Reverse Mortgage Frequently Asked Questions

Qualification for a reverse mortgage involves three main factors: age, loan-to-value ratio (LTV), and your credit/income/property charge payment history.

For an FHA Home Equity Conversion Mortgage (HECM), which is the most common type of reverse mortgage, the minimum age is 62 (one spouse must be at least 62). Proprietary reverse mortgages may have a slightly lower age requirement.

The loan-to-value ratio for a reverse mortgage typically ranges from 30% to 65%, depending on the youngest borrower’s age. The older you are, the more you can borrow. If the amount you owe on your home exceeds what we can offer, you would either need to bring money to closing or wait until your mortgage balance decreases.

The final qualification factor involves your income, credit, and a 24-month history of paying property charges. We provide a more detailed explanation of this here.

With a fixed-rate reverse mortgage, the proceeds must be taken as a lump sum. However, with adjustable-rate programs, you have the flexibility to choose from a lump sum, line of credit, monthly payments, or a combination of these options. For example, it's common for adjustable-rate borrowers to take some funds at closing, set up a line of credit, and receive monthly payments.

Remember, interest does not begin to accrue until the funds are actually received. Choosing an adjustable-rate reverse mortgage with a line of credit or monthly payments can significantly reduce the interest that accrues over time.

The FHA HECM is the most common type of reverse mortgage and is typically used for homes valued under $1 million. However, in certain situations, a proprietary reverse mortgage may be a better option, such as with condominiums, due to HUD’s strict regulations on them.

FHA HECMs offer lower interest rates but require both upfront and ongoing mortgage insurance. On the other hand, proprietary reverse mortgages (also known as jumbo reverse mortgages) do not have mortgage insurance but come with higher interest rates.

A home equity line of credit (HELOC) also allows you to access the equity in your home as cash, but the key difference is that a HELOC requires monthly repayments, similar to conventional mortgages. In contrast, a reverse mortgage doesn’t need to be repaid until you sell the home or stop living in it.

To qualify for a HELOC, you need to have sufficient income and credit scores. HELOCs start with interest-only payments, then transition to fully amortizing payments, and eventually have a balloon payment. Additionally, HELOCs can be frozen if home values decrease or if the bank decides to take action. Reverse mortgages, on the other hand, are always first mortgages, replacing any existing debt on the property, while HELOCs are often second mortgages.

HUD/FHA began permitting non-borrowing spouses and co-owners to stay on the title to simplify the inheritance process after the last borrower passes away. If someone is listed on the title, they must also participate in the counseling session. However, if there is a deceased spouse or parent on the title, they must be removed before closing a reverse mortgage. The process of removing them can range from simple to complex, depending on the probate laws in your state.

The amount due when you repay the loan includes any funds you’ve received, along with accrued interest, mortgage insurance, and closing costs. This will be repaid when you sell the home or no longer live there. After closing, you will receive monthly statements to help you track the balance. You can choose to make payments on your reverse mortgage at any time, or allow the balance to grow.

Reverse mortgages are non-recourse loans, meaning you cannot owe more than the value of your home. The home itself is the only collateral for the loan. If the loan balance exceeds the home's value at repayment, the FHA mortgage insurance fund covers any losses. For proprietary reverse mortgages, the loans are also non-recourse, and the lender absorbs any losses.