Reverse Mortgage Requirements, Qualifications, & Limits
What are the Requirements for a Reverse Mortgage?
Reverse mortgages are specially designed for home owners in America who are at least 62 years of age or older. A younger spouse or occupant of the home may be able to participate in the program in some states, though. Here are some basic qualifications for reverse mortgage borrowers:
- Borrowers must own the home and continue to occupy the home as their primary residence. You can have a reverse mortgage on a single-family home or on a multiple-unit home (up to four-units) as long as a borrower occupies one of the units. Reverse mortgages can’t be used for rental properties, second homes, or vacation homes; however, you can use a reverse mortgage to buy a new home!
- Borrowers must be current on all federal taxes and settle any tax debts.
- Borrowers and non-borrowing spouses must attend counseling performed by a HUD-approved counselor. The counseling session ensures the borrowers understand the program and that it’s the correct choice for their situation and goals.
- The property must be in good, livable condition. An appraisal and inspection may be performed on the property.
- Borrowers must complete a financial assessment demonstrating their ability to qualify for the program. The U.S. Department of Housing and Urban Development (HUD) implemented a financial assessment to ensure that borrowers will be able to maintain their financial responsibilities after getting the reverse mortgage.
Counseling Requirements for a Reverse Mortgage
All reverse mortgage borrowers and their non-borrowing spouses/owners (NBS/NBO) are required to complete a counseling session from a HUD-approved agency, which you can locate by calling (800) 569-4287 toll-free or by visiting the HUD exchange housing counseling website.
In the session, you’ll learn about:
- How reverse mortgages work, including implications, obligations, and alternatives
- The advantages and disadvantages of a reverse mortgage
- Different benefits that can help pay for necessities
- Financial services to help borrowers create a budget
The cost for the counseling session is typically between $125 and $200 and is 45 minutes to an hour long. Some counselors allow you to roll the session cost into your closing costs, while others require immediate payment. You can attend in person, via phone or telecommunication and family members or financial advisors are allowed to attend with the borrower’s permission.
Financial Qualifications for a Reverse Mortgage
The are several financial requirements for those seeking a reverse mortgage, including verification of income, assets, monthly living expenses, and credit history. Additional requirements include:
- You cannot have any unpaid federal debt
- You must remain current on property taxes, home owner’s insurance, and home owner association (HOA) dues
- You must carry hazard and flood insurance, if applicable
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Home Qualifications for a Reverse Mortgage
There are a few requirements your home will have to meet to qualify for a reverse mortgage. These include:
- Property standards — The dwelling must meet the Federal Housing Administration (FHA) property standards, including local building codes, and you must maintain the home in good condition.
- Flood requirements — The property must either not be located in a FEMA designated flood zone, or if it is, it cannot be in an SFHA Zone A, a special flood zone area, Zone V, or a Coastal area where the National Flood Insurance Program (NFIP) isn’t available.
- Primary residence — You must occupy the home as your primary residence.
In addition to single-family homes and owner-occupied two-to-four-unit properties, HUD-approved condominium projects, individual FHA Single Unit Approved condominiums, and FHA-approved manufactured homes are eligible for a reverse mortgage.
How do I get started?
Here’s a high-level overview of the reverse mortgage application process:
- Start by obtaining quotes and selecting your reverse mortgage lender.
- Complete the lender’s HUD-approved application.
- Attend a reverse mortgage counseling session.
- Participate in a financial assessment to ensure you are willing and able to meet the loan obligations.
- Complete an appraisal conducted by an FHA-approved appraiser. Any necessary repairs will be noted to be completed within 6 months of closing.
- Loan is approved and 3-day right to cancel begins.
- A closing date is set where you can review and sign the final documents.
- Your existing mortgage is paid off with the completion of your reverse mortgage
- Reverse mortgage proceeds are dispersed directly to you. Begin to enjoy a mortgage-free retirement!
Cherry Creek Mortgage, LLC NMLS #3001. Equal housing opportunity. This material is not from HUD or FHA, nor was this approved, endorsed by, or on behalf of any Government Agency. For licensing see www.nmlsconsumeraccess.org.