There are several ways for homeowners to leverage the equity in their home, but a reverse mortgage is a unique financial tool solely for senior homeowners.
A reverse mortgage allows borrowers to withdraw a portion of their equity without having to repay until they leave the home. However, reverse mortgage requirements must be met before you can qualify for this home loan.
Here are the reverse mortgage requirements to help you decide if this type of loan is the right choice for you.
What Is a Reverse Mortgage?
A reverse mortgage is a loan that allows homeowners ages 62 and older to borrow against the equity in their homes. By converting equity into cash, a homeowner can supplement their income or pay for other expenses without selling their home.
There are also three types of reverse mortgages:
- Home Equity Conversion Mortgages (HECMs)
- Proprietary reverse mortgages
- Single-purpose reverse mortgages
Not everyone can take out a reverse mortgage. Homeowners must meet specific reverse mortgage requirements to qualify for this type of loan.
How Does a Reverse Mortgage Work?
Unlike a forward mortgage, the lender makes payments directly to the homeowner with a reverse mortgage. The funds from a reverse mortgage are generally tax-free, and the homeowner can choose to either accept fixed monthly payments, a line of credit, or a single lump sum. The maximum amount that can be borrowed, or the principal limit, depends on your age, the value of your home, current interest rates, and the program’s mortgage limit.
The loan’s principal, interest, mortgage insurance, and fees must be repaid when the homeowner dies, moves out, or sells the home.
At Total Mortgage, our mortgage experts work with borrowers across the country. Apply for a loan online and get a free quote.
Reverse Mortgage Requirements
To qualify, homeowners must meet reverse mortgage requirements set by the U.S Department of Housing and Urban Development (HUD). Here are the basic requirements to be eligible for a reverse mortgage.
Reverse Mortgage Age Requirements
Lenders cannot deny you a mortgage based on age, but in this case, there are reverse mortgage age requirements. This type of home loan aims to help seniors supplement their income or pay off expenses while remaining in their homes. Due to this, the reverse mortgage age requirement is 62 or older.
If you’re married, both parties must be accounted for in the underwriting decision of a reverse mortgage. If you have a spouse under the age of 62 whose name is also on the title, you can still qualify for a HECM but they will be considered a non-borrowing spouse. If the borrower passes away, the non-borrowing spouse can remain in the home if they continue to meet the HUD and other loan requirements.
Reverse Mortgage Financial Requirements
You must show that you have the financial capacity to meet your loan obligations and cannot be delinquent on any federal debt. While you won’t necessarily have to repay your loan as long as you remain in the home, you must still maintain the property and pay property taxes and homeowners insurance.
Another reverse mortgage requirement is a financial assessment of the borrower. Depending on the results, some borrowers may be required to save a portion of their proceeds to ensure that property taxes and insurance costs are covered. These funds are placed into a Life Expectancy Set-Aside, similar to an escrow account.
Reverse Mortgage Home Requirements
You must own the home as your primary residence and have at least 50% equity to qualify for a reverse mortgage. According to the HUD, eligible properties for HECM loans include:
- Single-family homes
- Up to four-unit properties if the borrower occupies one of the units
- Manufactured homes built after June 1976
- Properties in planned unit developments (PUDs)
- Properties held in a living trust
Reverse Mortgage Counseling Requirements
The HUD requires all reverse mortgage borrowers to complete a counseling session with a HUD-approved counselor. According to the Consumer Financial Protection Bureau, counselors may charge you a reasonable fee, but they cannot charge you if you can’t afford the fee. Payment may also be delayed if you’re facing certain hardships.
The counseling session should cover reverse mortgage requirements, how it works, and reverse mortgage pros and cons.
Is a Reverse Mortgage a Good Idea?
When is a reverse mortgage a good idea? While there are many key benefits, this depends on your personal circumstances.
Reverse mortgages allow homeowners to maintain title to the home while cashing out their equity. Reverse mortgages also have a non-recourse clause, which means you can’t owe more than the value of your home when the loan becomes due.
A reverse mortgage also gives your heirs options. They can sell the property to repay the debt and keep any remaining equity, keep the home and refinance the reverse mortgage balance, or settle the loan with the lender.
There are also no limitations on how the money can be used and funds are tax-free. However, be sure to consult with a tax professional for any tax-related advice.
A reverse mortgage may be a good idea if you intend to stay in your home for a long time and if you need more money to manage your expenses. Any type of home loan is a big decision, so make sure to consider all your options.
Explore Your Home Loan Options With Total Mortgage
A reverse mortgage is a great financial tool for seniors, but certain reverse mortgage requirements must be met before you can qualify. It’s also important that you take the time to understand your responsibilities and potential risks with this type of home loan.
If you’re ready to take the next step, Total Mortgage has mortgage experts across the country to help you with your home buying needs. Find a Total Mortgage branch in your area today to explore your options.