Requirements for a Reverse Mortgage

A reverse mortgage is a specialty loan, and it includes a handful of requirements if you’re interested in having one.  

My goal for this blog post is to include the “must haves” in a digestible form.  Not a lot of scrolling will be involved here.  I want to make sure that anyone who is thinking about a reverse mortgage understands who qualifies and what it takes.  

In some of my past blog posts, we’ve established that borrowers must be 55 years old and either own their home outright, or have paid down a significant amount on their current mortgage.  The home associated with the reverse mortgage must be your primary residence.  

There are a few other things involved with the reverse mortgage.  They don’t necessarily help you qualify for one (like age and home equity), but they are part of what’s involved.

Anyone interested in going forward with a reverse mortgage must attend a Department of Housing and Urban Development (HUD) approved counseling session.  These are about 90 minutes long and cost about $125.  They have a counselor there to explain the pros and cons of a reverse mortgage.  This is basically the government making borrowers do some homework to ensure they are making a fully informed decision.  After all, a reverse mortgage is a loan at the end of the day.  

If you decide to go forward with the reverse mortgage, you’ll need to stay up to date on homeowners insurance and property taxes.  It’s also your responsibility to make sure the home doesn’t fall into disrepair.  The reason being is that when the loan is due and payable (potentially due to the homeowner passing away - see my blog post here on this [link to #3 blog post the end of a reverse mortgage]), the bank needs to be sure the home is in a sellable condition.  The sale of the house is what ultimately pays for this loan.  

This led me into a quick question about my home’s value.  What happens if it decreases over time?  One reassuring thing that I learned is that a bank cannot go after the home owner if the value of the home decreases over time.  If you’re anything like me, you’ve seen the housing market go up, down, and everywhere in between.  Who knows where it will be in 10 years?  But the bank is protected from this losses like this because of the FHA mortgage insurance that’s part of the loan.  This is a pool of money that will cover any losses for the bank in case the house is worth less than the amount of the loan when it’s time to sell.

At this point in my life, having a cheat sheet or note around my house helps me remember things.  That’s why I created this summary for you.

Reverse Mortgage Requirements:

• At least 55 years old
• Own home or have paid significant amount of current mortgage
• House must be primary residence
• Attend HUD-approved counseling session (90 minutes, $125) on reverse mortgage pros/cons
• Stay up to date on property taxes and homeowners insurance
• Keep home in good condition

Is a reverse mortgage the right thing for you?  If you’re thinking about one, I’d encourage you to keep reading this blog for more information, or call Equity Access Group.