Qualifications for a Reverse Mortgage
Reverse mortgages are a unique type of loan that lets you convert the accrued equity of your home into usable funds. Home Equity Conversion Mortgages (or HECMs) are a reverse mortgage insured by the Federal Housing Administration (FHA) under the U.S. Department of Housing and Urban Development. Because HECM reverse mortgages are regulated by the government, they are subject to specific rules and limits, many of which are designed to protect the borrower, such as counseling, financial assessment and more.
|Home Equity Conversion Mortgages|
|While the government insures HECMs, it?s important to know that a HECM reverse mortgage is not a government loan. Private lenders like ReverseMortgages.com make the loans to borrowers. The government?s insurance on HECM reverse mortgages helps protect the borrower if the lender cannot make a payment or if the loan balance is higher then the home?s value at the end of the loan. To pay for the government?s insurance on the reverse mortgage, borrowers pay mortgage insurance fees at the loan closing and again annually. The annual insurance fee is 1.25 percent of the outstanding loan balance.|
Qualifications for a reverse mortgage require borrowers meet three essential requirements:
- Be at least 62 years of age
- You must live in the home as your primary residence. A reverse mortgage cannot be used for a second home or investment property.
- You must have paid off much or all of your traditional mortgage.
In addition to the three essential requirements above, you?ll also have to meet several other guidelines to qualify for a reverse mortgage.
- The home maintenance must be up-to-date.?After you apply for a reverse mortgage, your home will be appraised. During this process, the appraiser will note any deficiencies in the condition of your home that require repair. Typical deficiencies identified in an appraisal include: peeling paint, roofing problems, inoperable heating/air-conditioning systems, broken windows, missing handrails and inadequate electrical systems. While most repairs (and all major repairs) will need to be completed prior to closing, sometimes the lender can allow a set-aside to help pay for the cost of repairs. With a set-aside, a portion of your loan proceeds will be held to cover these costs.
- You must be financially capable of maintaining your home.?As the homeowner, you will still be responsible for paying your homeowner?s insurance and real estate taxes and making home repairs.
The Federal Housing Administration (FHA) requires a financial assessment to determine homeowners’ willingness and capability to remain current on their obligations and ensure they qualify. During this assessment, your lender will review your credit history, analyze your income and compare it with your expenses. Potential borrowers who come up short financially may be able to set money aside from their reverse mortgage to cover those future expenses.
- Your type of home must be eligible.?Single family homes and two-to-four unit homes qualify as long as one unit is occupied by the borrower. Condominiums that meet the U.S. Department of Housing and Urban Development?s FHA approval requirements also are eligible.
|HECMs and ReverseMortgages.com|
|HECMs are the most frequently used reverse mortgages in the United States today, and they comprise the majority of loans ReverseMortgages.com issues. On our website, we use the phrase ?reverse mortgages? and the acronym ?HECM? interchangeably. In all references, this refers to the same loan product: a government-insured home equity conversion mortgage or reverse mortgage.|