If you’re an older adult who owns a home, a reverse mortgage allows you to use the equity you’ve built to obtain cash. It’s a popular second-mortgage option for people over age 62 who live on a fixed income, because they don’t have to make monthly mortgage payments.
Reverse mortgages are available from the U.S. Department of Housing and Urban Development (HUD), state and local governments, nonprofit agencies, and private lenders. Here’s what you need to know about the requirements for getting a reverse mortgage.
- A reverse mortgage taps into your home’s equity to provide cash.
- Borrowers don’t have to make monthly payments. Instead, they’ll receive a lump sum or fixed monthly payments.
- Borrowers must be at least 62 years old.
- There are no minimum credit score or income requirements.
What Is a Reverse Mortgage?
A reverse mortgage is a mortgage designed for homeowners who are 62 years of age or older. “The mortgage allows a homeowner to tap 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.”
When the owner leaves their home, which could involve moving in with relatives, going into an assisted living facility or nursing home, or passing away, the balance of the mortgage is due. Often, paying this balance requires selling the home.
Reverse mortgages are popular among older adults who are on a fixed income because they don’t have to make monthly payments—although they can if they want to.
Reverse Mortgage Requirements
There are several types of requirements for a reverse mortgage, and we’ll explain each of them below. These requirements are strict, but if you meet them, you could qualify for a reverse mortgage.
To qualify for a reverse mortgage, you must:
- Be 62 years of age or older
- Use the home as your primary residence
- Complete counseling with a HUD counselor
The purpose of the counseling is to determine your eligibility, learn more about how a reverse mortgage works, and explore any alternatives.
While a reverse mortgage doesn’t depend on your credit score, and there is no income requirement, there are other types of financial prerequisites. To qualify, you must:
- Have a low mortgage balance or have paid off your mortgage
- Be current on federal income taxes and student loan debt
- Agree to set aside money for maintenance, repairs, property taxes, and home insurance
However, you can take some of the money you receive from the reverse mortgage to pay off any federal debts or set aside for maintenance, repairs, and insurance.
In addition to personal and financial requirements, reverse mortgages also come with certain property requirements. That’s because 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, etc.,” Shoemaker said.
If your home doesn’t pass inspection, you will need to make the necessary repairs before you can proceed with the reverse mortgage.
Frequently Asked Questions (FAQs)
What are the pros and cons of a reverse mortgage?
“One major pro is that it gives senior citizens access to the equity in their home with no monthly payments,” Cohn said. This money can be used for living expenses or to pay off other debt, like medical bills. And since you’ll use the equity in your home as collateral, your income and credit score aren’t contributing factors.
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 in condos or coops,” Cohn said. “Also, the payments not made are accumulating and eating into the remaining equity.”
What percentage of equity is required to qualify for a reverse mortgage?
According to Shoemaker, in most situations, you must have a minimum of 50%-60% equity in the home to qualify.
What are the income requirements for a reverse mortgage?
There’s no minimum income required for a reverse mortgage, but you’ll need to meet other personal, financial, and property eligibility requirements. For example, you’ll need to be at least 62 years old and have fully or nearly paid off your mortgage balance.
Can you get turned down for a reverse mortgage?
Yes. If you don’t meet all of the requirements, you could be turned down. Before applying for a reverse mortgage, make sure you’re old enough, your home is in good shape, and your finances tick all the required boxes. Meeting with a HUD counselor can help you determine whether you’re eligible before you spend time applying.
What happens to the surviving spouse if you have a reverse mortgage?
It depends whether the surviving spouse was listed as a co-borrower on the reverse mortgage. If so, they can continue to live in the home as long as they continue to meet the loan obligations to maintain the property and pay taxes, insurance, and other expenses.
If the surviving spouse did not sign on as a co-borrower, they’ll need to move out unless they qualify under HUD rules as an eligible non-borrowing spouse. In that case, they can stay in the home but won’t receive monthly payments from the reverse mortgage. If one spouse isn’t listed as a co-borrower, they may want to seek advice from a lawyer or housing counselor.