How To Get a Reverse Mortgage

A reverse mortgage is a special type of financing available to older homeowners with significant equity in their homes. It can provide a method of withdrawing that equity. Let’s take a look at how to get a reverse mortgage, who should look into applying, and the pros and cons of these loans.

How To Get a Reverse Mortgage

A reverse mortgage isn’t available to everyone. To qualify for the most popular reverse mortgage (the home equity conversion mortgage, or HECM), you need to be over age 62 and meet other requirements.

Determine Eligibility

• Check age and homeownership requirements: Reverse mortgages have specific requirements for borrowers. For an HECM reverse mortgage, the borrower must be at least 62, the property must be your primary residence, and you’ll need significant equity, among other requirements.
• Review credit and income requirements: Like standard mortgages, your lender will review your credit and your income to be sure you can keep up with insurance, property taxes, and maintenance expenses once you have the loan.
• Evaluate your home’s value and your equity: To qualify for a reverse mortgage, you will need to have a lot of equity in your home—at least 50%.

Choose a Lender

• Research lenders and compare offers: Different lenders will offer different rates, so it’s important to generate quotes from more than one source. Look for lenders with strong reputations and membership in the National Reverse Mortgage Lenders Association (NRMLA), an industry trade group that promulgates a lender code of conduct.
• Review lender requirements and qualifications: Although there are federal requirements for HECM reverse mortgages, lenders may have additional qualifications. If you are pursuing a non-HECM reverse mortgage, the requirements can vary significantly. 
• Evaluate fees and costs associated with a reverse mortgage: Origination fees, mortgage insurance, and ongoing monthly fees are set by the government for HECM loans, so these should be the same from lender to lender. Other closing costs, such as appraisal fees and title searches, will vary.
• Select a lender and initiate the application process: After comparing lenders, choose the one that fits your needs best and get ready to apply. 

Complete Application and Counseling

• Gather required documentation: Reverse mortgages require a lot of paperwork, including financial documents that show you can afford property taxes and insurance payments. 
• Attend a mandatory counseling session: You must complete a counseling session provided by a HUD-approved counselor, which can be done in person or over the phone. The counselor charges a fee for this service.
• Submit application and required documentation: Once you’ve gotten all your documentation together, submit it to your lender. 

Compare the Best Reverse Mortgage Lenders

Understanding Reverse Mortgages

What Is a Reverse Mortgage?

A reverse mortgage is a loan that provides the borrower with predictable, tax-free cash payments based on the home’s equity. You must be the homeowner living in the home and be 62 or older to qualify. With a standard mortgage, your loan’s principal falls with every payment you make. However, with a reverse mortgage, your loan balance grows as you receive payments. Reverse mortgage lenders add interest to your balance on a monthly basis. 

The most common reverse mortgage is the HECM, which is backed by the federal government and closely regulated. 

Here’s how it works. When a home that you’ve purchased rises in value, it gains equity. The total amount of equity on your property is the difference between how much you owe and how much the house is worth. Generally, in order to withdraw the equity from a property, you need to refinance, sell, or obtain a home equity loan or line of credit. 

A reverse mortgage is another method of extracting equity that doesn't require you to sell your home.

Types of Reverse Mortgages

There are three main types of reverse mortgage:

• Home equity conversion mortgages: These mortgages are backed by the government and include strict requirements. They are the most widely used.
• Proprietary reverse mortgages: These are offered by lenders and come with their own set of qualifications, such as younger age requirements and higher maximum loan limits.
• Single-purpose reverse mortgages: These are offered by local governments or nonprofit agencies, and the proceeds of these mortgages may only be used for specific purposes, such as paying taxes or repairing the property. 

Who Should Consider a Reverse Mortgage?

Reverse mortgages can be a good option for older homeowners who want to retrieve the equity from their properties, though there are restrictions as to who can qualify. Here are the requirements for HECM reverse mortgages: 

• You must be 62 or older
• The home must be your primary residence 
• You must have significant equity in the property
• You’ll need to attend a counseling session
• You cannot be delinquent on federal debt
• You must have enough financial resources to continue making property tax and insurance payments

Not all properties are eligible for a reverse mortgage, either. These are the kinds that qualify:

• Single family home
• Two- to four-unit home with one unit occupied by the borrower
• A condominium unit in a HUD-approved project or a single unit in a non-approved project
• A manufactured home that meets FHA requirements

If you’re interested in a proprietary reverse mortgage, you may face different requirements. 

Frequently Asked Questions (FAQs)