An individual may not obtain a reverse mortgage if his or her property is:
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The requirements for a reverse mortgage specify a certain eligible age group (62 and over) and property standards outlined by the U.S Department of Housing and Urban Development (HUD). Some homeowners must also be prepared to set aside a portion of their reverse mortgage funds for ongoing property costs, depending on the results of the required financial assessment. Show
Age RequirementsReverse mortgages were meant to help seniors in or nearing retirement. Because of this, the reverse mortgage age requirement is 62 or older. You must be at least 62 years old to get a reverse mortgage. If you’re 62 but your spouse is under the required reverse mortgage age, you can still get a HECM, but your spouse will be considered a non-borrowing spouse and will not have access to your loan proceeds. By designating them as a non-borrowing spouse, they’ll be able to stay in the home should you, the borrower, pass away. Financial RequirementsAll HECM borrowers must attend a required counseling session with a third-party, HUD-approved counselor. This ensures borrowers understand reverse mortgage requirements, how the loan works and any alternative options they may have. One of the most important reverse mortgage rules is that borrowers must continue to pay their property taxes and homeowners insurance and maintain the property. If they don’t, the loan could come due and they could lose their home. To ensure borrowers are able to afford these financial obligations, HUD also requires they undergo a financial assessment. Depending on the results of the financial assessment, some borrowers may be required to set aside a portion of their proceeds to pay for the financial responsibilities of the loan. This amount of money is put into a Life Expectancy Set-Aside (LESA), which acts as a sort of escrow account to hold the funds. A reverse mortgage is a type of home loan for older homeowners. Unlike traditional mortgages, they don’t require homeowners to make monthly payments. Instead, the borrower receives payment from the lender — either monthly, via a line of credit or in a single lump sum at closing. These loans are typically reserved for borrowers 62 and up (though some lenders allow for ages down to 55). Homeowners often use them to reduce their monthly housing costs or increase their income in retirement. Keep reading to learn more about reverse mortgages, how they work and whether one might be right for your financial goals.
Ads by Money. We may be compensated if you click this ad.Ad With a Reverse Mortgage, you can invest in your future starting today Longbridge can help you get the best terms out of your Reverse Mortgage loan. Find out more by clicking below. Learn MoreWhat is a reverse mortgage?A reverse mortgage is a loan that allows seniors to borrow a portion of their home's equity. They then receive that equity in cash — either in one upfront sum after closing, via regular monthly payments or by taking withdrawals as needed. Reverse mortgages only come due when the borrower dies, lives outside of the house for more than 12 months (unless a co-borrower or eligible spouse is living in the property), sells the property or stops paying taxes and homeowners insurance. Many older homeowners use reverse mortgages to supplement their income in retirement. Reverse mortgages can also help reduce monthly housing expenses (there’s no more monthly payment), increase cash flow or pay for home repairs or improvements for seniors aging in place. Types of reverse mortgagesThere are three types of reverse mortgages: Home Equity Conversion Mortgages (HECMs), proprietary reverse mortgages and single-purpose reverse mortgages. Much like a regular mortgage, these loans can have either a fixed rate or adjustable rate. Fixed-rate mortgages give you a set interest rate for the entire loan term. With an adjustable-rate reverse mortgage, your interest rate can fluctuate over time. Let’s take a look at how the three main types of reverse mortgages measure up. Home Equity Conversion Mortgage (HECM)A Home Equity Conversion Mortgage is a federally backed loan that’s regulated by the Federal Housing Administration (FHA) and the U.S. Department of Housing and Urban Development (HUD). They're only available through HUD-approved lenders. HECMs offer a number of payment options:
With a HECM, the maximum amount you can borrow is $970,800 for 2022, though the amount you’ll qualify for depends on the appraised value of your home, your existing mortgage balance and other financial details. Your lender will require an appraisal of your property (sometimes two) to determine its value before moving forward. What to know about HECMsHECMs are insured by the FHA and are “non-recourse” loans, which means you'll never owe more than what your house sells for (even if your outstanding loan balance is larger). HECM borrowers must be 62 or older and are required to take part in a HUD-approved HECM counseling session before taking out a reverse mortgage. During these, you’ll learn about the HECM program’s requirements, repayment, tax implications and more. Your counselor will also discuss your individual needs and finances. As with an FHA loan (another HUD-backed mortgage product), you will need to pay a mortgage insurance premium (MIP) with a HECM. This costs 2% of your loan amount upfront and 0.5% of your outstanding balance annually. Home Equity Conversion Mortgage (HECM) for PurchaseA HECM for Purchase lets you take out a reverse mortgage on your current home and use the loan proceeds to buy a new principal residence. You might do this if you want to move into a new house, downsize or change locales but don't want to wait until your current home sells to do so. Like traditional HECMs, HECM for Purchase loans are only for borrowers 62 and up. They also require a sizable down payment — typically between 29% and 63% of the purchase price, according to the National Reverse Mortgage Lenders Association (NRMLA). The exact amount will depend on your age, your spouse’s age and the price of your new home. You will also need to cover closing costs, though these can be rolled into your loan amount. Proprietary reverse mortgageProprietary reverse mortgages are offered by private reverse mortgage lenders and are specific to that company. These loans are often referred to as jumbo reverse mortgages, as they can exceed the limits set by HUD for HECM loans. (Some lenders even offer up to $6 million.) They also don’t have to adhere to HECM’s age rules. As a result, many lenders allow for borrowers as young as 55. Since proprietary reverse mortgages aren’t insured by the federal government, you won’t need counseling to qualify, nor will you pay monthly insurance premiums. However, you may pay a higher interest rate (lenders have less risk with government-backed loans and can therefore offer lower rates). Single-purpose reverse mortgageSingle-purpose reverse mortgages are loans designated for a specific, lender-approved goal, like paying your property taxes or making improvements to your home. These are offered by state and local government agencies and non-profit organizations and typically have lower fees and interest rates than other reverse mortgage products. Eligibility requirements also tend to be less rigid, so they may be easier to qualify for than a HECM or jumbo reverse mortgage would be. How does a reverse mortgage work?Reverse mortgages can be confusing. The easiest way to think about them is as an advance on your home’s eventual sale. The lender advances you the money, either in monthly payments, sporadic withdrawals or a lump sum, and when you pass on or sell your house, you’ll repay the loan — or your heirs will — out of your home’s sale proceeds. During the course of your reverse mortgage, you won’t need to make payments to your lender (though you can if you prefer), but you will need to stay current on property taxes, insurance and homeowners association dues, as well as maintain the property. If you fail to meet these obligations, your lender could call your loan due or even foreclose on the house. Reverse mortgage explainedReverse mortgages are like traditional mortgages but in reverse. Instead of you paying the lender, the lender pays you. You only repay the loan once you pass away, sell the house or move out for at least 12 months. In many cases, this arrangement means an heir may be responsible for repaying your reverse mortgage. We’ll go more into how this works below. Qualifying for a reverse mortgageIn the case of HECM mortgages, the house has to meet HUD’s minimum property standards to qualify. Furthermore, you may be required to use some of the reverse mortgage proceeds for home improvements if your home doesn’t meet HUD standards. You (and your home) also must meet the following requirements:
Eligibility requirements for proprietary reverse mortgages may differ from the above standards and will depend on the specific lender you’re working with. Many allow for borrowers down to age 55. How do you pay back a reverse mortgage?You generally pay back a reverse mortgage out of your home’s sale proceeds. This might occur when you decide to move or when you pass away. In the case of death, your heirs will need to pay off the balance. This can be done out of pocket or by selling the house and using the proceeds. They also may take out a traditional mortgage loan or other loan product. Heirs will generally have 30 days to decide what to do with the loan and property. When do you pay back a reverse mortgage?In most instances, you won’t have to pay back a reverse mortgage loan as long as you live in the house. A reverse mortgage becomes due once all borrowers have died, sold the house or moved out of the home for at least 12 months (to an assisted living facility or nursing home, for example). Here are the scenarios when your loan would come due:
What happens at the end of a reverse mortgage?Unlike traditional real estate loans, there is no term — or set payoff timeline — for reverse mortgages. Instead, the loan gets repaid when the borrower dies, sells their house or stops using the home as their primary residence. At this point, the home is sold, and the sale proceeds go toward paying off the loan balance. (Heirs can take other actions if they so desire.) If you inherit a property with a reverse mortgage attached, you should get in touch with the lender as soon as possible. You may only have a few weeks to settle up or lose the property. Ads by Money. We may be compensated if you click this ad.Ad With a Reverse Mortgage, you can invest in your future starting today Longbridge can help you get the best terms out of your Reverse Mortgage loan. Find out more by clicking below. Reverse mortgage problems for heirsInheriting a home with a reverse mortgage attached to it can be challenging. Heirs must decide whether to pay off the reverse mortgage out of pocket (or with another loan) and keep the property or sell the home and use the sale proceeds to repay the balance. Fortunately, if they do sell the home, they won't ever owe more than the home’s worth (at least on HECM loans). In the event the home sells for less than the total reverse mortgage balance that's due, FHA mortgage insurance will cover the difference. How long do heirs have to pay off a reverse mortgage?Heirs typically have 30 days to pay off the loan balance. In some cases, you may be able to request an extension of up to a year. A lender might grant this if you’re actively trying to sell the home or you’re working on obtaining financing (you’ll need to provide documentation). This information mainly applies to federally backed loans, though lenders may make exceptions for proprietary mortgages too. If the heirs do not pay back the loan within the agreed-upon timeframe, the lender may foreclose on the home. How to get out of a reverse mortgageThere are many ways to get out of a reverse mortgage. If you’re within three days of closing, you can exercise your right of rescission and cancel your loan. You’ll need to do this in writing, but once received, your lender has 20 days to refund your costs and fees. If you’re past this window, you can pay off your reverse mortgage balance at any time, but your costs and fees will not be refunded. You can do this using cash, retirement savings or by selling your house. You could also refinance — either into a new reverse mortgage with better terms or into a conventional loan, which you could use to pay off the reverse mortgage balance. Just remember, this would mean making monthly payments again. (If you do opt for this option, use our guides to the best mortgage lenders and best mortgage refinance lenders to start your search.) How to avoid reverse mortgage scamsReverse mortgages have been used to scam homeowners in the past. In many cases, the targeted individuals are not told that property taxes, insurance and home repairs must continue to be paid for, causing them to default on the loan — and resulting in an easy payday for the unethical lender. Other scams include convincing borrowers that they should invest the reverse mortgage proceeds in risky investment schemes or put them toward house flipping activities or large and unnecessary home repairs. (The latter is usually perpetrated by unscrupulous contractors and construction professionals). Here are some red flags to watch for when shopping for reverse mortgage loans: Warning SignsLenders that don’t explain the fine print or try to rush you through the loan processCompanies that use aggressive sales tactics — like fear-mongering and cold callingLenders who claim you can use a reverse mortgage to purchase a home without a down payment (HECMs for purchase will still require you to pay around 50% of the home’s value out of pocket.)Salespeople who rush you through the process, fail to answer your questions or say you shouldn’t get counseling before signingContractors who say that the best way to pay for costly home repairs is to take out a reverse mortgageAnyone who suggests risky stocks or schemes (like house-flipping) or signing over the money to a third partyThe best way to avoid being a victim of a reverse mortgage scam is:
If you or someone you know is a victim of a reverse mortgage scam, submit a tip to the FBI, file an online complaint with HUD-OIG or call their hotline at 1-800-347-3735. You can also submit a complaint through the Federal Trade Commission or the Consumer Financial Protection Bureau by calling 1-855-411-2372. Reverse Mortgage FAQIs a reverse mortgage a good idea?chevron-down chevron-up Reverse mortgages can be useful tools in the right situation, but it's important to understand what you're signing up for — as well as the risks they come with. Before opting for a reverse mortgage, you should carefully weigh the pros and cons and compare them to other financial products you might be considering, like home equity loans and home equity lines of credit (HELOCs). You should also talk to a HECM counselor or financial professional to discuss whether a reverse mortgage is right for your goals. How does a reverse mortgage work when you die?chevron-down chevron-up When you die, the balance on your reverse mortgage becomes due. As soon as the lender becomes aware of the death (either by monitoring death records/Social Security records or if they are notified by an heir), they will send out a payment due notice. Your heirs would then have 30 days to pay off the balance, sell the home or forfeit the property to the lender. In some cases, heirs may be able to request an extension for up to a year. What is the downside of a reverse mortgage?chevron-down chevron-up There are several drawbacks of reverse mortgages. For one, they come with many upfront costs and, in the case of HECMs, mortgage insurance premiums too. They can also impact your eligibility for Medicaid and Supplemental Security Income (not Medicare or Social Security, though), and they can make it harder to keep your home in the family (your heirs will need to come up with the cash to pay off the loan). Finally, they also require you to stay up to date on taxes, insurance and HOA dues, so if you're already struggling financially, they may not be a wise option. How much money do you get from a reverse mortgage?chevron-down chevron-up The amount you will be able to borrow with a reverse mortgage depends on the type of reverse mortgage loan you choose, the age of the youngest borrower, current interest rates and how much equity you have in the home. The maximum amount you can receive on a HECM is $970,800. On proprietary reverse mortgages, it can go as high as $6 million, depending on the lender. Most lenders have a reverse mortgage calculator you can use to estimate how much you may be eligible to borrow. How old do you have to be for a reverse mortgage?chevron-down chevron-up With federally backed reverse mortgages (HECMs), you must be at least 62 to qualify. Many mortgage lenders offer proprietary reverse mortgages — also called jumbo reverse mortgages — for borrowers as young as 55. How do you choose a reverse mortgage lender?chevron-down chevron-up It's important to shop around when getting a reverse mortgage. You should get quotes from several lenders and compare each on interest rates, terms, origination fees, servicing fees and other factors. Read up on how to choose a mortgage lender. Summary of Money’s Guide to Reverse Mortgages
Ads by Money. We may be compensated if you click this ad.Ad Protect your retirement with a Reverse Mortgage With an additional income, you can cover health care expenses or even invest in things that will improve your quality of life. Find out more about Reverse Mortgages by clicking below. What is a reverse mortgage quizlet?reverse mortgage. A loan based on the equity in a home, that provides elderly homeowners with tax-free income and is paid back with interest when the home is sold or the homeowner dies.
Who usually obtains reverse mortgages?A Home Equity Conversion Mortgage (HECM), the most common type of reverse mortgage, is a special type of home loan only for homeowners who are 62 and older. A reverse mortgage loan, like a traditional mortgage, allows homeowners to borrow money using their home as security for the loan.
What are disadvantages of a reverse mortgage?But a reverse mortgage comes with several downsides, such as upfront and ongoing costs, a variable interest rate, an ever-rising loan balance and a reduction in home equity.
Why would you consider a reverse mortgage?Reverse mortgage loans allow homeowners to convert their home equity into cash income with no monthly mortgage payments. Reverse mortgages can be a great financial decision for some seniors but a poor financial decision for others.
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