Fly View Productions / Getty Images .
What Is a Reverse Mortgage?
A reverse mortgage is a mortgage designed for homeowners who are age 62 or older. “The mortgage allows a homeowner to tap into the equity in their home and not have to make any monthly payments,” Melissa Cohn, executive mortgage banker at William Raveis Mortgage, told The Balance by email. “They can receive a lump-sum payment, a fixed monthly payment, or even a line of credit.” The balance of the mortgage doesn’t come due until the owner leaves their home. This could be because they’ve moved in with relatives, they went into an assisted living facility or a nursing home, or they’ve passed away. But some special rules apply to spouses if the mortgage is a Home Equity Conversion Mortgage (HECM), which is federally insured. Paying the balance at this time can require selling the home.
Borrower Requirements
To qualify for a reverse mortgage, you must:
Be 62 years of age or olderUse the home as your primary residenceComplete counseling with a HUD counselor
The purpose of counseling is to determine your eligibility and to help you learn more about how a reverse mortgage works. It can also guide you to exploring some alternatives to a reverse mortgage, depending on your needs.
Financial Requirements
Qualifying for a reverse mortgage doesn’t depend on your credit score and there’s no income requirement, but there are other types of financial prerequisites. To qualify, you must:
Have a low mortgage balance or have paid off your mortgageBe current on federal income taxes, student loan debt, or any other federal debtAgree to set money aside for maintenance, repairs, property taxes, and home insurance
You can take some of the money you receive from the reverse mortgage to pay off any federal debts or to set aside for maintenance, repairs, and insurance.
Property Requirements
In addition to personal and financial requirements, reverse mortgages also come with certain rules for the property. Lenders want to ensure that your home is worth their investment. “Similar to obtaining a conventional or ‘forward’ mortgage, lenders require that the property adheres to minimum property standards,” Chris Shoemaker, mortgage loan officer at Red Diamond Home Loans in Plano, Texas, told The Balance by email. “It should be safe, sound, and secure, which means there should be no safety issues with the home, like mold.” Soundness means the home should not have dilapidated floors or roofing, or any other structural issues. “Security refers to ground floor windows that lock, doors and entryways that are functional, et cetera,” Shoemaker said. You’ll have to make the necessary repairs before you can proceed with the reverse mortgage if your home doesn’t pass inspection. On the other hand, reverse mortgages also have some negatives to consider. “The rates and fees are expensive, and they are very hard to get with condos or coops,” Cohn said. “Also, the payments not made are accumulating and eating into the remaining equity.” The surviving spouse will have to move out if they didn’t sign on as a co-borrower unless they qualify under HUD rules as an eligible non-borrowing spouse. They can stay in the home in this case, but they won’t receive any further payments from the reverse mortgage. You may want to seek advice from a lawyer or housing counselor if you or your spouse isn’t listed as a co-borrower.
