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.
A Reverse Mortgage Explained
The most common type of reverse mortgage is the home equity conversion mortgage, also known as a HECM reverse mortgage, a federally backed home loan. It is insured by the Federal Housing Administration (FHA) and regulated by the U.S. Department of Housing and Urban Development (HUD).
A reverse mortgage is a loan like a regular mortgage, but it functions more like a home equity loan or home equity line of credit (HELOC) because it is money borrowed against the equity in the home. The difference is that instead of functioning as a second mortgage, which is the case with a HELOC, the reverse mortgage becomes your primary mortgage.
When a homeowner first takes out a reverse mortgage, it will first pay off your current existing mortgage unless your home is already paid off.
For the remaining equity, homeowners have several options for how to receive their funds. These options include the following:
- A lump sum payment
- A line of credit
- Monthly installments
- Any combination of these options
The amount of money you can receive from a reverse mortgage depends on the age of the youngest borrower, the home’s value, and the current interest rates. Use our reverse mortgage calculator to estimate your potential loan amount.
There are no rules about how reverse mortgage proceeds must be used, giving borrowers ultimate flexibility. Typical uses include supplementing retirement income, paying for home repairs and upgrades, paying off credit cards, and setting money aside for a rainy day.
While reverse mortgage borrowers are not required to make monthly payments, they are still required to pay their property taxes, homeowners insurance, home maintenance costs, and HOA fees if needed.
While a reverse mortgage loan does not require monthly mortgage payments like a traditional mortgage, it still needs to be paid back at some point. This typically happens when the homeowners decide to sell, the homeowners no longer occupy the home as their primary residence, or when the last remaining borrower passes away.
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.
Financial Obligations
Unlike a traditional mortgage, you do not have good credit or meet income requirements to qualify for a reverse mortgage loan. However, there are some financial requirements and obligations that will need to be met.
For example, there are some costs and fees that will need to be paid to set up a reverse mortgage, including the following:
- Origination fee
- Mortgage insurance premium
- Appraisal fee
Note that borrowers can roll these costs into the total loan amount, so you don’t need to tap into savings to cover them. Homeowners must also demonstrate the ability to continue to pay for the following:
- Property taxes
- Homeowner’s Insurance
- Homeowners Association (HOA) fees, if required
- Home maintenance costs
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.
Reverse Mortgage Eligibility FAQs
What is the minimum age requirement for a reverse mortgage?
The minimum age for a reverse mortgage loan is 62, but this can vary depending on the specific reverse mortgage program. For example, some jumbo reverse mortgages are available to borrowers as young as 55, depending on the lender and the state where the borrower resides.
Do I need to own my home outright to qualify for a reverse mortgage?
No, you do not need to own your home outright, but you must have equity in it. No exact amount is required, but the more equity you have, the more you can borrow.
Can I get a reverse mortgage if I still have a mortgage on my home?
Yes, you can get a reverse mortgage if you still have a mortgage on your home. The reverse mortgage proceeds will first be used to pay off your outstanding mortgage balance before you can use them for other purposes.
Is my home eligible if it’s a vacation home or rental property?
No, reverse mortgages are only available for primary residences. Vacation homes and rental properties do not qualify.
Are there any income or credit score requirements for a reverse mortgage?
While requirements are typically less stringent than for traditional mortgages, lenders may still review your income, assets, and credit history to ensure you can maintain the property and pay ongoing expenses like taxes and insurance.
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.
