A reverse mortgage is a loan taken out for the value of your home. If you are 62 and older and have significant capital, you can borrow for the value of your home and receive funds as a lump sum, fixed monthly payment or credit line. Unlike a mortgage – the type used to buy a home – you will not make any payments to your lender. Instead, the entire balance of the loan becomes due and payable when the borrower dies, is permanently removed or the house is sold.
A reverse mortgage is a way to access the equity you have created in your home during retirement. Other options include redemption by redemption or home equity loan. Each of these financial products has different eligibility requirements and qualifications. In this article, we will look at what you need to qualify for a reverse mortgage.
There are three types of reverse mortgages. The most common is the equity conversion mortgage (HECM). HECM represents almost all the reverse mortgages offered by lenders at home values below $ 970,800, so this article will discuss. If your home is worth more, however, you can consider a Jambo reverse mortgage, also called a privately owned reverse mortgage.
- Reverse mortgages have two basic certification criteria — you must be at least 62 years old and have a significant amount of equity in your home.
- While the specific percentage of equity required varies between lenders, you will usually need 50%.
- There are no credit or income requirements for reverse mortgages.
- The US Department of Housing and Urban Development (HUD) requires all prospective reverse mortgage borrowers to complete a HUD-approved counseling session.
- Borrowers also have to pay a down payment and a down payment.
- Although it is not a technical requirement to get a reverse mortgage, you will need to pay for real estate taxes and homeowners insurance once you have the mortgage.
What does it take to get a reverse mortgage?
There are certain requirements that you must meet in order to qualify for a reverse mortgage. The most important of these are related to your age and the amount of equity you have in your home.
Reverse mortgages are designed to allow larger homeowners without other sources of retirement savings to access the equity they have created in their home. Because of this, you must be at least 62 years old to qualify for a reverse mortgage. And if you want to add your spouse as a co-borrower (something you should do if you can), you must also be 62 years old.
You also need to have a significant level of equity in your home – generally at least 50%. You must be living in the property on which you are taking out the reverse mortgage and it must be a house, a condominium or a mansion or a house built on or after 15 June 1976.
According to FHA rules, cooperative homeowners can not take out reverse mortgages, as they do not technically own the real estate in which they live, but own shares in a company. In New York, where cooperatives are commonplace, state law until recently barred reverse mortgages to cooperatives, allowing them only in homes and apartments for one to four families.
In December 2021, Gov. Kathy Hochul signed into law a bill that would allow New Yorkers aged 70 and over to take out reverse mortgages on their co-op apartments. The bill went into effect in March 2022, and New Yorkers can now qualify for two types of reverse mortgages for borrowers: HECMs secured by the federal government or privately owned reverse loans.
Income and credit controls
Reverse mortgages have no income or credit score requirements. This is one of the ways in which reverse mortgages differ from a home equity loan or home equity line of credit (HELOC). HELOCs provide homeowners with access to equity. Unlike a reverse mortgage, equity loans and HELOCs require borrowers to make payments and you must have a respectable credit score to qualify. On the other hand, they may come with less fees and may be a less expensive alternative to a reverse mortgage.
The US Department of Housing and Urban Development (HUD) requires all prospective reverse mortgage borrowers to complete a HUD-approved counseling session. This counseling session, which usually costs about $ 125, should last at least 90 minutes and cover the pros and cons of taking out a reverse mortgage given your unique financial and personal circumstances.
The counselor will explain how a reverse mortgage could affect your eligibility for Medicaid and Supplemental Security Income (SSI), and should also consider the different ways in which you can receive your reverse mortgage income.
There are costs associated with creating a reverse mortgage. Borrowers must pay a down payment and a down payment on a mortgage premium. These costs are often paid off by the loan itself, which means you may not need any savings to get a reverse mortgage. It is important to recognize, however, that the initial cost of reverse mortgages is high, whether you pay it out of your own pocket or out of your own funds.
Although it is not a technical requirement to get a reverse mortgage, you will need to pay for real estate taxes and homeowners insurance once you have the mortgage. If you fall short on these payments or stop living at home for more than a year — even if you live in long-term medical care — then you will have to repay the loan, which is usually obtained by selling the home.
There are alternative ways to access your own funds when you retire. These include a redemption refinancing or a home equity loan. Both have stricter certification requirements than a reverse mortgage, but both can be more profitable in the long run. You should check to see if you qualify for these other financial products before considering a reverse mortgage.
What if you do not qualify?
If you do not qualify for any of these loans, what options are left for using your own home equity to finance your retirement? You could sell and downsize or sell your home to your children or grandchildren to keep in the family, maybe even become their tenant if you want to stay home.
What prevents you from getting a reverse mortgage?
You must live in your home as your main residence for the duration of the reverse mortgage and be at least 62 years old. Vacation homes or rental properties are not eligible. You must be a full owner of your home or have at least 50% equity in your home to be eligible for a reverse mortgage.
What percentage of equity is required for a reverse mortgage?
About 50% equity. To qualify for a reverse mortgage, borrowers must own the entire home or have significant equity. This rate varies depending on the lender and the type of reverse mortgage, but the general rule is to have at least 50% equity in your home.
What are the three types of reverse mortgage?
There are three types of reverse mortgages: one-purpose reverse mortgages offered by some government and local government agencies, as well as non-profit organizations. Reverse Mortgages — Private Loans. and federally insured reverse mortgages, also known as equity conversion mortgages (HECMs).
The bottom line
Reverse mortgages have two basic certification criteria — you must be at least 62 years old and have a significant amount of stock in your home. While the specific percentage of equity required varies between lenders, you will usually need at least 50%. There are no credit or income requirements for reverse mortgages.
The US Department of Housing and Urban Development (HUD) requires all prospective reverse mortgage borrowers to complete a HUD-approved counseling session, and borrowers must pay a home-based premium and a home mortgage premium. And while it is not technically a requirement to get a reverse mortgage, you will need to pay for property taxes and homeowners insurance once you have the mortgage.