Reverse Mortgage Eligibility Requirements
As many retirees look for additional means to ensure their quality of life in their golden years, home equity is fast becoming an important resource to consider during the financial planning process. Reverse mortgages, with their convenient options like lump sum, tenure, term, line of credit, modified tenure, and modified term, give borrowers access to funds when they may need it most.
An FHA Home Equity Conversion Mortgage, or HECM, the only reverse mortgage insured by the U.S. Federal Government, has some important requirements like:
- You must be a homeowner 62 years of age or older.
- You must have enough home equity. You must either own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan.
- You must have the financial resources to pay ongoing property charges including taxes and insurance.
- You must live in the home.
- You must receive consumer information counseling—free or at a very low cost— from a HECM counselor prior to obtaining a reverse mortgage loan.
Sufficient Home Equity
Home equity is the difference between the appraised value of your home and your current mortgage balance. Borrowers with a hefty mortgage balance will have less money available for a reverse mortgage. If homeowners are faced with a “shortfall” in equity, meaning the reverse mortgage wouldn’t provide sufficient funds for a lender to recover payment, they may elect to pay the difference of the shortfall so they can qualify; however, that is not feasible for most people interested in a reverse mortgage. Borrowers won’t receive all their home equity from a reverse mortgage loan, but a percentage. To determine the percentage, and whether or not a borrower has sufficient home equity, the FHA considers the following:
- Current interest rate
- Type of rate – variable or fixed
- Age of the youngest homeowner
- FHA lending limits
- Appraised value of the home
In addition to a borrower qualifying, the property must also qualify. Eligible property types include single-family homes, 2-4 unit properties, manufactured homes (built after June 1976), and condominiums and townhouses.
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Other Reverse Mortgage Facts
- The US government is not a reverse mortgage lender; it insures HECMs, which protects you and the lender.
- For some, a reverse mortgage may not be the best option. Depending on a borrower’s situation, there are better alternatives, like a home equity loan.
- A reverse mortgage may not be your best option. For some, a HECM is a great option that serves a need. For others, there may be better alternatives, like a home equity loan.
- Most reverse lenders are smaller companies that specialize in reverse mortgage loans.
Navigating the ins and outs of a reverse mortgage loan—its qualifications, types, and requirements—can be confusing to borrowers. That’s why it’s important to consult with a professional, qualified reverse mortgage specialist. Alpha Mortgage Corporation is a full service mortgage banker with in-house processing, underwriting, closing, and funding of your home.