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Reverse Mortgage Loan

A Reverse Mortgage loan allows you to borrow against the equity in your home. The loan proceeds you receive from the reverse mortgage first pay off your existing mortgage, if you have one, and any remaining money can be used however you like. Because the proceeds of the loan paid off your existing mortgage, you’re no longer required to make a monthly mortgage payment, though you’re still required to pay your property taxes, homeowners’ insurance, and home maintenance costs. The loan won’t come due until you move out of the home, sell the home, pass away or fail to uphold the responsibilities of the loan –including maintaining the home and paying your property taxes and insurance on it. The most common type of reverse mortgage is a Home Equity Conversion Mortgage (HECM) backed by the Federal Housing Administration (FHA).

Reverse Mortgage Loan Rules and Requirements

The requirements for a reverse mortgage loan 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.

Age Requirements :

Reverse mortgages were meant to help seniors in or nearing retirement. Because of this, the reverse mortgage age requirement is 62 or older. *In certain states, such as California, you can be at least 55 years old to get an Equity Elite® Reverse Mortgage, meaning you must have a certain percentage of equity in the home; and the house must be your principal residence.

If you’re 62 but your spouse is under the required reverse mortgage loan 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. It is important to note, that a borrower cannot add a spouse or family member to a reverse mortgage after the fact.


Financial Requirements :

All HECM borrowers must attend a required counseling session with a third-party, HUD-approved counselor. This ensures borrowers understand reverse mortgage loan requirements, how the loan works and any alternative mortgage 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 can 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.

Homeownership Eligibility :

There are certain reverse mortgage loan requirements for the property, too. To get a HECM on your home:

  • You must own the home and it must be your primary residence.
  • You must have enough equity in the home – at least 50%, usually.
  • You can own the home free and clear or have an existing mortgage.
  • Single-family homes or up to four-unit properties are eligible if the homeowner occupies at least one of the units.
  • You may be able to get a HECM for some condominiums and manufactured homes, but they must be HUD-approved properties and meet FHA requirements.

How To Get Started with Reverse Mortgages

If you’re interested in getting a reverse mortgage loan and meet all the requirements, the first thing to do is shop around for lenders who offer this loan product and compare rates. It may also help to talk to a financial advisor, who can help you decide if it’s the right loan option for you. When you’re ready, you’ll work with your lender to fill out a reverse mortgage application and set up a counseling session.

The Bottom Line: You Must Meet Reverse Mortgage Loan Requirements

A HECM can be a great financial tool in retirement if you use it correctly and can qualify to get one. It can provide seniors with needed income, but it’s not without risk – so make sure you understand exactly what your rights and responsibilities are if you’re considering one.

Reverse mortgage loan