA-approved lenders must use 5% of the outstanding student loan balance and divide it by 12 to assess the monthly payment counted against you for the loan approval.

USDA loans. The U.S. Department of Agriculture (USDA) insures loans for low- to moderate income borrowers buying homes in designated rural neighborhoods across the country. Lenders may use the student loan payment on a USDA borrower’s credit report or on their student loan servicer paperwork. Some USDA-approved lenders may use a 0.5% monthly payment calculation if your loan is on an IBR plan.

Qualifying for a mortgage if your student loans are in deferment

Getting a mortgage with a deferred student loan can be a little tricky. Lenders still have to count a payment against you which may have an effect on how much of a loan you qualify for. The table below shows how each loan program calculates your deferred student loan payment.

Loan programMinimum student loan calculation for deferred loansSpecial exceptions
Conventional Fannie Mae1% of your outstanding loan balanceNone
Conventional Freddie Mac0.5% of your outstanding loan balanceNone
FHA loans1% of your outstanding loan balanceNone
VA5% of your outstanding loan balance divided by 12No monthly payment counted if repayment does not begin within 12 months of closing
USDA0.5% of your outstanding loan balanceNone

Pros and cons of buying a home with student loans

Pros

  • You’ll be able to start building equity as a homeowner sooner
  • You may benefit from tax-deductible mortgage interest if your earnings are rising
  • You may be able to qualify with $0 IBR payments if your income is lower

Cons

  • You’ll probably qualify for a lower loan amount if you can only meet government-backed credit requirements
  • You may need to make a bigger down payment or pay off other debt to qualify
  • Your home payment could become unaffordable once you’re making full student loan payments

Which loan program should I choose for buying a house with student loans?

There are a number of factors to consider when you’re choosing which program is best for homebuying with student loans.

Loan program

This type of home loan makes sense if:

Conventional Fannie Mae loan
  • You have at least a 620 credit score
  • Your total debt is 50% or less of your income
  • You can make a 3% down payment
  • You have an IBR payment of $0
Conventional Freddie Mac loan
  • You need the extra flexibility of a co-borrower who won’t living in your home
  • You’re using sweat equity for a down payment
  • You qualify with a payment based on 0.5% of your student loan balance
FHA loan
  • Your credit scores are 580 with a 3.5% down payment
  • Your credit scores are 500 with a 10% down payment
  • You qualify with the 1% minimum student loan requirement
VA loan
  • You’re an eligible military borrower
  • You have a credit score of at least 620
  • You don’t want to make a down payment
  • Your student loans are deferred at least 12 months
  • You qualify with the minimum student loan payment required by the VA
USDA loan
  • You meet the low- to moderate-income requirements set by the USDA in your area
  • You’re buying a home in USDA-designated rural area
  • You don’t want to make a down payment
  • Your credit score is at least 640
  • You qualify with the minimum student loan payment required by the USDA

By clicking “See Rates”, you will be directed to LendingTree. Based on your creditworthiness, you may be matched with up to five different lenders in our partner network.