Why Do Reverse Mortgage Restrictions and Requirements Exist?
Reverse mortgages are a unique type of loan that has quickly become popular with senior homeowners. With a reverse mortgage, a homeowner may receive a sizeable percentage of their home equity (wealth) and continue to live in their home for the rest of their life provided they pay their property taxes, insurance and HOA dues.
When the person passes away, or decides to sell their home, the loan comes due.
Requirements for a Reverse Mortgage
Millions of homeowners across the country are eligible for a Reverse Mortgage. Yet there are several very specific and important requirements before you can qualify for a reverse mortgage loan. These include:
- Age – You must be 62 or older.
- You should have at least 50% home equity
- HECM Counseling – You are required to speak with with a government-approved counselor before the receiving the loan.
- Live in the Home – You must continue to live in the home until paying the loan back.
There are a few other requirements as well. Most homes are eligible, but the home must meet FHA guidelines.
Why 62 or older?
The main reason a person must be 62 or older is to utilize built up equity for financial flexibility, especially during retirement. It also allows them to stay in their home.
Why 50% or more equity?
Reverse mortgages are designed to be a low-risk loan so that the senior can live in the home comfortably. Because eligible applicants must have significant home equity, they are lower risk.
Why HECM Counseling?
Reverse mortgages can be a good financial decision, but it is still a big decision. That is why they require counseling from an HUD approved counseling agency. This counseling session is independent of your reverse mortgage lender. It is designed to help you determine if a reverse mortgage is the right decision for you.
Why Live in Your Home?
The purpose of the loan is to help seniors live comfortably in their own home. Thus, living in your home remains a requirement. If you live outside of the home for more than 12 consecutive months, the loan comes due.
Is a Reverse Mortgage Right For You?
If it sounds like you qualify for a reverse mortgage, and you’re interested in learning more, contact one of Open Mortgage’s friendly loan originators. Each one is trained to provide honest information about your choices, which can help you determine if a reverse mortgage is right for you.
Things to know about Reverse Mortgages:
- At the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds
- Charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums and servicing fees
- The loan balance grows over time and interest is charged on the outstanding balance
- The borrower remains responsible for property taxes, hazard insurance and home maintenance, and failure to pay these amounts may result in the loss of the home
- Interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full re-payment