Reverse mortgages are a popular option for seniors who want to use their home equity as a source of income during retirement. However, there are explicit rules that determine eligibility, as they’re often incredibly rigid and surprisingly numerous.
Simply owning a home isn’t enough. Instead, you must meet all of the eligibility requirements to move forward. If you’re wondering whether you qualify for a reverse mortgage, here’s what you need to know.
Age and Eligibility
There’s a distinct age requirement for reverse mortgages. Only homeowners who are at least 62 years of age are eligible. Primarily, that’s because these programs are designed to assist seniors during retirement, providing them with a source of ongoing income. Since houses are usually a substantial part of a person’s net worth, these programs functionally turn an illiquid asset into a liquid one.
Both single and married homeowners are potentially eligible for a reverse mortgage. In the case of married couples, both can be on the reverse mortgage if they are at least 62 years old and they’re listed on the property together.
If one homeowner is 62 but their spouse isn’t, and both spouses are listed on the property as owners, it’s still possible to qualify for a reverse mortgage. However, the spouse who’s not yet 62 is listed as a non-borrowing spouse, and they won’t have access to the associated reverse mortgage proceeds directly.
Financial Qualifications
Seniors interested in reverse mortgages do have some financial qualifications to contend with, as they impact eligibility. Primarily, the financial requirements revolve around ensuring seniors have enough income to handle specific homeownership-related costs in the long term.
For example, lenders want to make sure that borrowers can manage property taxes, home maintenance, HOA fees (if applicable), and similar expenses. As a result, either suitable income is required or a lender may set a specific amount of any received reverse mortgage payments aside for these expenses.
Generally, an applicant’s finances are reviewed as part of a financial assessment. During this assessment, the homeowner’s income, debt, and similar details are examined. However, a credit score check isn’t often necessary, though a credit report review may occur to give the lender access to debt account information.
It’s also important to note that attending a HUD-approved counseling session is required. That ensures retirees understand how reverse mortgages work and what their long-term impact can be, making it easier for seniors to make informed decisions.
Basic Homeownership Rules
For a reverse mortgage, most of the focus is on the property itself. Only seniors who own their homes are eligible. Additionally, the house must serve as the homeowner’s primary residence, so vacation and second homes – as well as investment properties – aren’t eligible.
A suitable amount of equity is also a requirement. Generally, that means having at least 50% equity based on the property’s current fair market value at the time of the required appraisal. Anything below 50% isn’t typically eligible.
When it comes to the property type, single-family homes qualify. This can potentially include HUD-approved manufactured houses and condos, though not all are eligible. Additionally, multi-unit properties where one unit serves as the borrower’s primary residence are eligible if there are four units or fewer in total.
