What is a reverse mortgage — and how do you qualify?
A reverse mortgage is one of the most misunderstood financial tools available to homeowners 62 and older. Here is what you actually need to know.
A loan that lets your home work for you — on your terms.
A reverse mortgage loan is a unique loan that allows homeowners 62 and older to draw on the value of their home. The proceeds can be paid in a variety of payout options or used as a line of credit.
One of the most important features of a reverse mortgage is that it does not require repayment until you no longer reside in the home, the last surviving borrower passes away, or loan obligations are not met. You stay in your home. You keep the title.
You are still responsible for paying property taxes, homeowners insurance, and maintaining the property to FHA guidelines — the same obligations that come with any mortgage. But there is no monthly mortgage payment to the lender.
My goal is that you become fully informed and make the decision that is right for you and your family. If a reverse mortgage fits your situation, I will help you every step of the way. If it doesn't, I will tell you that too.
Qualifications for a reverse mortgage loan.
Here are the basic requirements to qualify.
At least one borrower on title must be 62 years of age or older at the time of closing.
The home must be maintained as your primary residence for at least 6 months out of every year.
There must be sufficient equity in the home. As a general rule, at least 50% equity is recommended. The more equity you have, the more loan proceeds you can access.
All applicants are subject to a financial assessment to confirm the ability and willingness to meet loan obligations like paying property taxes and homeowners insurance. A specific credit score or employment is not required.
Eligible property types include single-family homes, 1 to 4 unit properties, FHA-approved condominiums, and HUD-approved manufactured homes built after June 15, 1976.
A HUD-approved counseling session with an independent third-party counselor is required before moving forward. This session typically costs $125 to $150, though some agencies will waive the fee for qualified applicants.
You do not need to own your home free and clear to qualify. Any existing mortgage balance is paid off using the reverse mortgage proceeds. How much you can receive is based on the age of the youngest borrower, the current expected interest rate, the mortgage option selected, and the appraised value of your home.
Get a no-obligation Reverse Mortgage evaluation and quote today.
What makes a reverse mortgage different.
These are the features that matter most when evaluating whether this loan is right for you.
No Monthly Mortgage Payment
While you still pay property taxes, insurance, and maintain the home, there is no monthly payment to the lender as long as you live in the home and comply with the loan terms.
You Keep Your Home and Title
You continue to hold title to your home. The reverse mortgage is secured by a lien, just like a traditional mortgage, but the home is still yours.
Growing Line of Credit
If you choose the line of credit option, unused funds grow over time at the same rate as your loan — giving you access to more money the longer you wait to use it.
FHA-Insured Non-Recourse Loan
HECM loans are insured by the FHA. If your home sells for less than the loan balance, neither you nor your heirs are personally liable for the difference. Only the home itself can be used to repay the loan.
Non-Borrowing Spouse Protection
If a non-borrowing spouse under 62 loses their borrowing spouse or their spouse permanently leaves the home, they are allowed to remain in the home as long as they comply with the loan terms.
Proceeds Are Generally Tax-Free
Reverse mortgage proceeds are typically not subject to personal income tax. Consult your tax advisor regarding your specific situation and any potential impact on needs-based programs.
Five ways to receive your funds.
Adjustable rate HECM loans offer five flexible payment options. Fixed rate loans are limited to the lump sum option.
Equal monthly payments for as long as at least one borrower lives in the home as their primary residence.
Equal monthly payments for a fixed number of months as chosen by the borrower.
Payments made in installments or at various times and in amounts dictated by the borrower. Unused funds grow over time.
A combination of monthly payments for life plus a line of credit for additional flexibility.
A combination of monthly payments for a fixed period plus a line of credit.
Reverse Mortgage vs. Home Equity Line of Credit
Reverse mortgage loans are unique because loan proceeds do not require immediate repayment as long as you remain in your home as your primary residence, at least one borrower lives in the home, and you comply with loan guidelines.
A home equity line of credit or HELOC, on the other hand, requires sufficient income to cover the debt — and you must continue making monthly principal and interest payments. With a reverse mortgage, there are no monthly principal and interest payments to the lender. You must still pay all property taxes, homeowners insurance, and maintain the home in good condition.
Both products let you tap into your home's equity. The key difference is how and when repayment works — and for many homeowners on a fixed income, eliminating that monthly payment is the deciding factor.
A brief history of reverse mortgages.
The first reverse mortgage loan was written by Nelson Haynes of Deering Savings & Loan in Portland, Maine to Nellie Young — the widow of his high school football coach — helping her stay in her home after losing her husband's income.
Several private banks began offering reverse-mortgage-style loans, though without FHA insurance or the consumer protections available today.
Congress formalized the Home Equity Conversion Mortgage as part of an FHA insurance bill, creating the first federally-insured reverse mortgage with built-in consumer protections.
President Ronald Reagan signed the FHA Reverse Mortgage bill into law on February 5th.
The first FHA-insured HECM was made to Marjorie Mason of Fairway, Kansas by the James B. Nutter Co. Since then, reverse mortgages have grown steadily as a safe, government-insured option for seniors.
HECM loans are insured by the FHA and supervised by HUD. Private jumbo reverse mortgages are also available for higher-value homes. Both options give eligible homeowners a flexible way to tap into the equity they have built.
1 For these loan programs Jenn Uyemura is a Mortgage Broker only, not a mortgage lender or mortgage correspondent lender. Loans will be arranged with third-party providers but are not funded directly.
2 HECM fixed interest rate mortgages are limited to the Single Disbursement Lump Sum payment option. Adjustable interest rate mortgages provide five flexible payment options and allow for future draws. Initial distribution caps will apply.
3 There are some circumstances that will cause the loan to mature and the balance to become due and payable. The borrower is still responsible for paying property taxes, homeowners insurance, and maintaining the property to HUD standards. Failure to do so could make the loan due and payable. Credit is subject to age, income standards, credit history, and property qualifications. Program rates, fees, terms, and conditions are not available in all states and subject to change.
This advertisement does not constitute financial advice. Please consult a financial advisor regarding your specific situation. Borrowers should seek professional tax advice regarding reverse mortgage loan proceeds.
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