Reverse mortgage loans, commonly known as Home Equity Conversion Mortgages (HECMs), continue to gain popularity among older homeowners because they allow you to tap into the equity you’ve built up in your home.
You’ll have no monthly mortgage payments and can use the funds from the HECM for anything you choose. With a reverse mortgage, you choose how much of the available money you want to take and the proceeds are not usually considered taxable income.
* As the homeowner, you will continue to be responsible for property taxes, homeowners insurance, and property maintenance. A reverse mortgage loan is home-secured debt payable upon default or a maturity event.
Not everyone is eligible for a reverse mortgage. There are a variety of requirements that must be met to help ensure that a HECM will be a beneficial financial tool for you. You must be at least 62 years of age and live in your home full time.
If you have a mortgage on your home, you may still qualify; if so, you’ll have to pay it off with the reverse mortgage loan proceeds. The home must be a single-family home, or a two-to-four unit home as long as you occupy at least one unit. Condominiums that are approved by the Federal Housing Administration (FHA) and manufactured homes that meet certain requirements are also eligible.
Requirements For Eligibility
Your reverse mortgage lender will assess if there is sufficient equity in your home based on FHA requirements. To determine how much you may qualify for, your lender will be looking at the following:
Current interest rate
The value of your home
Whether you will have a fixed or adjustable interest rate
The age of the youngest borrower (or non-borrowing spouse)
FHA lending limits
Your willingness and financial ability to meet the loan obligations, which includes paying property-related taxes, insurance and upkeep
Most states offer reverse mortgage and the requirements from state to state are often very similar.
After You've Been Approved
After your reverse mortgage loan has been approved, there are some ongoing commitments that must be met. As a reverse mortgage loan borrower, you must:
Continue to live in the home as your primary residence.
Pay property-related expenses. As part of the application process, your lender will assess whether you have the funds or income to continue paying property-related expenses, which include property taxes, homeowner’s insurance, homeowner association (HOA) fees, and flood insurance (if applicable).
Maintain your home in the condition it was in when you obtained the HECM. The funds from the HECM can be used for home maintenance or improvements.
If these commitments are not met, the loan could become due. So it is very important to make sure you can and will meet these obligations prior to taking out a reverse mortgage.
As of August 2014, if one spouse is not listed as a borrower on the HECM, they can remain in the home after the borrowing spouse passes away as long as the following requirements are met:
The non-borrowing spouse is married to the borrowing spouse at the time of the loan closing, and they remain married for the duration of the loan.
The non-borrowing spouse is named and their marriage status is disclosed on the loan documents.
The non-borrowing spouse has lived, and continues to live, in the home full time.
The non-borrowing spouse establishes legal ownership of the home within 90 days of the passing of the last surviving borrower.
Should the non-borrowing spouse not fulfill these requirements, the loan can become due and payable.
* It is always recommended that you consult a tax professional to be clear on all tax related issues.