How to Qualify for a Reverse Mortgage
Reverse Mortgage Requirements – Eligibility and Qualifications
If you want to obtain a reverse mortgage, the lender expects you to meet certain qualifications. Here is all detailed information on each requirement you must meet to be eligible to get a reverse mortgage.
Note that these requirements focus on equity conversion mortgages (HECMs). Requirements for proprietary reverse mortgages and single-purpose reverse mortgages may differ.
Reverse Mortgage Requirements
If you are a homeowner and meet the reverse mortgage age requirement of 62 years, you could qualify for the federally-insured Home Equity Conversion Mortgage (HECM) program.
Age of the borrowers also determines how much you can obtain on a reverse mortgage. The older you are, the more amount of money you obtain.
You should either have already repaid the mortgage for your primary home or left with a small balance to repay. The small balance is the amount that can be easily paid off with the funds obtained on a reverse mortgage. Being a borrower, you must hold title to the house and occupy it as your primary home.
Keep in mind that you are not eligible for a reverse mortgage on a vacation home or a rental property. Moreover, the home should be a single unit home. Your house can also be a two to four unit house in which you occupy one unit and rent out the other units.
If you want a reverse mortgage on a condominium, you can obtain the loan if it is approved by and listed in the U.S. Department of Housing and Urban Development (HUB) complex list.
Also, the house should be in good condition. If not, you can still be eligible for getting a reverse mortgage, with the condition that you will use some of the proceeds on the required home repair.
HECMs are insured and backed by the Federal Housing Administration. It has minimum property standards for the loan it guarantees.
Even if you don’t earn any income, you can still qualify for the reverse mortgage program. It is because you will get payments instead of making them. This type of mortgage has origination fees as well as closing costs. Borrowers can roll these costs into the loan in case they can’t or don’t want to pay it upfront.
Some important conditions to qualify for a reverse mortgage are:
- You have to continue with the maintenance of your property
- You pay property taxes and home insurance premiums
In case, you don’t do fulfill these conditions; the lender will conduct a financial assessment while underwriting your reverse mortgage. Moreover, if you don’t have enough liquid assets or income, the lender may keep a portion of your reverse mortgage proceeds to cover property taxes and insurance premiums.
Because HEMCs are insured by the federal government, you can’t get this loan if you are long overdue on the government money, like income taxes, federal student loans, or a Small Business Administration loan. To qualify for this financial product, you must get current to qualify. Lenders can easily figure it out if you owe the government’s money by checking your credit report.
It is mandated by the federal government that the borrower must go through mortgage counseling before getting a reverse mortgage. Counselors thoroughly advise and guide borrowers on the costs and consequences that go in a HECM. They also advise borrowers on how to take the reverse mortgage proceeds.
According to the Federal Trade Commission, the current rate for mortgage counseling is approximately $125. Borrowers who can’t afford the counseling fee can find a reverse mortgage counselor who is willing to do it at a reduced rate or even free.
Remember that mortgage counseling is compulsory, even if you think that you are well-versed in this subject. It protects borrowers from uninformed and wrong financial decisions that may prove inappropriate for them in the long-term. You can choose counseling by phone, available in most states. This is a great, less expensive and most convenient option.
What If Your Spouse Is Under 62?
When you are taking out a reverse mortgage, both you and your spouse must be on the contract, even if one of you is below 62. The older spouse is the borrower, while the age of younger borrower is also considered in determining the loan proceeds.
As of HUD’s new rule developed in August 2014, if a couple with a spouse below 62 wants to take reverse mortgage, they can list the younger spouse as a non-borrowing spouse. If the older spouse passes away, the non-borrowing spouse may reside in the home, if the surviving spouse
For example, if Bob is 67 and his wife Sue is 60, Bob qualifies as the primary borrower. Both should be on the contract so that Sue can occupy the house if unfortunately Bob dies. To help you better understand how this type of mortgage works, read our How Reverse Mortgage Works or calculate how much you may receive using our free reverse mortgage calculator.