Minimum Qualifications for a Reverse Mortgage
A reverse mortgage or HECM is the opposite of a regular mortgage. It is a loan where the lender pays you while you continue to live in your home. Like any other loan, you must meet all reverse mortgage qualifications before you obtain this loan. The Home Equity Conversion Mortgage (HECM), is insured by the Federal Housing Administration (FHA), and therefore applicants must meet the following FHA HECM loan requirements.
Reverse Mortgage Borrower Requirements
According to the FHA, all reverse mortgage borrowers must:
- Be 62 years of age or older.
- Own the property outright or have a considerable amount of equity in the property.
- Occupy the property as their principal residence.
- Not be delinquent on any federal debt.
- Participate in a consumer information educational session given by a HUD-approved HECM counselor.
- Meet minimum financial requirements.
Let us look at each of these reverse mortgage requirements.
Age 62 Minimum Age:
The first reverse mortgage requirement, attaining 62 years of age. The reverse mortgage age requirement refers to the youngest age of all property owners. Ownership is defined by the names that appear on the property’s title. If, for example, you are age 62 and the other owner is age 60, then you do not qualify for a reverse mortgage until the other owner attains age 62, or if the other owner’s name is removed from the title.
The second reverse mortgage requirement, “owning a considerable amount of equity in the property,” is also a confusing requirement. Equity is the appraised value of the property minus the amount of all loans secured by the property, if any. The amount of equity does not equal the amount a person can borrow. How much a homeowner can borrow depends on five factors, including:
- The age of the youngest person on the home’s title.
- The type of reverse mortgage selected (more on this below).
- The home’s appraised value.
- The amount of equity owned.
- Current interest rates.
In general, the older the owner, the higher the appraised value, and the less owed on any loans attached to the home, the more money the owner will get in a reverse mortgage. If there is any existing loan on the property, the owner must use the reverse mortgage proceeds to pay off the loan.
The third requirement, occupy the property, knocks out investment properties and vacation homes from reverse mortgage eligibility. If the borrower leaves the property to reside elsewhere, the loan becomes due.
Delinquent Federal Debt:
The fourth requirement usually pertains to delinquent tax debt. Congress does not want people who have delinquent IRS debt to benefit from a reverse mortgage.
The fifth requirement is meant to address the problems faced by early reverse mortgage borrowers. In some cases, borrowers were misled by unscrupulous lenders who failed to disclose all the positives and negatives possible with a reverse mortgage.
Verify Borrower’s Finances
The lender must document and verify the borrower’s income, assets, monthly living expenses, and credit history. The lender must verify the timely payment of real estate taxes, and hazard and flood insurance premiums. Essentially the borrower must have enough financial resources to pay the taxes, insurance, utilities, and maintenance to qualify for a reverse mortgage.
Should you wish to know more about Reverse Mortgages simply email or call Melanie Sedam at ReverseMortgage62AZ.com and she will mail you out a brochure about Reverse Mortgages and answer any questions you may have about a life without a mortgage payment.
Her contact information is below: