What is a reverse mortgage?

A reverse mortgage is a home equity loan program for homeowners age 62 and up. It works by allowing senior homeowners to borrow a portion of their home's value with no required monthly mortgage payments. The money received is non-taxable and can be used as the borrower wishes. Borrowers remain the owners of their home just like a conventional or traditional mortgage.

A reverse mortgage is a great tool for those looking to supplement their income in retirement. Many use it for home repairs, paying off an existing mortgage, cash flow instead of liquidating investments, daily expenses, grandchildren, and for an accessible nest egg that they don't currently have. Money from the reverse mortgage can be taken in a lump sum, monthly payments, or in a credit line.

Should the urgent need arise, how would someone get out of a reverse mortgage?

A reverse mortgage borrower can pay off a reverse mortgage at any time, just like a conventional mortgage. There are no prepayment penalties with a reverse mortgage. You can pay the lender directly or you can sell your home and the loan will be paid off through escrow. All equity in the home is yours.

When considering a reverse mortgage, it is important to take a look at your future plans. What are your plans for the upcoming years and do you see yourself living in this home long term? If you plan on moving in the next few years then it might be better to hold off on getting a reverse mortgage until you are in your new home. You can even consider purchasing a new home with a reverse mortgage by using a Reverse Mortgage For Purchase.

On average, how much money does someone get from a reverse mortgage?

How much money you get from a reverse mortgage depends on a few factors. It is based on your age, your home's value, the interest rate, and the program chosen.

Typically, homeowners will receive from 40%to 65% of their home's value or the FHA lending limit. 

As of 1/1/2023 FHA's reverse mortgage (HECM) lending limit is $1,089,300. Proprietary/Jumbo reverse mortgage lending limits are as high as $4,000,000. Calculations use the lending limit or the value of your home, whichever is lower.

Who can qualify for a reverse mortgage?

There are some requirements to qualify for a reverse mortgage.

• Borrowers must be age 62 or above. If married, at least one spouse must be age 62 or above.
• The home must be your primary residence.
• You also must have enough equity in your home to qualify. For example, if you qualify for a 200K reverse mortgage, but you owe 300K on your existing mortgage then you wouldn't qualify to pay off your existing mortgage with a reverse mortgage. However, many people in this situaion bring money to closing to make up the difference.
• Additionally, your home must pass an appraisal, and sometimes repairs are needed before the closing of your loan.
• Reverse mortgage lenders also perform a financial assessment to determine if it is a sustainable option. A minimum amount of residual income is required so basic costs of living can be covered.

How much equity do I need to get a reverse mortgage?

The equity you need to get a reverse mortgage depends on your age, the interest rate offered, and your home's value.

Typically, homeowners will need 60% to 35% equity in their home.

What types of properties qualify for a reverse mortgage?

• Different types of properties can qualify for a reverse mortgage. The home must be your primary residence.
• Single-family homes qualify for reverse mortgage loans.
• Multifamily homes up to four units qualify for reverse mortgage loans. Some reverse mortgage borrowers live in one unit and rent the others out. This is completely allowed and can be a great way to increase your income.
• Townhouses and Planned Unit Developments or PUDs are eligible for reverse mortgages.
• Condominiums or Condos are also eligible but must meet certain requirements. FHA and private reverse mortgage lenders allow Single Unit Approval in certain instances.
• Manufactured homes are eligible for reverse mortgages if they meet certain requirements by FHA.

What happens to my reverse mortgage when I die?

Reverse mortgages have protections in place in the event a reverse mortgage borrower dies. When the last surviving borrower passes away the heirs or beneficiaries will be given sufficient time to decide how to handle the property.  Unlike a traditional loan, no mortgage payments are required during this time. No other mortgage gives this type of protection and assurance to the heirs of a mortgage borrower.

If the heirs want to keep the home they can pay off the balance with cash or by refinancing the home.

Most heirs sell the home and the remaining equity in the home goes to them. The mortgage lender only collects what is owed on the loan.

If for some reason the loan balance is higher than the value of the home then the heirs can walk away from the home without recourse or penalty. This is guaranteed by the non-recourse provisions of the reverse mortgage. Also, in this situation on a HECM reverse mortgage, the FHA mortgage insurance also allows heirs to purchase the home at 95% of the appraised value.