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What Are The Requirements For A Reverse Mortgage, And How Can You Get Started?

Lauren Nowacki4-minute read

May 14, 2021

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For senior homeowners who want to supplement their income in retirement, a reverse mortgage may make sense. But this unique financial product isn’t for everyone and certain reverse mortgage requirements must be met to qualify for this type of loan.

While Rocket Mortgage® does not currently offer reverse mortgages, we do want to help you understand what it is, how it works and what you need to qualify, so you can decide if it’s the right product for you.

What Is A Reverse Mortgage?

A reverse mortgage is a loan that allows you to borrow against the equity in your home. The loan proceeds you receive from the reverse mortgage first pay off your existing mortgage, if you have one, and any remaining money can be used however you like. Since the loan paid off your existing mortgage, you’re no longer required to make a monthly mortgage payment, though you’re still required to pay your property taxes, homeowners insurance and home maintenance costs. The loan won’t come due until you move out of the home, sell the home, pass away or fail to uphold the responsibilities of the loan – including maintaining the home and paying your property taxes and insurance on it.

The most common type of reverse mortgage is a home equity conversion mortgage (HECM) backed by the Federal Housing Administration (FHA). This is the type of loan we’ll focus on when talking about the reverse mortgage rules on qualification.

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Reverse Mortgage Rules And Requirements

The requirements for a reverse mortgage specify a certain eligible age group (62 and over) and property standards outlined by the U.S Department of Housing and Urban Development (HUD). Some homeowners must also be prepared to set aside a portion of their reverse mortgage funds for ongoing property costs, depending on the results of the required financial assessment.

Age Requirements

Reverse mortgages were meant to help seniors in or nearing retirement. Because of this, the reverse mortgage age requirement is 62 or older. You must be at least 62 years old to get a reverse mortgage.

If you are 62 years old, but your spouse is under the required reverse mortgage age, you can still get a HECM, but your spouse will be considered a nonborrowing spouse and will not have access to your loan proceeds. By designating them as a nonborrowing spouse, they’ll be able to stay in the home should you, the borrower, pass away.

Financial Requirements

All HECM borrowers must attend a required counseling session with a third–party, HUD-approved counselor. This ensures borrowers understand reverse mortgage requirements, how the loan works and any alternative options they may have.

One of the most important reverse mortgage rules is that borrowers must continue to pay their property taxes and homeowners insurance and maintain the property. If they don’t, the loan could come due and they could lose their home. To ensure borrowers are able to afford these financial obligations, HUD also requires they undergo a financial assessment. Depending on the results of the financial assessment, some borrowers may be required to set aside a portion of their proceeds to pay for the financial responsibilities of the loan. This amount of money is put into a Life Expectancy Set-Aside (LESA), which acts as a sort of escrow account to hold the funds.

Homeownership Eligibility

There are certain reverse mortgage requirements for the property, too. To get a HECM on your home:

  • You must own the home and it must be your primary residence.
  • You must have enough equity in the home – at least 50%, usually.
  • You can own the home free and clear or have an existing mortgage.
  • Single-family homes or up to 4-unit properties are eligible if the homeowner occupies at least one of the units.
  • You may be able to get a HECM for some condominiums and manufactured homes, but they must be HUD-approved properties and meet FHA requirements.

How To Get Started With A Reverse Mortgage

If you’re interested in getting a reverse mortgage and meet all of the requirements of the loan, the first thing to do is shop around for lenders who offer this loan product and compare rates. At this time, Rocket Mortgage® does not offer reverse mortgages. It may also help to talk to a financial advisor, who can help you decide if it’s the right loan option for you.

When you’re ready, you’ll work with your lender to fill out a reverse mortgage application and set up a counseling session. To get started, you can find a HUD-approved counseling agency near you by using this search tool from HUD.

The Bottom Line

The reverse mortgage can be a great financial tool in retirement if you use it correctly and can qualify to get one. While the HECM is the most common type of reverse mortgage, there are also proprietary reverse mortgages and single-purpose reverse mortgages. These have similar requirements as the HECM. For example, you must be 62 or older, own the home as a primary residence and have enough equity in the home to qualify. These loans also require the borrower to continue to pay property taxes and homeowners insurance and maintain the home. However, these two types of reverse mortgages do not require financial counseling or a financial assessment to qualify.

If you don’t meet the specific reverse mortgage requirements or want to explore alternative options, consider other loans that allow you to borrow against the equity in your home. You could also look into refinance programs for seniors. If a refinance is a better fit for your financial goals, get preapproved today with Rocket Mortgage.

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Lauren Nowacki

Lauren Nowacki is a staff writer specializing in personal finance, homeownership and the mortgage industry. She has a B.A. in Communications and has worked as a writer and editor for various publications in Philadelphia, Chicago and Metro Detroit.