But a reverse mortgage is a loan, which means it will need to be paid back at some point. If you are exploring reverse mortgages, it’s important to understand how this aspect of them works.  

In this article, we’ll explore the intricacies of reverse mortgages, pinpointing when repayment is required, and explore the various options available to borrowers and their families.  

Whether you’re considering a reverse mortgage, currently have one or are an heir to a property with a reverse mortgage loan, our goal is to equip you with the knowledge to navigate the repayment process with confidence. 

Understanding Reverse Mortgages  

The most common type of reverse mortgage is the home equity conversion mortgage (HECM), which is backed by the federal government through the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA).  

A HECM reverse mortgage is a special type of home loan designed for homeowners aged 62 and older. It allows them to access equity in their homes without the requirement of making monthly payments.  

Instead of the borrower paying the lender, the roles are reversed, and the lender makes payments to the borrower based on the equity they have in their home, similar to a home equity loan or home equity line of credit (HELOC).   

A reverse mortgage provides reverse mortgage proceeds in the form of monthly installments, a line of credit, or a lump sum that can be used for covering living expenses, medical bills, home repairs and upgrades, or supplementing retirement income. 

The amount a homeowner can borrow depends on several factors, including the home’s value, the borrower’s age, and current interest rates. The older the borrower and the more valuable the home, typically the larger the available loan amount. 

While borrowers are not required to make monthly mortgage payments, they must keep up with property taxes, homeowners’ insurance, and keep the home in good condition. 

The property in question must also be the borrower’s primary residence. This means they need to live in their home most of the year, and the property needs to remain their primary residence throughout the life of the loan.  

Reverse Mortgage Payoff: When Repayment is Due 

There are certain events that can trigger the reverse mortgage balance to be repaid. Understanding these triggers is essential for borrowers and their family members to plan appropriately and avoid any surprises.  

Here are the primary circumstances under which a reverse mortgage becomes due: 

• Sale of the Home. If the borrower decides to sell the home, the reverse mortgage must be paid off as part of the sale process. The proceeds from the sale are typically used to repay the loan balance, with any remaining equity going to the borrower. 
• Permanent Move or Relocation. A reverse mortgage requires the borrower to maintain the property as their principal residence. If the borrower moves out permanently, for example, to a long-term care facility or another residence, the loan becomes due. Generally, 12 consecutive months of non-occupancy is considered a permanent move. 
• Failure to Meet Loan Obligations. Borrowers are required to pay property taxes, maintain homeowners’ insurance, and keep the property in good condition. Failure to meet these obligations can lead to the loan becoming due. 

• Borrower’s Passing. The death of the last remaining borrower is a common trigger for the repayment of a reverse mortgage. Upon their passing, the loan balance becomes due, and heirs or estate executors must address the repayment. 

How to Pay Back a Reverse Mortgage Loan 

When the time comes to repay a reverse mortgage, borrowers have several strategies at their disposal.  

Here are the primary avenues for repaying a reverse mortgage: 

• Repayment from Other Assets. The loan can be repaid using funds from the borrower’s estate or other assets, preserving the home for heirs. 
• Sale of the Property. The home can be sold, and the proceeds used to repay the loan.  
• Refinancing the Loan. In some cases, the reverse mortgage can be refinanced into a traditional mortgage. 
• Deed in Lieu of Foreclosure. If the borrowers decide not to keep the property, a deed in lieu of foreclosure is an option to satisfy the loan by transferring the property to the reverse mortgage lender. 

Professional advice from financial advisors, real estate experts, and legal counsel can provide invaluable guidance during this decision-making process, ensuring that borrowers make informed choices that align with their financial goals and circumstances.  

The Role of Heirs in Reverse Mortgage Repayment 

If the last surviving borrower passes away while he or she still has a reverse mortgage, their heirs will be faced with important decisions regarding the property and the outstanding balance of the loan. Understanding their roles, rights, and options can help them navigate the repayment process more effectively. 

Immediate Actions Upon the Borrower’s Passing 

• Notification. Heirs must promptly notify the lender of the borrower’s passing. This initiates the repayment process and starts the timeline within which actions must be taken. 
• Evaluation of the Estate. Heirs should assess the estate’s value, including the home and any other assets, to determine the best course of action for repaying the reverse mortgage. It may be advantageous to meet with a financial advisor or family attorney to assist this step in the process.  

Options Available to Heirs 

Heirs will have the following options available to them:  

• Keep the Property. If heirs wish to keep the home, they can choose to repay the reverse mortgage through refinancing into a regular mortgage or using other available assets.  
• Sell the Property. Heirs may opt to sell the home to pay off the reverse mortgage. If the home’s sale price exceeds the loan balance, heirs can keep the remaining equity. 
• Deed in Lieu of Foreclosure. In situations where neither keeping the home nor selling it is viable, heirs might consider a deed in lieu of foreclosure. This option involves handing over the property to the lender and satisfying the loan without going through a formal foreclosure process. 
• Do Nothing. Ultimately, heirs don’t have to do anything to settle the loan. In nothing is done to pay back the loan, the lender will simply foreclose on the property. 

Decision-Making Process 

These are some recommendations that may help with deciding the best course of action for you: 

• Consult with Professionals. Seek advice from financial advisors, estate attorneys, and real estate professionals to understand the implications of each option and to navigate the legal and financial aspects of the repayment process. 
• Communicate with the Lender. Open and ongoing communication with the lender is essential. Lenders can provide specific details about the loan balance, deadlines for decision-making, and potential solutions tailored to the heirs’ circumstances. 
• Consideration of Timelines. Lenders typically provide a timeline, often six to 12 months, to decide and act on the repayment of the reverse mortgage. This period allows heirs to assess their options, potentially refinance the loan, or prepare the property for sale. 
• Legal Protections. Reverse mortgages are non-recourse loans, heirs are not personally liable for any deficit if the property’s sale does not cover the loan balance. 

FAQs  

Can a reverse mortgage borrower repay a reverse mortgage before it is due? 

Yes. Reverse mortgage borrowers can start paying back the loan before it is due. There is no penalty for paying back a reverse mortgage loan early.  

What if the reverse mortgage loan balance is more than what the home is worth?  

Reverse mortgages are non-recourse loans. Borrowers will never owe more than the loan balance or the home’s value, whichever is less. This means if the sale of the home does not cover the full amount of the loan, neither the borrowers nor their heirs are personally liable for the shortfall.  

[Source: HUD HECM Handbook] 

Are heirs obligated to pay back the reverse mortgage loan? 

No, heirs are not obligated to pay back a reverse mortgage loan. If they don’t want to keep or sell the home, they have the option of signing the deed over to the lender or doing nothing and allowing the property to go into foreclosure.  

How much time do you have to pay back a reverse mortgage? 

A reverse mortgage loan becomes due and payable as soon as a triggering event occurs. If the heirs want to sell the home, lenders typically provide six months to complete the transaction. Two 90-day extensions are typically provided if it can be demonstrated that the heirs are actively trying to sell the home.  

What happens if you don’t pay back a reverse mortgage? 

Just like with a traditional mortgage, if you don’t pay back the reverse mortgage according to the agreed terms, the lender will be forced to foreclose on the property. 

Have More Questions?  

Each homeowner’s financial situation is unique. The best way to ensure that all questions you have about your situation are addressed is to talk to one of our reverse mortgage advisors.  

Many of our reverse mortgage specialists have decades of experience in the mortgage industry and have helped older homeowners solve various problems.  

Reach out today by filling out the form on this page or by using our directory to find a reverse mortgage loan officer in your area.  

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

This unique financial product allows older homeowners to convert part of their home equity into cash, providing financial relief without the obligation of monthly mortgage payments.  

However, like any significant financial decision, understanding the intricacies of reverse mortgages is crucial.  

This guide explores the pros and cons of reverse mortgages, offering clear insights to help you determine whether this financial strategy aligns with your retirement planning and lifestyle needs.  

Understanding Reverse Mortgages 

A reverse mortgage is a home loan tailored for homeowners aged 62 and older, offering a unique way to convert part of the equity in their homes into cash without the need to sell the house or make monthly mortgage payments.  

This type of loan is called a “reverse” mortgage because, unlike a traditional mortgage where the homeowner makes payments to a lender, in a reverse mortgage, the lender makes payments to the homeowner. 

A reverse mortgage loan will first pay off the current regular mortgage if the reverse mortgage borrowers still have one. The remaining funds go to the reverse mortgage borrowers in the form of a lump sum, monthly payments, a line of credit, or a mixture of those payment methods.  

Reverse mortgages are designed to provide financial relief and added income streams to seniors, allowing them to use the accumulated equity in their homes to cover various expenses such as home repairs, medical bills, living costs, or even fund their retirement leisure activities. There are no limitations on how reverse mortgage proceeds must be used.  

The loan amount that can be borrowed depends on several factors, including the borrower’s age, the home’s appraised value, current interest rates, and the specific terms of the reverse mortgage product chosen. 

There are three types of reverse mortgages offered by Mutual of Omaha Mortgage: 

• Home Equity Conversion Mortgage (HECM). These are federally insured reverse mortgages regulated by the U. S. Department of Housing and Urban Development (HUD) and backed by the Federal Housing Administration (FHA). HECMs are the most common type and offer a variety of disbursement options. 
• Jumbo Reverse Mortgages. These proprietary reverse mortgages are backed by the lenders who offer them. These can be tailored to higher-value homes that exceed the federal maximum lending limits of HECMs, offering potentially larger loan amounts. 
• Reverse Mortgage for Purchase (HECM for Purchase). This unique loan product allows seniors aged 62 and older to buy a new home without having to make monthly mortgage payments. This is done by using the equity from the sale of their previous home combined with a reverse mortgage to finance the purchase. This financial tool simplifies the process of downsizing or relocating while preserving retirement income and enhancing cash flow. 

Reverse Mortgage Requirements 

To qualify for a reverse mortgage, applicants must meet a series of requirements. These requirements ensure that borrowers are suitable candidates for this type of loan and understand the obligations it entails. Here are the key revere mortgage requirements: 

• At least one homeowner must be 62 years or older. 
• While there is no exact equity requirement, borrowers must have a considerable amount of equity built up in the home. 
• The property must be the borrower’s primary residence.  
• Qualifying property types include single-family homes, 2 to 4 unit multi-family homes with one unit occupied by the borrower, HUD-approved condominiums, and manufactured homes that meet FHA requirements. 
• The borrowers need to demonstrate that they have the financial means to continue paying property taxes, homeowners’ insurance, and any homeowners association (HOA) fees.  
• Applicants must undergo counseling with a HUD-approved counseling agency to ensure they understand the reverse mortgage process, obligations, and alternatives. 
• Borrowers must remain current on real estate taxes, homeowners’ insurance, and, if applicable, flood insurance and HOA fees. 

Reverse Mortgages Pros  

Reverse mortgages offer several advantages, particularly for senior homeowners seeking financial flexibility and stability in their retirement years. Here are some of the key benefits:  

• Supplement Retirement Income. A reverse mortgage can provide a steady stream of income that can be used to enhance your retirement finances, offering a cushion that supports other retirement savings and investments. 
• Tax-Free Income. The funds received from a reverse mortgage are not subject to income taxes, as they are considered loan proceeds and not income.  
• Versatility. There are no rules from the federal government or lenders dictating how the funds can or can’t be used. Borrowers have the freedom to use the proceeds from a reverse mortgage in a variety of ways, such as supplementing retirement income, covering healthcare costs, making home improvements, or paying off existing debts. This flexibility allows seniors to tailor the funds to meet their specific needs and lifestyle. 
• Retain Home Ownership. One of the most significant advantages of a reverse mortgage is the ability to remain in your home while accessing its equity. Borrowers retain the title to their property and can continue to live in their home as long as they comply with the loan terms, such as paying property taxes and insurance. 
• No Monthly Mortgage Payments. Unlike traditional mortgages, reverse mortgages do not require monthly payments to the lender. However, borrowers are still responsible for property taxes, insurance, and maintenance, but loan repayment is deferred until the borrower sells the home, moves out, or passes away.  
• Non-Recourse Loan Feature. Reverse mortgages are “non-recourse” loans, meaning if the loan balance exceeds the home’s value at the time of repayment, neither the borrowers nor their heirs are responsible for paying the difference. 
• Options for Heirs. Heirs have several options for handling the reverse mortgage after the borrower’s passing. They can choose to pay off the loan and keep the house, sell the home to repay the loan or turn the property over to the lender if the home’s value does not cover the loan balance. 

These benefits highlight the potential of reverse mortgages to enhance financial security and quality of life for seniors. However, it’s essential for prospective borrowers to carefully consider their personal situation and discuss the options with a financial advisor to ensure a reverse mortgage aligns with their long-term goals and needs. 

Cons of Reverse Mortgages 

While reverse mortgages can offer financial relief and flexibility for many seniors, there are some potential drawbacks that should be carefully considered. Here are some of the main cons of a reverse mortgage: 

• Closing Costs and Fees. Reverse mortgages often come with higher closing costs and fees compared to traditional mortgages, including origination fees, mortgage insurance premiums, and appraisal fees. However, these fees can be rolled into the loan.  
• Interest. The loan balance of a reverse mortgage increases over time as interest and fees accumulate. 
• Inheritance. As the reverse mortgage balance grows, the remaining equity in the home decreases, which can result in a smaller inheritance for the borrower’s heirs. It’s important for borrowers to discuss their plans with family members to manage expectations. 
• Repayment Obligations for Heirs. Heirs are responsible for repaying the loan balance if they wish to retain the property after the borrower’s death. This can involve refinancing the reverse mortgage into a traditional mortgage. Heirs may also opt to sell the home. 
• Loan Obligations. While borrowers are not obligated to make monthly mortgage payments, they must keep the home in good condition, stay current on property taxes, homeowners insurance, and HOA fees, if applicable.  

Consulting with a financial advisor and involving family members in the decision-making process can help ensure that a reverse mortgage is the right choice for your needs and circumstances. 

How to Decide if a Reverse Mortgage is Right for You 

Deciding whether a reverse mortgage is a suitable financial tool requires careful consideration of your personal circumstances, long-term goals, and the potential impacts on your estate and heirs.  

Here are key factors to consider to help you determine if a reverse mortgage fits your needs:  

• Evaluate Your Need for Cash Flow. Consider why you need additional funds. If you’re looking for a way to supplement your retirement income, cover healthcare costs, or manage unexpected expenses, a reverse mortgage might be a solution. 
• Understand Your Equity. The amount of equity you have in your home plays a crucial role. More equity means more potential funds available, but also consider how this will affect your heirs and your desire to leave an inheritance. 
• Consider Your Future in the Home. A reverse mortgage is most beneficial if you plan to stay in your home for the foreseeable future. Most experts recommend reverse mortgages for those who plan to stay in their home for at least five years. If you expect to move soon due to health issues or other reasons, other financial products might be more suitable. 
• Maintenance and Upkeep. Ensure you’re willing and able to maintain the property and meet the ongoing requirements such as taxes and insurance. 
• Communicate with Heirs. Discussing your considerations with family members can provide valuable insights and help manage expectations regarding inheritance and their potential roles in managing the reverse mortgage after your passing. 
• Consult Financial Advisors. Professional advice is invaluable in making an informed decision. Financial advisors can offer personalized insights based on your financial portfolio, while legal advisors can clarify legal implications and estate planning.  

Bottom Line  

Reverse mortgages offer a unique financial solution for seniors seeking to tap into their home equity to enhance their retirement income, manage expenses, or achieve a more comfortable lifestyle without the obligation of monthly mortgage payments.   

Deciding whether a reverse mortgage is right for you involves a comprehensive evaluation of your financial situation, long-term plans, and the potential effects on your estate. It’s a decision that should not be made in isolation but with the guidance of financial advisors and in consultation with family members who may be affected.   

While reverse mortgages can provide significant benefits and offer financial relief in retirement, they are not a one-size-fits-all solution. Careful consideration, informed decision-making, and a clear understanding of your financial goals and needs are essential to determine if a reverse mortgage is the most suitable option for securing a stable and fulfilling retirement. 

If you have additional questions, our reverse mortgage specialists are a great resource. Please reach out today.  

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

If you inherited a house with a reverse mortgage or if you expect to inherit a house that has a reverse mortgage, you may be wondering what this means for you and your financial future. Will you be able to keep the house? Will you be responsible for paying off the reverse mortgage loan?

In this article, we will explore the implications of inheriting a house with a reverse mortgage and what steps you can take to manage the situation.

Understanding Reverse Mortgages 

Before we dive into the specifics of inheriting a house with a reverse mortgage, it’s important to understand what a reverse mortgage is and how it works. 

A reverse mortgage, also known as a home equity conversion mortgage (HECM), is a type of loan that allows homeowners aged 62 or older to convert a portion of their home’s equity into cash while also eliminating monthly mortgage payments. 

If the borrower still has a traditional mortgage on the home when they take out the mortgage, the reverse mortgage loan will first be used to pay off that existing mortgage. The remaining equity will go to the borrower as a lump sum, monthly payments, or a line of credit.  

Homeowners are still responsible for paying the property taxes, insurance, any other required fees, and maintaining the home.  

The loan is repaid when the borrower moves out of the home, sells the home, no longer lives in the home full-time, or passes away. 

A reverse mortgage loan is backed by the federal government through the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA).  

Inheriting a House with a Reverse Mortgage 

When an heir inherits a house with a reverse mortgage, they inherit not just the property but also the responsibility to settle this loan. Likewise, if a house still has a traditional forward mortgage on it, the heirs are responsible for continuing to make the mortgage payments.  

Upon the death of the homeowner, the reverse mortgage becomes due and payable.  

Immediate Steps to Take  

When a reverse mortgage borrower passes away, heirs must promptly notify the lender of the borrower’s death. 

After this is done, they can expect to receive a due and payable notice from the lender.  

Options for Inheriting a House with a Reverse Mortgage When the Last Borrower Passes Away 

When someone inherits a house, whether it has a reverse mortgage, traditional mortgage, or no mortgage, one of the first steps they need to make is to change the name on the deed of the house so that the property is in their own name. This is what will make it legally yours and give you the legal right to make a decision about the property, according to Trust & Will. 

It is recommended to enlist the help of an estate attorney to help you with this process and to help you make an informed decision about the next steps.  

The next step you will need to take is to decide how you want to go about settling the existing loan. These are your options:  

• Keep the home. If you want to keep the home, you can do so by paying off the reverse mortgage balance with cash or by taking out a traditional mortgage on the home. If your loved one has other assets that were left to you, the money from those assets can be used to pay off the loan.  
• Sell the home. Another option for paying off the reverse mortgage loan is to simply sell the home. If you sell the home for more than the loan amount, you will be able to keep the surplus.  
• Sign over to the lender. If you don’t want to worry about paying off the full loan balance, you also have the option to sign a deed in lieu of foreclosure. In this case, you will be signing the home over to the lender to handle selling the home. 
• Do nothing. The heir can also choose to do nothing. The lender will begin the foreclosure process and then sell the house.  

Whatever your decision, it’s important for heirs to act promptly, as lenders typically allow a limited period, often about six months, to settle the reverse mortgage loan balance. 

Options for Inheriting a House with a Reverse Mortgage if You are the Spouse 

If you are the surviving spouse of the original borrower of a reverse mortgage, you will fall into one of the following categories — the co-borrower, the eligible non-borrowing spouse, or the ineligible non-borrowing spouse.  

Here are your options depending on which category you fall under:  

• Co-borrower. If you are a named co-borrower on the home, you will continue to live in the home and benefit from the reverse mortgage as you did before your spouse passed away.  
• Eligible non-borrowing spouse. An eligible non-borrowing spouse may be allowed to remain in the home after the spouse passes away as long as the home is their primary residence and he or she continues to meet the loan terms, such as paying property taxes, insurance, and maintaining the home.  
• Ineligible non-borrowing spouse. An ineligible non-borrowing spouse will likely have to repay the loan to remain the home.  

An eligible non-borrowing spouse may not be a named co-borrower if they didn’t meet the age requirements for the loan or if he or she was significantly younger than the named borrower.  

When applying for a reverse mortgage, the loan amount is partly determined by the age of the youngest borrower, so if the borrower is significantly older than their spouse, he or she may be able to obtain more money from the loan than if they don’t include their spouse as a co-borrower.  

An eligible non-borrowing spouse must be legally married to the borrower when the loan closes and at the time of the borrower’s death and occupy the home as their primary residence. The eligible non-borrowing spouse must be disclosed to the lender when obtaining a reverse mortgage. 

An ineligible non-borrowing spouse does not meet these requirements.  

Estate Planning and Reverse Mortgages: How to Prepare for Inheriting a House with a Reverse Mortgage 

If homeowners plan to have a reverse mortgage on the home that they are leaving to their heirs, attorney David Brillant recommends that they collaborate with their families. Brillant is a Certified Specialist in Estate Planning, Trust and Probate Law, and a Tax Attorney. 

“I’ve witnessed the benefits of proactive communication in estate planning involving reverse mortgages,” Brillant told Mutual of Omaha Mortgage.  

“In one case, by involving the heirs in the planning process early on, we were able to address their concerns and prepare a comprehensive plan that included the reverse mortgage as part of the estate, along with contingency strategies for managing the loan’s repayment,” he explained.  

“This not only helped in preserving family harmony but also ensured that the estate was managed according to the client’s wishes,” the certified estate law specialist said. 

Mike Kojonen, the founder and owner of Principal Preservation Services, an estate planning and retirement investment firm, has also worked with clients who had a reverse mortgage and wanted to leave the home to their children.  

“We worked closely to ensure that their other assets were structured to provide options for their children to either pay off the reverse mortgage or to inherit other assets of equivalent value if they decided not to keep the home,” Kojonen explained to Mutual of Omaha Mortgage. 

“This planning involved detailed discussions about the home’s value, the potential growth of their other assets, and the expectations of their heirs,” he added. 

Inheriting a House with a Reverse Mortgage FAQs 

Can you inherit a house that has a reverse mortgage? 

Yes, you can inherit a house with a reverse mortgage, but you will need to decide how you are going to settle the reverse mortgage loan depending on whether you want to keep or sell the home.  

Are heirs responsible for the reverse mortgage debt? 

Heirs or family members are not inherently responsible for the reverse mortgage debt. They are only responsible for the outstanding debt if they decide they want to keep the property or handle the sale of the property.  

If they don’t want this responsibility, they can sign the deed of the home over to the reverse mortgage lender to let them handle the sale of the home to settle the debt.  

How long do heirs have to pay off a reverse mortgage? 

Heirs are typically given six months to settle a loan. If they are selling the home, they may be able to receive two 90-day extensions, giving them 12 months to settle the loan. 

What if the reverse mortgage loan is more than the market value of the home? 

A reverse mortgage is categorized as a non-recourse loan. This means that neither the borrower nor the heirs “will never owe more than the loan balance or the value of the property, whichever is less,” according to HUD.  

This also means that lenders can’t use other assets that belong to the borrower or to the borrower’s estate to settle the loan.  

If the heirs decide to sell the home, and they sell it for more than the loan balance or the appraised home value, they will be able to keep any money beyond what is needed to pay off the loan. This also means that if they decide to keep the home, the money needed to pay off the loan cannot exceed this amount. 

Bottom Line 

Inheriting a house with a reverse mortgage requires careful consideration of the legal and financial ramifications. Heirs should consult with legal and financial advisors to navigate the complexities and make informed decisions that align with their circumstances and the wishes of the deceased. 

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

Navigating the complexities of reverse mortgages can be challenging for many homeowners. Primarily designed to aid those in or nearing retirement, reverse mortgages offer a unique financial solution, allowing homeowners to tap into their home equity while continuing to live in their homes.  

Homeowners can use the money from a reverse mortgage to meet a range of financial goals, from supplementing monthly income to funding major projects such as home renovations to establishing a source of funds to tap into in the event of unplanned expenses, to name a few.  

Accessing additional money can be especially advantageous during retirement as cash flow can be challenging, and many senior homeowners live on a fixed income. 

This article explores what it takes to qualify for a reverse mortgage, including the reverse mortgage criteria, types of reverse mortgages, and the obligations that come with them. 

Reverse Mortgage Requirements  

Borrowers must meet the following requirements to qualify for a reverse mortgage: 

Age 

One of the primary eligibility requirements for a reverse mortgage is the borrower’s age. The minimum age required for a reverse mortgage is 62 years. In cases with joint borrowers, the youngest borrower’s age is used to determine the loan amount. This age threshold targets homeowners typically in or approaching retirement. They might be looking for ways to supplement their retirement income using the equity they have built in their homes. 

Residency 

The home must be your primary residence. To qualify as a primary residence, the homeowner must live in the property for most of the year. For this reason, investment properties and vacation homes do not qualify for reverse mortgages. 

Equity    

Having equity in the home is required to qualify for a reverse mortgage. Equity refers to the portion of the home’s value that the homeowner owns. It is calculated by subtracting any outstanding mortgage balances or liens from the home’s current market value. While the house must have equity to qualify for a reverse mortgage, there is no specific minimum equity requirement.  

Counseling 

Before officially applying for a reverse mortgage, you must complete a counseling session with a third-party counselor approved by the HUD. This counseling session aims to educate potential borrowers on what’s involved in obtaining a reverse mortgage, the costs and fees, and the pros and cons of a reverse mortgage loan. This typically takes approximately 90 minutes. The reverse mortgage advisors at Mutual of Omaha Mortgage will give you a list of qualifying counselors to contact.  

Property Requirements  

For a property to qualify, it must be in good condition. In addition, the property must fall under one of the following categories:  

• Single-family homes 2-to-4-unit properties in which you occupy one of the units Townhouses Condominiums that are FHA-approved Manufactured homes that meet HUD requirements and were built after June 1976  

If you are uncertain if your property qualifies, the Mutual of Omaha Mortgage reverse mortgage advisors can assist you in making this determination. Reach out today to learn more.   

Types of Reverse Mortgages and Their Requirements 

It is worth noting that there are four different types of reverse mortgages because some come with different requirements: 

• Home Equity Conversion Mortgages (HECMs). HECM reverse mortgages are the most common reverse mortgages, and this is the type of reverse mortgage we are addressing in this article.  
• Reverse Mortgage for Purchase. Also known as HECM for purchase, this type of reverse mortgage combines a down payment from selling a previous home with a reverse mortgage loan. The qualifications for this type of reverse mortgage are the same as a traditional one. 
• Jumbo Reverse Mortgages. These are proprietary reverse mortgage loans developed by individual lenders. They are designed for high-value homes and allow access to larger equity amounts. Many of the requirements are the same as a HECM reverse mortgage. However, in some cases, jumbo loans are available to homeowners who are as young as 55 years of age. But this varies depending on the lender and the state. In addition, jumbo reverse mortgages do not require paying mortgage insurance premiums.  
• Single-Purpose Reverse Mortgages. Government agencies and non-profits offer single-purpose reverse mortgages for specific purposes like home repairs. These are also typically only available to those at least 62 years of age, but, as the name implies, borrowers can only use them for a single purpose approved by the government or non-profit group.  

Bottom Line  

Reverse mortgages offer a flexible solution for homeowners seeking to leverage their home equity for financial stability or other purposes in retirement. Understanding the loan types, requirements, and responsibilities is important for making an informed decision.  

Our reverse mortgage advisors can help you understand more about whether you qualify for a HECM loan or not. Reach out today to learn more!  

Is Mutual of Omaha Mortgage right for your reverse mortgage needs? Don’t take our word for it. Check out these Mutual of Omaha Reverse Mortgage Reviews to see what our customers are saying.

Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees. 

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

Step 1: Talk to a Reverse Mortgage Advisor 

The first thing we recommend doing if you are ready to apply for a reverse mortgage is to talk to one of our reverse mortgage loan advisors. They will assess your specific circumstances and provide you with an estimate of the amount of money you could potentially receive through a reverse mortgage. 

In addition, they will be able to answer any questions or concerns you may have to ensure that a reverse mortgage is the right option for you. Your reverse mortgage advisor will walk you through exactly what you can expect and will be your personal resource as you go through this process.   

Step 3: Submit Your Application 

As soon as your reverse mortgage loan advisor receives the certificate of completion from your counseling session, your application may be submitted. Your advisor will help you get the application filled out and will notify you of any documentation that needs to be included.  

This may include items such as a photo identification, a copy of your homeowner’s insurance policy, and your most recent property tax bill.   

The sooner you can get all the required documentation submitted, the sooner you will be able to close on your loan.   

Step 5: Processing and Underwriting 

The application and all related documents will be sent for review and processing by the underwriting team. While the underwriting process for a traditional mortgage is typically automated, underwriting for a reverse mortgage is a manual process.  

The underwriter will verify that you meet all the reverse mortgage requirements and that you have submitted all the necessary documentation for approval.  

The underwriter will either approve, approve with conditions, or deny. If you are approved with conditions, this will typically mean that there’s additional documentation that needs to be submitted or a home repair that needs to be done before the loan can be finalized.   

Your reverse mortgage loan advisor will reach out to you if there is any additional documentation or repairs that need to be done.   

Step 7: Receive Your Funds 

There is a waiting period that lasts for three business days before you can start receiving your funds. Once that period is over, you will start to receive your funds.  

You may receive your funds as a lump sum, monthly payments, a line of credit, or a combination of the three. You will choose how you want to receive your funds during the application process.   

If you still have a mortgage or other lien on your home, the reverse mortgage will also pay off those loans.   

If you’re ready to move forward with a reverse mortgage, learn more by grabbing our free reverse mortgage guide or find a reverse mortgage loan officer here.  

Is Mutual of Omaha Mortgage right for you? Don’t take our word for it. Check out these Mutual of Omaha Reverse Mortgage Reviews to see what our customers are saying.

Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

Another concern for those entering retirement is what options they have if they find themselves needing long-term care, such as in-home healthcare services, or if they need to move into a nursing home.  

Can a homeowner still get a reverse mortgage if they need eldercare? Will they have to give up their reverse mortgage if they move into a nursing home? What if they receive in-home care?  

In this article, we will explore all of these questions and more.  

Reverse Mortgage Explained

Having a basic understanding of a reverse mortgage will help lay the foundation for how a reverse mortgage can and can’t be used.  

The most common type of reverse mortgage loan is the home equity conversion mortgage (HECM). The other types are single-purpose reverse mortgages and jumbo reverse mortgages.  

The standard reverse mortgage is backed the federal government through the Federal Housing Administration (FHA) and the U.S. Department of Housing and Urban Development (HUD).  

A reverse mortgage works by paying off the current traditional mortgage, if there still is one. The remaining reverse mortgage proceeds can then be received in the form of one or more of the following payment options: a lump sum payment, a line of credit, and/or monthly payments.  

The amount of money that homeowners are able to obtain through a reverse mortgage depends on the value of the home, the age of the youngest borrower, and the interest rates.  

The FHA does put a lending limit on how much homeowners are able to borrow through a reverse mortgage. The current lending limit as of 2024 is $1,149,825. 

The reverse mortgage loan becomes due when the senior homeowner decides to sell, he or she no longer lives in the home as their principal residence, or when the last remaining borrower passes away.  

What Can a Reverse Mortgage be used for? 

There are no rules about how a reverse mortgage has to be used, which gives borrowers a lot of flexibility. Some common uses of a reverse mortgage:  

• Supplementing monthly income. One of the most common uses of a reverse mortgage is to supplement monthly retirement income. This can be especially beneficial for retirees who may not have enough savings or income in retirement accounts to cover their expenses. 

• Paying off credit card debt. Reverse mortgages can also be used to pay off existing debts, such as credit card debt or medical bills.  
• Home renovations and repairs. Many homeowners use reverse mortgages to fund home renovations or repairs. This can include updating kitchens or bathrooms, replacing the roof, or making home modifications to make the property more accessible for those who have developed mobility challenges. 
• Delaying Social Security benefits. Some individuals choose to take out a reverse mortgage to delay claiming their Social Security benefits. By doing so, they can increase their monthly benefit amount when they eventually start receiving Social Security. 
• Managing unexpected expenses. A reverse mortgage can provide a safety net for homeowners facing unforeseen financial challenges. Whether it’s a major car repair or a sudden home repair, having access to additional funds can help alleviate stress. 

How to Use a Reverse Mortgage to Pay for Long-Term Care? 

There are multiple options for how you can receive reverse mortgage proceeds: as a lump sum, monthly payments, a line of credit, or a combination of the three. Two of these options may be especially ideal when it comes to paying for long-term care, depending on your goals.  

First, if one of the primary reasons you are considering a reverse mortgage is to have funds available in the event that you need eldercare services, you may want to opt to receive your funds as a line of credit.  

A reverse mortgage line of credit allows you to use the funds on an as-needed basis. This is ideal for eldercare services since you don’t know when you will need it. Another advantage of a reverse mortgage line of credit is that the untouched loan actually grows over time. 

Second, another way to pay for long-term care is to purchase a long-term care insurance policy. The premiums for long-term care insurance range from about $80 to $600 depending on the age and type of insurance.  

If this is a cost that you are not able to cover with your current income, a reverse mortgage in the form of monthly installments could help offset those costs.  

Our reverse mortgage specialists will present you with a variety of options for you to consider. 

Bottom Line 

If you are considering a reverse mortgage and you would like to find a way to use it to fund long-term care, you do have some options as long as you don’t move out of the home for more than 12 consecutive months.  

If you have more questions about how to use a reverse mortgage to pay for eldercare, please reach out to one of our reverse mortgage specialists or find a loan officer in your area.

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

The appeal of a reverse mortgage lies in its potential to provide a much-needed source of retirement income for those who may have limited pension or savings, helping them cover living expenses, medical costs, or other financial needs.  

Reverse mortgage counseling is a required step that plays a pivotal role in ensuring that individuals considering a reverse mortgage make informed and confident decisions, so they can be sure that a reverse mortgage is the right choice for them. 

In this article, we will cover everything you need to know about reverse mortgage counseling so you can feel comfortable navigating this unique requirement.  

Understanding Reverse Mortgages 

A home equity conversion mortgage (HECM), also known as a reverse mortgage, is a unique financial product designed for senior homeowners that allows them to convert a portion of their home equity into cash without having to sell or move out of their homes.  

While it is a loan like a traditional mortgage, the way it works is very different. In contrast to a traditional mortgage, where borrowers make monthly payments to the lender to gradually build equity and eventually own the home outright, a reverse mortgage works in reverse.  

First, the reverse mortgage loan will pay off your current mortgage, if you still have one. 

For the remaining equity, instead of making a monthly mortgage payment, homeowners receive the reverse mortgage proceeds from the lender, either as a lump sum, a line of credit, regular monthly installments, or a combination of these options. 

Homeowners are still responsible for paying for the property taxes, homeowners insurance, and maintenance of their principal residence. 

The loan is repaid when the homeowner permanently moves out of the home, sells the property, or passes away.  

Unlike traditional mortgages, credit and income qualifications are generally less strict for reverse mortgages, making them an appealing option for seniors seeking supplemental income during retirement.  

Reverse mortgages are backed by the Federal Housing Administration (FHA) and regulated by the U.S. Department of Housing and Urban Development (HUD). 

The Role of Reverse Mortgage Counseling 

Reverse mortgage counseling is a mandatory educational program that HUD requires all prospective reverse mortgage borrowers to complete as part of the loan application process. It provides impartial guidance and ensures that applicants are well-informed before proceeding with their loan application. 

The counseling session aims to educate homeowners on the workings of a reverse mortgage, the features of the reverse mortgages, and important information they should consider.  

Additionally, the counselor will provide homeowners with detailed information to ensure that a reverse mortgage aligns with their specific situation. They will also inform homeowners about potential alternatives, such as a home equity line of credit (HELOC) or a home equity loan. 

The counselor will also provide helpful resources to assist homeowners in making an informed decision and provide support for the homeowners during the reverse mortgage process.  

The reverse mortgage counselors should not advise clients on whether or not to proceed with a reverse mortgage, nor should they recommend a specific reverse mortgage product. Their primary responsibility is to educate clients in an unbiased manner. 

Reverse Mortgage Counseling Requirements 

The reverse mortgage counseling session must be completed with a third-party HUD-approved counselor.  

While your loan officer can provide you with a list of at least five counseling agencies to contact, the reverse mortgage appointment has to be made by the homeowners. It cannot be made by the lender.  

Here is a list of required information that HUD mandates that the reverse mortgage housing counselors cover during the counseling session: 

• Homeowners’ needs and circumstances 
• The features and details of a reverse mortgage 

• Borrower responsibilities under a reverse mortgage 
• The costs of a reverse mortgage 
• Financial and tax implications of a reverse mortgage 
• Alternative options to a reverse mortgage 
• Information about reverse mortgage fraud schemes and elder abuse to be aware of 

Once the counseling session is complete, the certificate of completion will be sent to you rightaway. This can be done through email, fax, or traditional mail.  

You will need to provide the reverse mortgage counseling certificate to your lender before you can move forward with the reverse mortgage loan application.  

Bottom Line 

Reverse mortgage counseling is a required step for prospective applicants to navigate the complexities of obtaining a reverse mortgage. By participating in counseling, applicants can make informed decisions about whether a reverse mortgage aligns with their financial goals and circumstances.  

Remember to reach out to a HUD-approved counselor to schedule your counseling session and obtain the necessary certificate before moving forward with your reverse mortgage application. 

If you have more questions about the reverse mortgage process, reach out to one of our reverse mortgage specialists by filling out this form or through our loan officer directory.  

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement.