No one likes the idea of leaving the place they've called home for many years. Yet sometimes age and health-related issues make moving into a condo, retirement home, or long-term care facility seem like a better alternative than trying to maintain a house. For seniors that meet the criteria, a reverse mortgage may provide the funds needed to cover the gardening, housekeeping, nursing, and renovation costs required to age in place. One of these mortgages may be the answer to letting your loved one spend their last years in a beloved family home. Before suggesting the idea though, make sure they meet the required criteria to qualify for a reverse mortgage.
Do They Meet Age and Property Requirements?
Reverse mortgages may be available to homeowners aged 62 and older that live in the home as their principal residence. If the home is owned by a couple, at least one spouse must meet this age requirement. Once the house is sold or the borrowers cease to live in the home, the mortgage must be paid off.
Eligible properties may be single family residences, or 2-4 unit residences with the applicant(s) living in one of the units in order to qualify for Home-Equity Conversion Mortgages (HECMs), reverse mortgages backed by the U.S. Department of Housing and Urban Development (HUD).
Do They Have Enough Equity?
Reverse mortgages allow qualified homeowners to borrow against a portion of the equity they've built up in their homes. Depending on the program, the amount of the mortgage may be tied to the age of the applicant(s) and the current interest rate. HECMs are also currently based on the lesser of the appraised value of a home or $625,000.
While your family member may have had a traditional mortgage when they first moved into the home, to qualify for a reverse mortgage the borrower must either own their home outright (no mortgage) or have paid their traditional mortgage down substantially. If there is a mortgage on the home, it must be paid off with the proceeds of the reverse mortgage. In addition, borrowers using the HECM program must not have any delinquencies on federal debts, nor suspensions or exclusions from Federal Housing Authority (FHA) programs.
Can They Make the Required Non-Mortgage Payments?
A reverse mortgage is the opposite of a regular mortgage because instead of making payments to a lender, borrowers receive payment from the lender, either in a lump sum amount or in some cases monthly. Yet even though monthly or bi-weekly mortgage payments aren't required, to qualify for one of these mortgages the borrower must be able to show they have enough income to pay their property taxes, homeowners insurance, homeowners association fees, and condo fees. If they have a HECM and become delinquent on these payments, they may face foreclosure on their home. Borrowers must also be able to verify their income and expect to have a credit check completed by the lender.
While there are advantages and disadvantages to reverse mortgages, if it sounds like this might be the right option for your loved one, compare loan offers right now with Lending Tree's easy online shopping tools.