How to Qualify for a Reverse Mortgage

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Author: Wesley Pritchard

The name makes it sound almost too good to be true, but a reverse mortgage is a convenient way for older homeowners to borrow against the equity in their home. It is similar to a home equity loan, although the amount borrowed is not paid back until the homeowner moves, or after the homeowner’s death, when the home is sold. Reverse mortgages have become increasingly popular in recent years, perhaps as a reliable source of cash in the current economic climate. Around 120,000 reverse mortgages were processed in 2008, although an estimated 13 million seniors are qualified for the program. Perhaps the most important qualification for a reverse mortgage is age; you must be aged 62 or over in order to qualify. In general, the older you are, the larger the amount of money that you can expect to borrow. A homeowner in their 70s can expect to qualify for around 65% of their home’s value. Most reverse mortgage lenders also require that a person owns their home outright or has just a few years left before the remaining amount is paid off. If a balance is due on the original mortgage, that amount must be paid off with the proceeds from the reverse mortgage.

Perhaps one of the biggest advantages of a reverse mortgage is that there are no specific requirements concerning an applicant’s income or health. Many people are surprised to find out that you do not even need to have an income, nor do you need to be in excellent health in order to qualify. This makes the program particularly attractive to those who are perhaps in poor health, or are living on dwindling savings. And unlike almost any other kind of loan, there is also no credit requirements needed to qualify for a reverse mortgage.

To qualify for a reverse mortgage, and if you happen to own more than one residence, the reverse mortgage must be taken out against your primary home. Almost any type of home can qualify: a manufactured home or a planned unit development, as well as an apartment or a single family home. A mobile home will only qualify for a reverse mortgage under certain conditions: it must have been built after 1976 and it must be on an approved permanent foundation. However, you may not be eligible for a reverse mortgage if you live in a cooperative, although some lenders have introduced plans that lend against co-op housing in New York.

Another qualification is that you must have no outstanding liens against your home, any such liens needs to be settled before you apply for and take out a reverse mortgage. In some cases, this can be done with the money you have from taking out the reverse mortgage loan. Also, if you qualify, there are no restrictions on how the money obtained from a reverse mortgage can be used. It can be used for home improvements, college funding, or just day to day living expenses; it is completely up to the homeowner. In addition, you do not need to make any payments on the loan as long as the home is still your primary residence.

If you qualify for a reverse mortgage, you have several options when it comes to how to receive your money. Over 60% of borrowers choose to have their money available in a line of credit, allowing them to withdraw funds as and when necessary. This also has the advantage that the amount of the unused balance increases over time. You can also choose to receive the money in fixed monthly payments for a set term, or to receive it all at once as a lump sum, or perhaps a combination of the two.

A reverse mortgage may not be right for everyone, and it is not an option that everyone should take advantage of, but it is an effective way to have money available for emergencies and to cover the high cost of long term care and other expenses. If you are thinking of moving forward with the program, be sure to discuss it with your financial advisor. It is also advisable to let your children know your plans. All applicants are also required to seek third party financial counseling from a source that has been approved by the Department of Housing and Urban Development, to ensure that they fully understand the program. These notifications are important to ensure that everyone involved in a reverse mortgage has full knowledge of important details and possible next steps down the road.

Wesley Pritchard is a freelance writer who writes about the mortgage industry, often focusing on a specific topic such as a reverse mortgage