Your home should be your primary residence, which means you live there most of the year. You must own your home outright or have a low mortgage balance. Being a full owner of your home means that you no longer have a mortgage on it. Reverse mortgages have two main qualifying criteria: you must be at least 62 years old and you must have a significant amount of equity in your home.
While the specific percentage of capital required varies from lender to lender, you'll usually need at least 50%. There are no credit rating or income requirements for reverse mortgages. Single-family homes are eligible for reverse mortgages. Multifamily homes may also qualify if they have no more than four units and the borrower uses one of the units as their primary residence.
The Department of Housing and Urban Development (HUD), the federal agency that oversees the FHA, defines the primary residence as the place where the borrower lives most of the year. A reverse mortgage loan is a special type of mortgage loan for seniors (usually 62 years of age or older). If you're 62 years old but your spouse isn't old enough to get a reverse mortgage, you can still apply for a HECM, but your spouse will be considered a non-borrowing spouse and won't have access to your loan income. This ensures that borrowers understand the requirements of the reverse mortgage, how the loan works, and the alternative options they may have.
Other types of properties eligible for a reverse mortgage include manufactured homes and HUD-approved condominiums. As stated above, in order to be eligible for a reverse mortgage, the home must be your primary residence. However, this unique financial product is not for everyone, and certain reverse mortgage requirements must be met to be eligible for this type of loan. Both have more stringent qualification requirements than a reverse mortgage, but both can be more cost-effective in the long term.
This is the type of loan we'll focus on when we talk about the rating rules for reverse mortgages. The income from the loan you receive from the reverse mortgage will first pay off your current mortgage, if any, and the remaining money can be used however you want. This is one of the ways in which reverse mortgages differ from a home equity loan or a home equity line of credit (HELOC). Because your property should be considered your primary residence, vacation homes and secondary homes don't qualify for the reverse mortgage loan.
If you're interested in getting a reverse mortgage and meeting all the loan requirements, the first thing you should do is look for lenders that offer this loan product and compare rates. Manufactured homes, in which pieces of the house were built in a factory and then assembled on site, are eligible for reverse mortgages as long as the residence meets FHA requirements. However, it's important to recognize that the initial costs of reverse mortgages are high, whether you pay them out of your own pocket or with the capital you own. The Department of Housing and Urban Development (HUD) requires that all prospective reverse mortgage borrowers complete a HUD-approved counseling session.
If your home doesn't initially meet the required ownership standards, the reverse mortgage lender will tell you what repairs need to be done before you can be eligible for the loan. Reverse mortgages are designed to allow older homeowners who have no other sources of retirement savings to access the capital they have accumulated in their home.