A reverse mortgage is a loan that allows seniors to access the equity in their home with few credit or income qualifications.
Repayment is required only when the borrower dies, sells the home, or moves out of the property for more than 365 consecutive days. However, it is important to note that the homeowner must continue to pay the real property taxes, keep the house fully insured and maintain the property in good condition. Failure to do these may result in foreclosure.
No principal or interest payments while the borrower occupies the property
Minimum income and credit requirements
Never owe more than your home’s value
The loan is typically tax-free
Funds can be used in any way
Flexible payment options
Must meet the minimum age requirement
Possible disqualification from certain low-income assistance (Medicaid and SSI)
Decrease in home equity
Can affect your eligibility for another type of loan
May affect the inheritance of the borrower’s heirs
Types of Reverse Mortgages
Single-purpose Reverse Mortgages: Offered by some state and local government agencies and nonprofit organizations.
Federally-insured Reverse Mortgages: Known as Home Equity Conversion Mortgages (HECMs) and backed by the U. S. Department of Housing and Urban Development (HUD).
Proprietary Reverse Mortgages: Private loans that are backed by the companies that develop them.
Borrower Requirements and Responsibilities
Age qualification: All borrowers listed on title must certain age requirements (62 years old in many states).
Primary lien: A reverse mortgage must be the primary lien on the home. Any existing mortgage must be paid off using the proceeds from the reverse mortgage.
Occupancy requirements: The property used as collateral for the reverse mortgage must be the primary residence. Vacation homes and investor properties do not qualify.
Taxes and Insurance: You must remain current on your real estate taxes, homeowners insurance, and other mandatory obligations, including condominium fees, or you are susceptible to default.
Property condition: You are responsible for completing mandatory repairs and maintaining the condition of the property.
Conveyance of the mortgaged property by will or operation of law to the estate or heir after mortgagor’s death: When a reverse mortgage becomes due and payable as a result of the borrower’s death, and the property is conveyed by will or operation of law to the estate or heirs (including a surviving spouse who is not on title and therefore not obligated on the HECM note), that party (or parties if multiple heirs) may satisfy the HECM debt by paying the lesser of the mortgage balance or 95% of the current appraised value of the property.