Qualifying for a reverse mortgage requires far less documentation and fewer credit conditions than a forward mortgage. However, there are a few important requirements that must be met.
- Borrowers in most states must be 55 years or older. Ages for proprietary reverse mortgages can vary. In states like California, borrowers can take proprietary reverse mortgages at age 55, and for Home Equity Conversion Mortgages (HECMs), borrowers must be at least age 62.
- Borrowers must be able to meet basic financial obligations. Credit requirements are far less strict than traditional forward mortgages…mainly limited to property taxes, home association dues, and insurance. As in all loans, borrowers must also have the financial means to maintain the condition of the property so that it is safe to live in.
- Borrowers must live in the home. A home must be a borrower’s primary or principal residence. That means they typically reside in the house for the majority of their time.
- Borrowers must have substantial equity in the home. There is not a set percentage of equity a borrower must have to qualify. However, most lenders require 50% or more.
- Borrowers must undergo reverse mortgage counseling, (usually done by phone), through a Housing and Urban Development (HUD) approved agency. This counseling ensures that the borrower fully understands the terms of their mortgage and what they are agreeing to.
What Homes Are Eligible for a Reverse Mortgage?
Almost all traditional single-family homes are eligible for a reverse mortgage. However, other types of structures are also eligible. The definition of a single-family home can cover a variety of structure types. According to the Federal Housing Administration (FHA), a single-family home is a stand-alone unit, or one attached to a building. This also includes:
- Manufactured homes and townhomes affixed to a foundation
- Duplexes, triplexes, and fourplexes if the borrower lives in one of the units
- FHA-approved condominiums
HUD considers buildings with more than five units as commercial properties and they are not eligible for a reverse mortgage.
What Are the Loan Terms of a Reverse Mortgage?
Because reverse mortgage borrowers don’t have to make payments toward their mortgage until the loan comes due, staying on good terms with a reverse mortgage is relatively simple.
Borrowers can keep their loan in good standing by complying with the following terms:
- Staying up to date and current on property taxes, homeowner’s insurance, and other home-related fees, such as HOA dues
- Living in the home for the majority of the year
- Maintaining the home so that it is safe to live in
As part of complying with the terms of the mortgage, reverse mortgage borrowers must sign an affidavit annually to verify they still reside in the home. Every year, the loan servicer will send borrowers a home occupancy certificate to their primary residence. Borrowers must sign and send the certificate back within 30 days of receiving it.
Depending upon your retirement strategy and goals, a reverse mortgage may dramatically improve the quality of your retirement. A reverse mortgage isn’t complicated to understand, but it’s important to consult a mortgage advisor before making this or any other important mortgage decision.