Reverse Mortgage Eligibility Requirements

What Is A Reverse Mortgage?

A reverse mortgage is a home loan that allows homeowners age 62 or older to access a portion of their home equity as cash. Unlike a traditional mortgage, borrowers are not required to make monthly mortgage payments as long as they continue to live in the home as their primary residence and meet loan obligations.

The loan balance increases over time as funds are received and interest accrues. Repayment is typically required when the borrower passes away, permanently moves out of the home, or no longer meets the loan requirements.

Eligibility Requirements For A Reverse Mortgage

To qualify for a reverse mortgage, borrowers must meet several eligibility requirements. This list highlights the most common criteria, but it may not include every condition used to determine qualification.

• Age: Borrowers must be at least 62 years old. If a spouse is under 62, they may be listed as a non-borrowing spouse under certain programs.
• Primary Residence: The property must be the borrower’s primary residence, meaning it is lived in for most of the year.
• Home Equity: Borrowers must have sufficient equity in the home. The amount required varies by loan program, age, and interest rates.
• Ownership Status: The home must be owned outright or have a low existing mortgage balance, which is typically paid off using proceeds from the reverse mortgage at closing.
• Financial Assessment: Lenders review income, expenses, and credit history to confirm the borrower’s ability to pay property taxes, homeowners insurance, and other ongoing expenses.
• HUD Counseling: Borrowers are required to complete counseling with a HUD-approved counselor to review loan terms, responsibilities, and alternatives.

Potential Advantages Of A Reverse Mortgage

For some homeowners, a reverse mortgage may offer several potential benefits:

• Access To Home Equity: Funds can be used to help cover medical expenses, home repairs, or everyday living costs.
• No Required Monthly Mortgage Payments: Borrowers are not required to make monthly mortgage payments as long as loan obligations are met.
• Flexible Use Of Funds: Loan proceeds may be used for any purpose, depending on the borrower’s needs.
• Ability To Age In Place: A reverse mortgage may help homeowners remain in their home while supplementing retirement cash flow.

The Costs Of A Reverse Mortgage

While reverse mortgages can provide meaningful benefits, they also come with costs that borrowers should understand before applying. Common fees and expenses may include:

• Origination Fee: A fee charged by the lender to process the loan, typically ranging from 0.5% to 2% of the loan amount.
• Mortgage Insurance Premium: Insurance that protects the lender if the loan balance exceeds the home’s value at repayment.
• Closing Costs: Fees such as appraisals, title insurance, and other costs required to close the loan.
• Interest: Interest accrues over time and is added to the loan balance.
• Servicing Fees: Fees related to managing the loan, including account administration and required statements.

You can learn more about the advantages and tradeoffs of reverse mortgages to help weigh your options.

Repayment Of A Reverse Mortgage

A reverse mortgage becomes due and payable when the last surviving borrower passes away, permanently moves out of the home, or no longer uses the property as their primary residence. The total amount due includes the loan balance, accrued interest, mortgage insurance premiums, and any applicable fees.

The loan is typically repaid by selling the home, refinancing the loan, or using other available funds. If the loan balance exceeds the home’s value, most reverse mortgages are non-recourse, meaning neither the borrower nor their heirs are personally responsible for the difference.

In Closing

A reverse mortgage can be a helpful financial tool for seniors who want to access home equity without selling their home or making monthly mortgage payments. However, it’s important to fully understand the eligibility requirements, costs, risks, and repayment obligations before moving forward.

Speaking with a HUD-approved counselor and a qualified reverse mortgage lender can help you evaluate whether this option aligns with your financial goals and long-term plans.

Take the next step: Use our free 2-step reverse mortgage calculator to estimate your eligibility.