A Home Equity Conversion Mortgage loan, also known as a reverse mortgage allows homeowners to access the equity in their home. There are a few factors that determine eligibility and how much money can be received.
What are the requirements to qualify for a reverse mortgage?
- The age of the youngest borrower on the title must be at least 62 years old.
- The home must be your primary residence.
- You must own your home and have significant equity.
Prospective borrowers should know what to expect once they decide to move forward with a reverse mortgage loan.
- You need to complete a financial assessment to evaluate your ability to meet the financial obligations before the approval and closing. During the assessment, the lender will verify your credit and income.
- Another requirement is to meet with a Department of Housing and Urban Development (HUD)-approved reverse mortgage counselor before applying for a reverse mortgage. The counselor will review how a reverse mortgage works and associated costs.
- You may access the greater of 60% of the principal limit amount or all mandatory obligations1 (as defined by the HECM requirements) plus an additional 10% during the first 12 months after loan closing. The combined total of mandatory obligations plus 10% cannot exceed the principal limit amount established at loan closing. In some instances, the borrower may also need to set aside additional funds from the loan proceeds to pay for taxes and insurance.
What are the borrower requirements after closing2?
Once the loan closes, there are few obligations you will need to satisfy throughout the life of the loan.
- If you have a current mortgage on the home, it must be paid off using the proceeds from the reverse mortgage loan.3
- You must reside in the home as your primary residence, continue to pay the required property tax and homeowner’s insurance, and maintain the home according to FHA requirements.3
What are the spousal protections?
A concern among borrowers is what happens to the home when the borrowing spouse permanently leaves the home.
- A co-borrowing spouse can remain in the home if the older spouse passes away without having to pay the loan back in full as long as they continue to pay taxes and insurance.
- A non-borrowing spouse also has protection. A non-borrowing spouse won’t receive payments after their spouse passes away, they can remain in the home as long as they continue to meet the loan obligations.
Benefits of a Reverse Mortgage Loan
Reverse mortgage loans are non-recourse loans. Non-recourse means that neither the borrower nor their heirs will ever owe more than the loan balance or the value of the property, whichever is less; and no assets other than the home can be used to repay the debt.
If you still have questions or concerns about the requirements of a reverse mortgage, call (800) 976-6211 to speak with a licensed loan advisor.
Disclosures:
1 Mandatory obligations are those fees and charges, as defined by the U.S. Department of Housing and Urban Development (HUD), incurred with the origination of the HECM loan that are paid at closing or during the first 12-month disbursement period. This includes but is not limited to: existing liens on the property; the loan origination fee; counseling fee; upfront MIP; third-party closing costs; customary fees and charges for warranties, inspections, surveys, engineer certifications; repair set-asides; set-aside for property taxes and insurance; and delinquent federal debt.
2 As required by the Federal Housing Administration (FHA), you will be charged an up-front mortgage insurance premium (MIP) at closing and, over the life of the loan, you will be charged an annual MIP based on the loan balance.
3 Your current mortgage(s) and any other existing liens against the property must be paid off at or before closing. You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.