Understanding Reverse Mortgage Loan Qualifications and Requirements
A Home Equity Conversion Mortgage (HECM), also known as a government-insured reverse mortgage loan, is a great tool to help you utilize the equity from your home and convert a portion of it into cash. Thousands of senior homeowners have taken advantage of this beneficial tool since its inception in 1961, and you may be able to as well.
Below are some qualifications and requirements as well as other obligations. Eligibility for reverse mortgages depends on : 1) General requirements (age 62+, is a homeowner & others). 2) Home qualifications (HUD and FHA rules). 3) Financial Qualifications (homeowner income and debt).
- You must be at least 62 years or older– Since reverse mortgages were designed to help seniors age in their homes, this loan is only available to individuals in retirement age.
- You must own your home – You must be on title of the home. You must also either own your home outright, or have a low enough remaining mortgage balance for the reverse mortgage loan to pay it off.
- Your home must be your primary residence – Again, because this loan was meant to help seniors stay at home, borrowers must live in the home and cannot live elsewhere for more than 12 consecutive months.
- You must complete a counseling session with a HUD-approved counseling agency – The U.S. Department of Housing and Urban Development (HUD) provides a list of third party agencies for you to choose from. The purpose of this requirement is so you are aware of all of your options, and can evenly weigh the pros and cons of each.
- Your home must be a single family home or a 4-unit maximum multiple family home with one unit occupied by you. – According to HUD, the most common type of property eligible for a reverse mortgage is a single family home. If your property is a multiple family home, then one of the units must be your primary residence.
- Your home can be a manufactured home as long as it meets FHA requirements. – You can check the Federal Housing Administration’s (FHA) website for these requirements.
- Your home can be a condominium if it is HUD-approved. – More information about HUD-approved condos can be found on their website or through your reverse mortgage lender.
There are certain kinds of homes that simply do not qualify for a HECM loan. Vacation homes or secondary homes are not approved under reverse mortgage qualifications because they aren’t considered the homeowner’s primary residence. Also, if your home is on income-producing land such as a farm, then it is not eligible either.
- You must be financially able to pay your property taxes, insurance, and home maintenance and any applicable HOA fees. – One of the most important things to remember about reverse mortgages is that you are still responsible for paying your property taxes, home insurance, and any home fees like Home Owner’s Association (HOA) fees for the life of the loan. The benefits of reverse mortgages only apply if you comply with all loan terms, because otherwise, you may be at risk of defaulting on the loan.
- You cannot be delinquent on any federal debt.
These reverse mortgage qualifications and requirements may seem daunting, but don’t let that prevent you from applying. A licensed professional can walk you through the whole process and let you know if there are other location-specific, property-specific, or borrower-specific requirements that you should be aware of. Many homeowners have found that once they satisfy the requirements for reverse mortgages, the benefits of this unique loan helped them achieve a better quality of life.