One of the first questions people ask about a reverse mortgage is:
Do I qualify?
The answer depends on more than just age.
For a traditional FHA-insured Home Equity Conversion Mortgage, or HECM, the borrower generally needs to meet several requirements involving age, home equity, property type, occupancy, financial assessment, counseling, and ongoing responsibilities.
Some proprietary or jumbo reverse mortgage programs have different guidelines, so this page is mainly focused on the HECM program.
Age Requirement
For a traditional FHA-insured HECM reverse mortgage, the borrower generally must be 62 years old or older.
If there is more than one borrower, age can also affect how much may be available.
Age matters because reverse mortgage proceeds are based in part on the age of the borrower, along with the home value, interest rates, and other program factors.
There are also proprietary reverse mortgage programs that may be available to younger homeowners. Depending on the lender and the state, some of these programs may start as young as age 55.
These are private reverse mortgage programs and are not FHA-insured HECMs, so the guidelines, loan amounts, property requirements, and available proceeds can be different.
If you are between 55 and 61, it may still be worth looking at whether a proprietary reverse mortgage program is available in your state.
The Home Must Be Your Primary Residence
For a HECM, the property must be your principal residence.
That means it needs to be the home where you live the majority of the year. Consumer Financial Protection Bureau
You cannot generally take out a HECM on a vacation home or investment property.
This is one of the ongoing requirements of the loan as well.
You need to continue using the property as your principal residence after the reverse mortgage closes.
Do You Have to Own the Home Free and Clear?
No.
You do not have to own the home free and clear.
Many reverse mortgage borrowers still have an existing mortgage.
The important thing is that there needs to be enough available proceeds from the reverse mortgage, along with any additional funds the borrower may bring in if needed, to pay off the existing mortgage at closing. Consumer Financial Protection Bureau
For example, if someone has a home worth $700,000 and owes $100,000, that may be a very different situation from someone with the same home value who still owes $400,000.
The existing mortgage balance matters.
How Much Equity Do You Need?
There is no one equity percentage that applies to every borrower.
The amount available depends on several factors, including:
- Age
- Home value
- Interest rates
- Existing mortgage balance
- Program guidelines
- Property type
In general, the more equity you have, the easier it may be for the numbers to work.
But the exact amount that can be borrowed has to be calculated for the individual transaction.
Financial Assessment
Reverse mortgages are not underwritten exactly like traditional mortgages, but that does not mean income and credit are ignored.
The lender performs a financial assessment.
The purpose is to determine whether the borrower appears able to continue paying the ongoing costs of owning the home, including:
- Property taxes
- Homeowners insurance
- Flood insurance if required
- Other required property charges
- Maintenance
The lender may review credit history, property charge payment history, income, debts, and residual income. Consumer Financial Protection Bureau
This is why someone can have a lower credit score and still potentially qualify.
The lender is not necessarily looking for the same credit profile required for a conventional mortgage.
They are looking at whether the borrower is likely to be able to meet the ongoing obligations of the reverse mortgage.
Does Credit Matter?
Yes, but not in the same way as a traditional mortgage.
A lower credit score does not automatically disqualify someone from a HECM.
The lender may look closely at:
- Late mortgage payments
- Property tax history
- Homeowners insurance payment history
- Federal debt
- Other credit issues
- Overall ability to pay ongoing property expenses
A borrower with credit problems may still qualify depending on the situation.
In some cases, the lender may require money to be set aside from the reverse mortgage proceeds to cover future property taxes and insurance. Consumer Financial Protection Bureau
What About Federal Debt?
Federal debt can affect qualification.
A borrower generally cannot be delinquent on federal debt, such as certain federal taxes or federal student loans, unless the debt is resolved as part of the transaction. Consumer Financial Protection Bureau
In some situations, reverse mortgage proceeds may be used to pay off the federal debt.
The important thing is to identify the issue early so it can be addressed before closing.
Property Taxes & Homeowners Insurance
A reverse mortgage does not eliminate your responsibility for property taxes and homeowners insurance.
You still have to pay them.
This is one of the most important things people need to understand before getting a reverse mortgage.
If you do not stay current on required property charges, you could eventually face default or foreclosure. Consumer Financial Protection Bureau
The lender wants to make sure you have a realistic way to keep those expenses current.
Property Condition Requirements
The home also needs to meet property standards.
If the property has serious health, safety, or structural issues, repairs may be required before the loan can close.
The lender may require certain repairs based on the appraisal or property inspection. Consumer Financial Protection Bureau
That does not mean the home has to be perfect.
Older homes can still qualify.
But significant issues may need to be corrected.
What Property Types Can Qualify?
Common property types that may qualify for a HECM can include:
- Single-family homes
- Certain two-to-four-unit properties
- Some condominiums
- Some townhomes
- Certain manufactured homes that meet FHA requirements
Property eligibility can get more complicated with condos and manufactured homes.
This is one of those areas where I would rather look at the actual property than give someone a blanket yes or no.
[Learn More About Reverse Mortgage Property Requirements]
Reverse Mortgage Counseling Is Required
Before obtaining a HECM, you must complete counseling with a HUD-approved reverse mortgage counseling agency. Consumer Financial Protection Bureau
The counselor is independent from the lender.
The purpose of counseling is to help make sure you understand:
- How a reverse mortgage works
- The costs
- Your responsibilities
- Alternatives
- When the loan becomes due
- What may happen to the home later
I think this is an important part of the process because a reverse mortgage is a major financial decision.
The homeowner should understand exactly what they are getting into.
Can You Qualify If Your Spouse Is Younger Than 62?
Possibly.
This can get more complicated.
If a spouse is not old enough to be a borrower, they may be treated as a non-borrowing spouse under certain circumstances.
There are specific HUD rules that may protect an eligible non-borrowing spouse, but those rules need to be understood carefully. Consumer Financial Protection Bureau
A younger spouse can also affect how much may be available from the reverse mortgage.
If there is a younger spouse involved, I would always look at that situation before assuming how the loan should be structured.
[Learn More About Reverse Mortgages With a Younger Spouse]
Can You Get a Reverse Mortgage With Bad Credit?
Possibly.
A reverse mortgage does not use the same type of underwriting as a traditional forward mortgage.
There is not simply one minimum credit score that decides everything.
The lender is more concerned with the overall financial assessment and whether the borrower is likely to be able to continue paying property taxes, homeowners insurance, and other required property expenses.
That means a borrower with credit issues may still qualify.
The important thing is understanding what caused the credit problems and whether those issues affect the borrower’s ability to meet the ongoing responsibilities of the loan.
[Learn More About Reverse Mortgages With Bad Credit]
Can You Get a Reverse Mortgage After Bankruptcy?
Possibly.
A prior bankruptcy does not always mean you are permanently disqualified from getting a reverse mortgage.
The lender will look at the type of bankruptcy, when it occurred, whether it has been discharged, and the borrower’s overall financial situation.
The details matter.
This is another area where I would rather review the situation than make a decision based on one piece of information.
[Learn More About Reverse Mortgages After Bankruptcy]
Do You Need Income to Qualify?
Yes, income can matter.
The lender wants to determine whether you have enough resources to continue paying the expenses associated with the home.
That may include:
- Social Security
- Pension income
- Retirement income
- Employment income
- Investment income
- Other qualifying income
The lender also looks at debts and residual income.
The goal is not necessarily to prove that you can make a monthly mortgage payment, because a HECM generally does not require a monthly principal and interest payment.
The goal is to determine whether you can continue paying the other costs of owning the property.
What Happens If You Do Not Meet the Financial Assessment?
Not every financial assessment issue means the loan is automatically denied.
Depending on the situation, the lender may require a Life Expectancy Set-Aside, often called a LESA.
This means part of the reverse mortgage proceeds may be reserved to pay future property taxes and insurance.
Whether a LESA is required depends on the borrower’s financial assessment and lender requirements. Consumer Financial Protection Bureau
Can You Use a Reverse Mortgage to Buy a Home?
Yes.
A HECM can also be used to purchase a new primary residence.
This is commonly called a HECM for Purchase.
The borrower needs to contribute enough funds to cover the difference between the reverse mortgage proceeds and the purchase price, along with any required closing costs. Consumer Financial Protection Bureau
This can be an option for someone who wants to downsize, relocate, move closer to family, or purchase a different type of home.
[Learn More About HECM for Purchase]
What Are the Ongoing Requirements After Closing?
Qualifying for the loan is only part of the equation.
After the reverse mortgage closes, the borrower still needs to meet several ongoing requirements.
The most important are:
- Live in the property as the principal residence
- Pay property taxes on time
- Maintain homeowners insurance
- Maintain flood insurance if required
- Keep the property in reasonable condition
Failure to meet those responsibilities can cause the loan to become due and may eventually lead to foreclosure. Consumer Financial Protection Bureau
Do You Still Own the Home?
Yes.
This is probably one of the biggest misconceptions about reverse mortgages.
The bank does not become the owner of your home.
The title stays in your name. Consumer Financial Protection Bureau
The reverse mortgage is simply a loan secured by the property.
You still own the house, but you also still have the responsibilities that come with owning it.
Basic HECM Requirement Checklist
If you are considering a HECM, these are some of the main questions to look at:
- Are you at least 62 years old?
- Is the property your primary residence?
- Is there enough equity in the home?
- Can the existing mortgage be paid off?
- Is the property an eligible property type?
- Can you stay current on property taxes and insurance?
- Does the home meet property condition requirements?
- Can you complete HUD-approved counseling?
- Do you meet the financial assessment requirements?
If the answer to one of those questions is no, it does not always mean the loan is impossible.
It may simply mean we need to look more closely at the situation.
Want to See If You Meet the Reverse Mortgage Requirements?
You do not need to figure all of this out by yourself.
If you are considering a reverse mortgage, start with a few basic pieces of information:
- Age of the youngest borrower
- Approximate home value
- Current mortgage balance
- Property type
- State where the property is located
- What you are trying to accomplish
From there, I can take a look at the situation and help determine whether a HECM or another reverse mortgage option may be worth exploring.
Call or text Shawn at (714) 271-8524 or email Info@TheBroker.Finance to discuss your reverse mortgage options.
[Contact Shawn]
[Learn More About HECM Reverse Mortgages]
This information is for educational purposes only and is not a commitment to lend. Reverse mortgage eligibility, proceeds, rates, costs, and program requirements are subject to FHA guidelines, lender underwriting, counseling requirements, and current program rules.