Reverse Mortgage Eligibility

Reverse Mortgage Eligibility

Do I Qualify for a Reverse Mortgage?

Home equity conversion mortgages, commonly referred to as reverse mortgages, are a way for senior homeowners to turn the built-up equity in their home into usable cash. Proceeds from a reverse mortgage can be used to pay off debt, finance home repairs, or help with monthly expenses. The following looks at the basic requirements for qualifying for a reverse mortgage.

Age

All borrowers on a reverse mortgage must be age 62 or older. Co-borrowers can be married or unmarried couples or even siblings as long as all parties are at least 62 years old. This is a strict criterion established by the FHA, and there are no exceptions based on a person’s disability or social security status.

Primary Residence

You must use the home as your primary residence. A reverse mortgage becomes due once the last remaining borrower dies or is no longer in the home full time. In fact, individuals should think twice about getting a reverse mortgage if they have a spouse or other family members living with them who are not eligible to be co-borrowers. These individuals will most likely have to move if they cannot repay the mortgage once the borrower dies or moves from the home.

Sufficient Equity

To qualify for a reverse mortgage, you must have paid off the majority, if not all, of your traditional mortgage. You may still qualify if you owe a small amount on your traditional mortgage, but there are limits, and you will have to use part of the proceeds from the reverse mortgage to pay off the remainder of your traditional mortgage.

Home Maintenance

Your home will be appraised as part of the reverse mortgage process. You may be required to make certain repairs before the loan can be approved, and you must be willing to keep maintenance up-to-date.

Financial Capability

Lenders are required to assess the borrower’s willingness and ability to manage their financial obligations. This involves reviewing your credit history as well as your income in relation to your expenses. If you qualify for a reverse mortgage, you will also be expected to keep current on all real estate taxes and homeowner’s insurance.

Type of Residence

Most types of homes are eligible for reverse mortgages, including:

  • Single family homes
  • Multi-family homes with two to four units where one unit is occupied by the borrower
  • HUD-approved condominiums that meet FHA guidelines

Second homes, vacation homes, and investments properties do not qualify for reverse mortgages.

What If I Don’t Have Enough Equity To Qualify For A Reverse Mortgage?

FHA guidelines take a number of factors into consideration when determining if a homeowner has sufficient equity to be eligible for a reverse mortgage, including:

  • Current interest rates
  • Appraised value of the home
  • FHA lending limits
  • Whether the interest rate will be variable or fixed
  • Amount owed on the traditional mortgage

If the reverse mortgage would not pay off the existing loan, there is a shortfall. You can choose to pay down the balance on your traditional mortgage in order to qualify; however, this is not financially feasible for the majority of homeowners seeking a reverse mortgage.

Of course, it is always advisable to talk to a trusted financial advisor before agreeing to a reverse mortgage or any other debt to ensure that you fully understand all of the potential ramifications.