What are the Eligibility Requirements for Reverse Mortgage?

Eligibility for a reverse mortgage, particularly for the Home Equity Conversion Mortgage (HECM) which is the most common type, includes several criteria:

Reverse Mortgage Age Requirement:

• • Minimum Age: The primary eligibility criterion is that the youngest borrower must be at least 62 years old, but some proprietary reverse mortgages may have different age requirements.
  • Home Ownership Eligibility for Reverse Mortgage: 
    • You must own your home outright or have a low mortgage balance that can be paid off with the reverse mortgage funds
  • Primary Residence:
    • The home you obtain a reverse mortgage on must be your primary residence at the time of proceeding with the loan.

Reverse Mortgage Home Ownership Requirement:

• • Primary Residence: You must live in the home as your primary residence. Generally, you cannot be absent from the home for more than 12 consecutive months.
  • Home Ownership: You must either own your home outright or have a mortgage balance that can be paid off with the proceeds from the reverse mortgage.

Reverse Mortgage Property Requirements:

• • Type of Property: Typically, the home must be a single-family home, a 2-4 unit property where one unit is occupied by the borrower, an FHA-approved condominium, or a manufactured home that meets the FHA criteria.
  • Property Condition: The home must meet the FHA property standards or be repairable to meet those standards with the reverse mortgage funds.

Reverse Mortgage Financial Assessment:

• • Ability to Pay Obligations: Since 2015, HECM borrowers are subject to a financial assessment to evaluate their ability to pay for on-going property charges like taxes, insurance, and maintenance. This might include:
    • Credit History Review
    • Residual Income Calculation
    • Review of payment of property charges over the last two years

Reverse Mortgage Counseling:

• Mandatory Counseling: Before getting a HECM, you must participate in a counseling session with a HUD-approved counselor. This requirement is in place to ensure borrowers fully understand the loan’s implications, costs, and alternatives.

Other considerations of Reverse Mortgages:

• • Loan Limits: The amount of equity you can access is limited by FHA’s maximum claim amount, which is adjusted annually based on housing prices. Proprietary reverse mortgages might not have this cap or might have a different one.
  • Residency: If you’re planning to move in the near future, a reverse mortgage might not be suitable since it’s design for your primary residence.
  • Marital Status: If there’s a non-borrowing spouse, they might need to meet certain criteria to remain in the home after the borrowing spouse’s death or if they move out.

Proprietary Reverse Mortgages:

• • While HECMs and reverse mortgages as it is interchangeably spoken have strict eligibility criteria, proprietary reverse mortgages offered by private lenders might have different requirements, such as:
    • Potentially lower minimum higher requirements
    • Eligibility for homes with values exceeding the HECM loan limit
    • Different financial assessment criteria

Reverse Mortgage Exclusions:

• • Investment Properties: Homes not used as a primary residence generally do not qualify
  • Cooperative Apartments: These are usually not eligible for reverse mortgages

Reverse mortgages can be a useful financial tool for eligible seniors looking to supplement income, pay for healthcare, or cover living expenses, but they also come with complexities that should be thoroughly understood before proceeding.

Learn more about eligibility requirements for a reverse mortgage, situations where a reverse mortgage is best used, and common myths around reverse mortgage that we debunk with facts