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A reverse mortgage is a specialized loan type designed to provide retired seniors the ability to tap into their home equity and generate additional income without the obligation of repaying the debt. Essentially, reverse mortgage loans do just the opposite of traditional mortgages by disassembling the equity in a property to pay the borrower, rather than accumulating equity through monthly mortgage payments.

For detailed information how the process of a reverse mortgage works, visit Lender411's page How a Reverse Mortgage Works

Reverse mortgages can be funded through different options: monthly payments, lump sum, line of credit, or as a combination of two or more of these options.

With this disbursement flexibility, reverse mortgages may be a convenient option for many senior homeowners who can receive payments according to their needs.

Reverse Mortgage Qualification

Acquiring a reverse mortgage tends to be much easier than procuring any other sort of loan. In order to secure a reverse mortgage, you must meet the following requirements:

  • You must own a home.  When securing a reverse mortgage, you do not have to own your home in full, but the home must be your own. The property also must qualify as a single family resident (SFR), multi-family residence of 2-4 units, or HUD-approved condominium or manufactured house that meets all FHA guidelines.
     
  • You must be 62 years old or older.  Homeowners over the age of 62 can qualify for a reverse mortgage if they participate in a consumer information seminar held by an approved HECM counselor.  The older you are, the lower the associated fees will be.
     
  • You must reside in the home as your primary residence.  You cannot take out a reverse mortgage on a home you don’t live in, even if you own it as an investment property or a vacation rental.  The home you mortgage must be your primary residence. In addition, you must continue to reside in the home as your primary residence while receiving payments through the reverse mortgage.  If you move into a new home, the amount loaned to you become due in full.
     
  • You do not have to pass any credit requirements to obtain a reverse mortgage.  The ownership status on your home is all that is required to qualify, since the loan is taken against the equity of the home.

    Visit Lender411's comprehensive page on Reverse Mortgage Requirements & Qualifications for more information. 

HUD (FHA) Reverse Mortgage Info

Following the economic downturn and housing crisis, reverse mortgages insured by the federal government have replaced nearly all other types of reverse mortgages. Known as Home Equity Conversion Mortgages (HECM), these reverse mortgages make up 95% of reverse mortgage loans and offer the peace of mind that the loan is secure and protected by the United States Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA). To find more information regarding reverse mortgages, the HUD website provides a helpful summary and outline of the program.

Information on Reverse Mortgage Advantages and Disadvantages
 

Reverse Mortgage Disadvantages

  • More expensive fees and closing costs than other loan transactions
  • Borrowing against a homeowner’s accumulated equity
  • Less inheritance for heirs
  • Total cost increases as interest accumulates
  • Risk of the loan becoming due prematurely
  • Ineligibility for Medicaid and Social Security Supplement (not Social Security)
  • Only applies to primary residences
  • Cannot be secured without at least 30% owned equity

 

Reverse Mortgage Advantages

  • Borrowers never lose ownership of their property
  • If the borrower dies, ownership of the property passes to the borrower’s heirs
  • No monthly mortgage payments
  • No risk of foreclosure
  • Additional source of tax-free income
  • Low interest rates
  • Flexible fund disbursement options
  • Use of equity as cash

 

For more information, visit our Reverse Mortgage Pros and Cons page.

Reverse Mortgage for New Home Purchase

Reverse mortgages may be used to move into a new home if the home is purchased during the closing process of the reverse mortgage. In this case, the equity from the current home is applied toward the new down payment. The lender provides the remaining equity to you as income, and the reverse mortgage debt that remains is contingent on the value of the new property.

This option is invaluable to seniors who wish to relocate in order to live in closer to their families or friends. The new home purchase option is much like a streamlined refinance, home sale, and new home purchase all at once: you do not have to worry about extraneous paperwork, verification process, or multiple fees. Reverse mortgages applied to a home mortgage can be one of the best home purchase opportunities available to seniors who qualify.

View Lender411's informational page on  Reverse Mortgages for Purchasing a New Home.

Reverse Mortgage Counseling

Borrowers who want to secure a reverse mortgage must attend mandatory reverse mortgage counseling. Counseling allows potential borrowers to clarify any concerns regarding reverse mortgages and determine whether or not the reverse mortgage option is optimal for their finances.

For common questions and issues regarding reverse mortgages, visit our Reverse Mortgage FAQ.

Find a Reverse Mortgage Lender

The most important decision to make in the process of acquiring a reverse mortgage is selecting the right reverse mortgage lender. Prospective borrowers should always compare lenders to see who offers the lowest rates and charges the lowest fees. However, always ensure that your lender is both qualified and experienced in order to avoid any potential mishaps. For borrowers looking to acquire a reverse mortgage, visit our Lender411 Find a Lender page, where you can conveniently locate lenders in your area who offer reverse mortgages.

Applying for a Reverse Mortgage

Once you’ve attended counseling and selected a lender, application for a reverse mortgage is extraordinarily straightforward. You will not need to provide any credit history, and your lender will not need any extensive paperwork or personal documentation. Simply follow the steps outlined in our Reverse Mortgage Checklist to apply for your reverse mortgage and secure the income you need for retirement.
 

Reverse Mortgage By State


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