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- Reverse mortgages allow seniors to tap into their home equity to supplement living expenses during retirement.
- Reverse mortgages come with age, residency, equity and debt guidelines the borrower must meet to get approved.
- If you don’t qualify for a reverse mortgage, a home equity loan, cash-out refinance or HELOC could be a viable alternative.
Reverse mortgages are a way for older Americans to use the equity in their homes to fund retirement or other life expenses while still allowing them to live in the home. Such a mortgage involves the lender paying the homeowner each month against their equity rather than the homeowner paying money to the lender. If you’re considering this route, here’s what you need to know about reverse mortgage requirements.
Reverse mortgage requirements
From age limits to equity criteria, there are a variety of reverse mortgage requirements to meet. Here’s how to qualify for a reverse mortgage:
- Age limit: How old do you have to be for a reverse mortgage? The answer: 62 or older. This is true for government-sponsored home equity conversion mortgages (HECM) and most private reverse mortgages. However, a small number of lenders have a lower age requirement for reverse mortgages, with options for people as young as 55.
- Residency: The home you’re seeking a reverse mortgage on must be your primary residence. That means it must be the address where you spend most of the calendar year.
- Equity: You must either own the home outright or have a very low balance on the home when applying for a HECM reverse mortgage. If you have a balance, you’ll need to pay it off when you close on the loan.
- Debt: You cannot be delinquent on any federal debt. This would include income taxes or federal student loans. However, it’s important to note that you may use funds from a reverse mortgage to pay off such debts.
- Reserves: You must be willing to set aside some of the reverse mortgage funds at closing (or have enough of your own money) to pay for items such as property taxes and insurance, as well as home maintenance and repair costs.
- Condition of the home: Your home needs to be in livable condition. If it’s not, your lender may ask you to make repairs before approving your reverse mortgage.
- Counseling: You must participate in counseling that’s provided by a HUD-approved reverse mortgage counseling agency. During the counseling session, an agent will review your eligibility for a reverse mortgage and also discuss the financial ramifications. For instance, those who take out a reverse mortgage loan when they’re too young risk running out of money later in life, during a time when it’s likely income will be lower and healthcare bills may be steeper.
If you don’t fulfill all of these reverse mortgage requirements right now, you might be able to work toward some of them. For example, repaying federal debt, improving your home’s condition and paying off your mortgage are all actionable steps you can take to qualify for a reverse mortgage. However, if you need cash soon but aren’t close to meeting the reverse mortgage age limit, you’ll want to consider another type of loan.
Alternatives to reverse mortgages for those that don’t qualify
If you’re looking to turn your home equity into funds but can’t qualify for a reverse mortgage due to age or other restrictions, consider some of the following options:
- Home equity loan: If you need a lump sum of cash for a specific expense, you can access your home equity by getting a home equity loan. These loans aren’t very flexible, but they can be a low-cost way to borrow, even for younger homeowners who have sufficient equity.
- Cash-out refinance: Cash-out refinancing, like a home equity loan, lets you turn your home equity into cash you can use for other purposes. However, instead of multiple loan payments, you refinance your entire mortgage and have just one payment. This can also help you reduce your interest rate and adjust the loan’s term.
- Home equity line of credit: The most flexible option is a home equity line of credit (HELOC). With a HELOC, you can draw funds from your equity only when you need to, which could be appealing to people who sought out a reverse mortgage for more income flexibility.
Reverse mortgage requirement FAQ
A reverse mortgage is not free money — interest and fees will be added to your mortgage balance each month. That means the amount you owe on your mortgage will go up. In addition, you’ll still need to pay property taxes and homeowners insurance.“The major benefit of a reverse mortgage is the cash flow benefit of eliminating the monthly mortgage payment, as well as accessing equity in the form of a line of credit or lump sum payment,” says David Reyes, founder and chief investment officer at Reyes Financial Architecture. Many financial experts suggest treating reverse mortgages as a last resort since it often doesn’t make financial sense to sacrifice home equity for income.
The loan amount available through a reverse mortgage depends on the age of the borrower (or the age of the youngest spouse when there’s a couple), as well as the home’s appraised value, current interest rates, and in the case of the HECM program, the FHA lending limit of $1,149,825 in 2024. Ways to receive payments from a HECM reverse mortgage include:
- Line of credit: To access money this way, you’ll likely need to submit a written request to your loan servicer.
- Term payments: You’ll receive fixed monthly payments for a specified length of time, such as five years. During this time, the amount of cash the borrower receives each month won’t change.
- Tenure payments: With this option, you’ll receive fixed monthly payments for as long as you live in the home as your primary residence. The payments will continue even if the loan surpasses the value of the home.
- Modified term/line of credit: This is a type of hybrid payout in which you’ll get a line of credit and fixed monthly payments for a set time.
- Modified tenure/line of credit: Similar to the above hybrid option, you’ll get a line of credit and fixed monthly payments as long as the home is your primary residence.
- Lump sum: You can request to receive all the available funds in one payment.
The borrower is not required to pay back a reverse mortgage loan until the home is sold, vacated or the last surviving borrower dies. However, if the home at some point is no longer your primary residence, you will be required to pay back the loan.In addition, you may also need to pay back the loan sooner if you fail to pay the property taxes or homeowners insurance, or if you don’t keep the home in good condition.