Reverse mortgages are a great way for older homeowners to access the capital they have accumulated in their home. To qualify for a reverse mortgage, you must meet certain requirements, such as being at least 62 years old and having a significant amount of equity in your home. You must also live in your home as your primary residence for the term of the loan. Vacation homes or rental properties are not eligible.
Unlike a term mortgage, the type used to buy a home, you won't make any payments to your lender. Instead, the full loan balance matures and is repaid when the borrower dies, moves permanently, or sells the house. There are a number of requirements you must meet to qualify for a reverse mortgage. The most important ones relate to your age and the amount of capital you have in your home. Reverse mortgages are designed to allow older homeowners with no other sources of retirement savings to access the capital they have accumulated 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 (which you must do if you can), you must also be 62. Under FHA regulations, cooperative homeowners cannot obtain reverse mortgages, since they technically do not own the real estate in which they live, but rather own shares in a corporation. In New York, where cooperatives are common, state law until recently prohibited reverse mortgages in cooperatives, allowing them only in homes and condominiums of one to four families. Reverse mortgages have no income or credit rating requirements. This is one of the ways in which reverse mortgages differ from a home equity loan or a home equity line of credit (HELOC).
HELOCs provide homeowners access to home equity. Unlike a reverse mortgage, home equity loans and HELOCs require borrowers to make payments and, to qualify, you must have a respectable credit score. On the other hand, they may have lower fees and can be a less expensive alternative to a reverse mortgage. The counselor will explain how a reverse mortgage could affect your eligibility for Medicaid and Supplemental Security Income (SSI), and will also discuss the different ways in which you can receive the profits from your reverse mortgage. There are costs associated with creating a reverse mortgage. Borrowers must pay a down payment and a mortgage insurance premium in advance. These costs are usually paid from the loan itself, which means that you may not need any savings to apply for a reverse mortgage.
However, it's important to recognize that the initial costs of reverse mortgages are high, whether you pay them out of pocket or the capital you own. While it's not technically a requirement to get a reverse mortgage, you'll have to pay property taxes and property insurance once you have the mortgage. If you fall behind on these payments or stop living in the house for more than a year, even if it's because you live in a long-term care facility for medical reasons, you'll have to repay the loan, which is usually achieved by selling the house. There are alternative ways to access your home equity during retirement. These include a refinance with cash out or a home equity loan. Both have more stringent qualification requirements than a reverse mortgage, but both can be more profitable in the long run. You should check if you qualify for these other financial products before considering a reverse mortgage.
If you don't qualify for any of these loans, what options are left to use home equity to finance your retirement? You could sell and downsize or sell your house to your children or grandchildren to keep it in the family, maybe even become your tenant if you want to continue living in the house. Before you can get a reverse mortgage, the federal government requires you to participate in mortgage counseling approved by HUD. The Department of Housing and Urban Development (HUD) requires all prospective reverse mortgage borrowers to complete this counseling session and borrowers must pay a down payment and a mortgage insurance premium in advance. Reverse mortgages were intended to help older people retire at or near their current residence. Because of this, the reverse mortgage age requirement is 62 or older and borrowers must fully own their home or have significant capital - usually at least 50%. There are no credit rating or income requirements for reverse mortgages. And while it's not technically a requirement to get a reverse mortgage, you'll have to pay property taxes and property insurance once you have the mortgage.
Department of Housing and Urban Development (HUD), American Advisors Group (AAG), Daily Reverse Mortgage and Consumer Advice from Federal Commission of HECM Counseling Certificate are some resources that can help with understanding more about reverse mortgages.