Reverse Mortgage Eligibility Requirements and Costs Explained
A reverse mortgage may help you use part of your home equity, but the eligibility rules and costs can take some time to settle in.
A reverse mortgage is a loan for an eligible homeowner that converts part of the home’s equity into available funds, generally without requiring monthly principal and interest payments while the borrower meets the loan obligations.
In this guide, I will go over the age, property, financial and occupancy requirements, along with the costs you should expect.
Key Takeaways
- Age: A Home Equity Conversion Mortgage generally requires the youngest borrower to be at least 62 years old.
- Property: The home must be an eligible property and your principal residence.
- Financial Review: The lender reviews income, assets, credit history and ongoing housing expenses.
- Costs: Closing costs may include mortgage insurance, origination, appraisal, title and recording charges.
- Ongoing Obligations: You must continue paying property taxes, homeowners insurance and applicable property charges while maintaining the home.
I am Mike Burton (NMLS# 3373), Mortgage Broker/Owner at Slade Mortgage Group. I have worked in mortgages for 40 years and help homeowners in Cape Cod, Barnstable County, Plymouth County, the Boston Area and other communities in Massachusetts review their options.
Quick Answers About Reverse Mortgage Eligibility
- What is the minimum age for a reverse mortgage? For an FHA-insured Home Equity Conversion Mortgage, commonly called a HECM, the youngest borrower generally must be at least 62.
- Is a minimum credit score required? HECM guidelines do not work around one universal minimum credit score. The lender reviews your overall payment history and ability to meet the loan obligations.
- Can I qualify if I already have a mortgage? Possibly. The current mortgage and other required liens must generally be paid off with reverse mortgage proceeds or other available funds at closing.
- Do I receive all of my available funds in cash? Not necessarily. Payment choices and initial access limits depend on the program, interest-rate structure, existing liens and your scenario.
How Does a Reverse Mortgage Work?
Ok, here is how the program works. You borrow against a portion of the equity in your home. Instead of making the usual monthly principal and interest payment, interest and applicable mortgage insurance charges are added to the loan balance.
You still own the home and remain responsible for property taxes, homeowners insurance, maintenance and other required property charges. Other charges may include flood insurance, condominium fees or homeowners association dues when they apply.
The loan usually becomes due when the last eligible borrower sells the home, permanently moves out, passes away or does not meet the loan obligations. A temporary absence may be allowed under program rules, but the home must remain your principal residence.
This is not free money. It is a mortgage secured by the home. The balance will generally increase over time and the remaining equity may decrease. That tradeoff needs to be clear before you decide.
Reverse Mortgage Eligibility Requirements
Age Requirements
The most common reverse mortgage is the FHA-insured HECM. For that program, the youngest borrower generally must be 62 or older.
Some proprietary reverse mortgage programs may have different age guidelines. Those programs are offered by private lenders and can vary by state, loan size and property type. A proprietary guideline should not be confused with the FHA rules for a HECM.
The Home Must Be Your Principal Residence
A HECM is intended for a principal residence, not a second home, seasonal home or rental property. You generally need to occupy the property for the majority of the year and certify your occupancy periodically.
This can be an important point on Cape Cod and the Islands, where someone may own more than one property. The home securing the HECM must meet the program’s principal residence rules. Owning another property does not automatically make you ineligible, but the occupancy facts need to be reviewed.
You Need Enough Equity
There is no single equity amount that works for every borrower. The amount available depends on several items, including:
- The age of the youngest borrower or eligible non-borrowing spouse
- The home’s appraised value
- Current program lending limits
- Current market rates
- The balance of existing mortgages and liens
- The payment option selected
If the existing mortgage balance is too high compared with the available reverse mortgage proceeds, you may need to bring funds to closing. In other cases, the existing loan can be paid off entirely from the proceeds.
You Must Complete Housing Counseling
HECM borrowers generally must complete counseling with an independent HUD-approved housing counseling agency. The counselor explains the loan, alternatives, costs, borrower obligations and what happens when the loan becomes due.
Counseling is separate from the lender. This gives you another place to ask questions before moving ahead. A counseling fee may apply, although the amount and payment arrangements can vary.
You Must Pass a Financial Assessment
A reverse mortgage does not have the same monthly payment qualification as a traditional purchase mortgage. Still, the lender must complete a financial assessment.
The review commonly includes:
- Income and other available financial resources
- Assets and bank statements
- Credit and property-charge payment history
- Property taxes and homeowners insurance
- Condominium or association charges, when applicable
- Other recurring debts and obligations
The reason for this review is straightforward. Even without a required monthly principal and interest payment, you need to keep property taxes, insurance and other required charges current.
If the lender determines that additional support is needed, part of the loan proceeds may be placed into a Life Expectancy Set-Aside. Those funds are reserved to pay certain property charges. The amount and structure depend on the financial assessment and current program guidelines.
Which Properties May Be Eligible?
Borrower eligibility and property eligibility are two different items. You may meet the age and financial requirements, but the home must also qualify.
| Property Type | General HECM Consideration |
|---|---|
| Single-family home | Commonly eligible if it is your principal residence and meets property standards. |
| Two- to four-unit property | May be eligible when you occupy one unit as your principal residence. |
| Condominium | The condominium and unit must meet applicable FHA requirements. |
| Manufactured home | May qualify if it meets FHA construction, foundation, title and property standards. |
| Second home or investment property | Generally not eligible for a HECM because it is not the borrower’s principal residence. |
The appraisal is used to establish the property value and identify health, safety or structural concerns. Some repairs may need to be completed before closing. Other repairs may be allowed after closing under specific conditions.
Properties near the water in Cape Cod, Nantucket or Martha’s Vineyard may also require flood insurance when the home is in an applicable flood zone. The appraiser, lender and insurance documentation will help establish what is required.
What Does a Reverse Mortgage Cost?
Reverse mortgage costs vary by program, property and lender. Some charges may be financed into the loan, which reduces the need for cash at closing but increases the loan balance.
| Cost | What It Covers | How It May Be Paid |
|---|---|---|
| Origination charge | The lender’s cost to process and originate the mortgage. | Often financed or paid at closing, subject to program limits. |
| Mortgage insurance | FHA insurance for a HECM, including an initial and ongoing charge. | The initial charge is commonly financed, and ongoing charges accrue with the balance. |
| Appraisal | An independent opinion of value and review of property condition. | Payment timing varies by lender and appraisal arrangement. |
| Title and settlement costs | Title search, title insurance, closing services and related items. | Often included in the closing costs. |
| Recording and government charges | Recording the mortgage and other required documents. | Usually collected as part of closing. |
| Interest | Interest charged on the outstanding loan balance. | Generally added to the balance when no monthly principal and interest payment is made. |
Financing the closing costs does not remove them. It means the costs become part of the loan balance. Ask for an itemized loan estimate so you can see what is being charged, what is financed and how much remains available to you.
Rates, fees and requirements can change. They also vary between HECM and proprietary programs. Please verify current information for your property and scenario.
How Can You Receive the Reverse Mortgage Proceeds?
Depending on the program and interest-rate option, proceeds may be available through a line of credit, scheduled monthly advances, a lump sum or a combination of permitted choices. Not every payment choice is available with every rate structure.
A fixed-rate HECM is commonly connected with a single lump-sum distribution. An adjustable-rate HECM may provide more payment choices, including a line of credit. Initial access to proceeds may be limited under program rules.
This is 1 example, we have many options to choose from. The right structure depends on what you are trying to do, your existing mortgage balance and how you expect to use the funds.
Reverse Mortgage Tradeoffs to Review
A reverse mortgage can remove an existing required monthly mortgage payment after that loan is paid off. No worries, I will also explain what does not go away.
- You remain responsible for property taxes and homeowners insurance.
- You must maintain the property according to the loan requirements.
- The loan balance generally grows as interest and charges accrue.
- Available home equity may decrease over time.
- The loan can affect how much equity remains for heirs or a future move.
- Needs-based public benefits may be affected by how proceeds are received and retained.
A reverse mortgage is one option. Depending on your goal, alternatives could include selling the property, refinancing with a traditional mortgage, using a HELOC home loan or reviewing other mortgage loan options. Each choice has different payment, qualification and equity considerations.
What to Expect From the Application Process
- Initial review: I review your age, occupancy, estimated property value, current mortgage balance and general goals.
- Counseling: You complete the required session with an independent HUD-approved counselor.
- Application and documents: The lender collects identification, income, asset, insurance, tax and property information.
- Appraisal and title: The property value, condition, ownership and existing liens are reviewed.
- Underwriting: The lender reviews borrower eligibility, property eligibility and the financial assessment.
- Closing: Final documents are signed and eligible proceeds become available according to the loan terms and applicable waiting periods.
The timeline varies based on counseling, appraisal availability, title work, repairs and document collection. A clean title and complete paperwork can help the process move along, but no single timeline applies to every file.
Let’s Review Your Scenario
If you are considering a reverse mortgage in Cape Cod, the South Shore, Plymouth County or the Boston Area, I am happy to talk it through with you. I will help you review the eligibility requirements, estimated costs, payment choices and alternatives.
Please call, text or email Slade Mortgage Group. We can compare the options and go over the next steps. The main idea is to have you comfortable with the information before you decide which direction you will go in.
Frequently Asked Questions
What happens if my spouse is younger than 62?
A younger spouse may be treated as an eligible or ineligible non-borrowing spouse, depending on the facts and current program rules. This can affect available proceeds, protections after the borrowing spouse dies and the documents required at closing.
Can a home in a trust qualify for a reverse mortgage?
A home held in certain trusts may qualify if the trust and property meet program and title requirements. The lender and closing attorney will need to review the trust documents before closing.
How long can I be away from the home?
Temporary absences may be permitted, but the property must remain your principal residence. Longer absences, including an extended stay in a care facility, should be discussed with the loan servicer because occupancy rules and documentation may apply.
Can required home repairs delay the closing?
Yes, property conditions identified by the appraisal may need to be corrected before the loan can close. Some repairs may be completed after closing when current program guidelines permit a repair set-aside.
What options do heirs have when the reverse mortgage becomes due?
Heirs may be able to repay the loan and keep the home, refinance it, sell the property or allow the lender to follow the applicable process. HECMs are non-recourse loans, so repayment is generally limited by the program’s protections and the home’s value.
This is educational and not financial advice. Loan programs and guidelines can change. Talk with a licensed mortgage professional about your specific scenario.
Mike Burton
Mike has over 33 years in the mortgage industry as a top originator for each institution he was employed with. Mike started Slade Mortgage Group in 1997 and formed a team of professionals to service clients by beating the banks.
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