Reverse Mortgage Requirements: A Guide (2024)

FAQs

Reverse Mortgage Requirements: A Guide? ›

You must own the home and it must be your primary residence. You must have enough equity in the home – at least 50%, usually. You can own the home free and clear or have an existing mortgage. Single-family homes or up to four-unit properties are eligible if the homeowner occupies at least one of the units.

You won't qualify for a reverse mortgage if you are behind on payments for federal loans, such as federal student loans or income taxes. Proving that you'll use the reverse mortgage proceeds to pay off these debts might still allow you to qualify for the loan.

According to this rule, the initial amount that a homeowner can borrow through a reverse mortgage is limited to 60% of the home's appraised value or the maximum claim amount, whichever is less.

This means your heirs can pay off the loan by selling the home for at least 95 percent of the home's appraised value. The rest of the loan is covered by the mortgage insurance that the reverse mortgage borrower paid during the duration of the loan.

This denial can be possible if the property taxes are behind, or other reasons even if the credit record is clean. For those who were denied a reverse mortgage, they should consider the benefits of working with a broker like PS Financial Services, especially with the financial assessment looming.

Some reverse mortgages may be more expensive than traditional home loans, especially for things you pay upfront, like closing costs and origination fees. That's important to consider if you plan to stay in your home for just a short time or to borrow a small amount.

Relatively High Fees

Real estate closing fees: As with a regular mortgage, reverse mortgages can rack up a variety of closing costs, including a home appraisal and inspection, title search, recording fees, mortgage taxes, and a credit check of the applicant, among others.

Who is not a good candidate for a reverse mortgage? A reverse mortgage is a questionable proposition if you have sufficient income to pay your bills or are willing to sell your home to tap into the equity. If that's the case, it may make more sense to just sell it and downsize your home.

Reverse mortgages require that applicants be at least 62 years old and own a significant amount of equity in their home. Applicants typically need 50% equity to qualify for a reverse mortgage.

What does Suze Orman say about reverse mortgages? ›

Taking a loan too early

The earliest a homeowner is eligible to take out a reverse mortgage is age 62, but Orman considers it risky to do so. "If you tap all your home equity through a reverse at 62 and then at 72 you realize you can't really afford the home, you will have to sell the home," she said.

The problem, say advocates, is that many senior homeowners don't understand the fine print in a reverse mortgage. Some wrongly assume the lender will pay the taxes and insurance. But fall behind on those payments or fail to maintain the home, and the lender can foreclose.

How Do Reverse Mortgages Work? Most require no repayment for as long as you live in your home. They are repaid in full when the last living borrower dies, sells the home, or permanently moves away. Because you make no monthly payments, the amount you owe grows larger over time.

Since your property must be considered your primary residence, vacation homes and secondary homes do not qualify for the reverse mortgage loan. In addition, homes on income-producing land, such as a farm, are not eligible. A reverse mortgage loan must be the primary lien on your home to qualify.

If you plan on living in your home for the rest of your life the Mortgage will last as long as you live in the home and pay your property taxes. Once you? ve passed away your Children will have 6 months to a year to sell or refinance the home.

Usually, the borrower's heirs pay off the loan by selling the house securing the reverse mortgage. The proceeds from the sale are used to pay off the mortgage. If there's any money remaining after the loan is paid off, the heirs get to keep it.

Since your property must be considered your primary residence, vacation homes and secondary homes do not qualify for the reverse mortgage loan. In addition, homes on income-producing land, such as a farm, are not eligible.

With a reverse mortgage, there is no minimum credit score requirement; however, the lender will conduct a financial assessment of your credit history, property charge history, and monthly residual income when deciding whether to approve your loan.

Although you don't need income to qualify for a reverse mortgage, you do need to show the lender that you have the means to afford the ongoing costs of homeownership, including property taxes and homeowners insurance premiums. You'll also need to keep your home in good repair.