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

Disclosure: Rocket Mortgage® does not currently offer reverse mortgages or home equity conversion mortgage (HECM). 

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

Let’s take a look at what the requirements are for 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. 

Because the proceeds of 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.

There are also proprietary reverse mortgages and single-purpose reverse mortgages. 

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’re 62 but your spouse is under the required reverse mortgage age, you can still get a HECM, but your spouse will be considered a non-borrowing spouse and will not have access to your loan proceeds. By designating them as a non-borrowing 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 four-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.

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. 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.

Unfortunately, seniors need to beware of the many bad actors in the reverse mortgage space. The Federal Trade Commission (FTC) regulates reverse mortgage scams and warns consumers against working with anyone who urges homeowners to “invest” the proceeds of the reverse mortgage with them. 

If you suspect a scam while applying for a HECM, let your counselor, lender or loan servicer know. Then, file a complaint with the FTC, your state Attorney General’s office or your state’s banking regulatory agency. 

The FBI also investigates reverse mortgage scams. They accept tips about unscrupulous activity.  

A HECM can be a great financial tool in retirement if you use it correctly and can qualify to get one. It can provide seniors with needed income, but it’s not without risk – so make sure you understand exactly what your rights and responsibilities are if you’re considering one.

Learn more about refinance options for seniors in our Learning Center.

If a refinance is a better fit for your financial goals, get approved today with Rocket Mortgage. You can also give us a call at (833) 326-6018.