The U.S. Department of Housing and Urban Development (HUD) earlier this month announced changes to the reverse mortgage program, which allows homeowners 62 and older to pull equity from their homes without making payments.

Once the changes go into effect Oct. 1, it may be more difficult to get a reverse mortgage, and homeowners will have access to less of a home’s value.

HUD issued new principal limit factors, which reduces the maximum amount a homeowner can withdraw. Industry experts estimate principal limits will be about 12% to 15% lower starting Oct. 1.

In addition, a new financial assessment requirement means an applicant’s credit history may impact his or her ability to get a reverse mortgage.

Less Money for More Security

HUD says the agency made these changes in order to strengthen the program. As a result of the Great Recession and declining home values, the Federal Housing Administration Mutual Mortgage Insurance Fund took a hit, and because the viability of the program depends on that fund’s resources, the agency says it established these new guidelines.

“It’s actually to just to kind of shore up the program,” said Carolyn Fields, a certified reverse mortgage professional in Florida. She further explained the changes. “Bottom line is we’re all living longer, the baby boomers are retiring earlier — this is just to kind of help them plan retirement and just to kind of make sure that the program stays healthy.”

The deadline to apply for a reverse mortgage under the current rules is Sept. 27. With the passing of that deadline goes homeowners’ ability to take their loan in a lump sum. With few exceptions, people can only tap 60% of their principal limit in the first year of a reverse mortgage, and the amount a homeowner pulls will affect their upfront FHA mortgage insurance premium.

Who Will Qualify?

Fields said HUD is still working out the details of financial assessments, which will roll out in January.

But potential borrowers can expect lenders to review all of their income sources, as well as their credit history, as part of the process of determining their capacity to pay insurance premiums and property taxes.

As is the case with all loans, consumers need to check their credit reports before applying. Studying one’s credit score, using a free tool like the Credit Report Card, will show areas that need attention, and allow you to plan ahead and improve your score to make a smoother loan-qualification process.

With the changes in cost and procedure, reverse mortgages will become less of an emergency fund and more of an asset for retirement. But that’s not such a bad thing, since long-term planning is the core of the program.