A reverse mortgage is an excellent way to use the equity in your home to supplement your income, set up a "rainy day fund," or achieve a variety of other financial goals. These products are designed for seniors who have paid off the majority of their mortgages or own their homes outright. Furthermore, it gives homeowners more financial control. Because of its flexible repayment options. As with any home-secured loan, you must pay your loan obligation, property taxes, and any homeowners association dues and insurance on time. If you're thinking about getting a reverse mortgage, you should first learn about the basic rules.
Reverse mortgage age requirements
Borrowers must be 62 or older to qualify for a home equity conversion mortgage (HECM). Home equity conversion mortgages, on the other hand, can be extended to include a spouse under the age of 62 as a qualified non-borrowing spouse.
Furthermore, if the lender is not a HECM program affiliate, the minimum age limit for reverse mortgages may be lower than 62.
Because of their nature, reverse mortgages are only appropriate for borrowers who have repaid their mortgages or have little left to pay on their mortgages, leaving them with significant home equity. Most of the time, this refers to homeowners who have retired or are about to retire.
What are the other requirements to qualify for a HECM reverse mortgage?
Aside from age, there are other requirements to be eligible for a HECM. They are as follows:
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To qualify for a reverse mortgage, you must be willing to set aside some of the reverse mortgage proceeds at closing (or have enough cash on hand) to cover expenses such as property taxes, insurance, and home maintenance and repairs.
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You must be the sole owner of the property or have very low mortgage debt to apply for a HECM reverse mortgage. In most cases, at least 50% equity is required. Borrowers who still owe on their mortgages must be able to pay them off when the reverse mortgage is closed.
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The house must be your primary residence.
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Any federal debt that you owe must not be delinquent. Federal student loans or income taxes would fall under this category. Nevertheless, it's crucial to remember that you can pay off these debts using money from a reverse mortgage.
Any federal debt you owe must not be passed due. This category includes federal student loans and income taxes. Nonetheless, keep in mind that you can pay off these debts with money from a reverse mortgage. For your reverse mortgage to be approved, your home must be in good condition, and you must attend counseling provided by a HUD-approved reverse mortgage counseling agency. During the counseling session, an agent will assess your eligibility for a reverse mortgage and discuss the implications of your financial situation. People who take out reverse mortgage loans when they are too young, for example, run the risk of running into financial difficulties later in life when their income is likely to be lower and their healthcare expenses may be higher.
Does a Reverse Mortgage Have a Maximum Age Limit?
Other than being at least 62 years old, there is no upper age limit for obtaining a reverse mortgage.
Older borrowers have greater access to home equity. This is because your life expectancy decreases as you age, implying that your debt will be repaid quickly. Furthermore, as you age, your home's equity grows, lowering the reverse mortgage loan amount.
What other options are available for those not qualified for reverse mortgages?
If you want to convert the equity in your home into cash but are not eligible for a reverse mortgage due to your age or other factors, you still have some options.
Home equity line of credit
A home equity line of credit offers the most flexibility. Individuals considering a reverse mortgage in search of more flexible income options may find a HELOC appealing because they can only withdraw money from their equity when necessary.
Home equity loan
If you need a lump sum of money, you can use a home equity loan to access your equity. Although they are not very flexible, they can be a low-cost way to borrow, even for younger homeowners with sufficient equity.
Cash-out refinance
Cash-out refinancing, like a home equity loan, allows you to convert your home equity into funds that can be used for other purposes. Nonetheless, you refinance your entire mortgage and make a single payment rather than multiple loan payments. This may also allow you to reduce the loan's term and interest rate.
HECM Payment Options: How the money is paid out
The amount of a reverse mortgage loan is determined by the borrower's age (or the youngest spouse's age in the event of a couple), the present interest rate, the home's appraised value, and, in the case of the HECM program, the federal housing administration(FHA) lending cap of $970,800 in 2022. Borrowers with HECM reverse mortgages have a range of options for how they want to receive their payments. Options include:
Lines of credit
The vast majority of reverse mortgage borrowers establish a standby line of credit, which they only use when they require funds. Borrowers can obtain funds by submitting a written request to the organization in charge of loan servicing. The unused portion of the line of credit grows over time, which is a significant feature. The borrower does not receive interest, as with a checking account. The growth feature, on the other hand, accounts for the fact that you are a year older and that the value of your home has increased.
Tenure payments
Borrowers who select this option receive fixed monthly payments for the duration of their primary residence. Regardless of whether the loan total exceeds the appraised value of the home, the borrower will continue to receive the same monthly mortgage payment. Only when the borrower dies or permanently vacates the property do the payments stop.
One of the additional options is a modified term/line of credit, which is a hybrid payout in which the borrower receives both a line of credit and fixed monthly payments for a set period of time. Similarly, a modified tenure/line of credit provides the borrower with a fixed monthly payment amount as well as a line of credit as long as the property serves as their primary residence. A reverse mortgage can also be used to obtain a single payment or lump sum. This method entails giving the borrower the entire loan proceeds at closing.
Term payments
This option provides borrowers with fixed monthly payments for a set period of time. For instance, if the borrower wants to delay starting Social Security until age 70 (to get the highest payout benefit), they can set up five-year term payments. Even if the value of the house falls while payments are being made, the monthly payment will remain the same.
Non-Borrowing Spouses Under Age 62
When a married couple wants to get a reverse mortgage through the HECM program, age differences can be an issue. Assume one spouse is 62, but the other is not. The younger spouse cannot be included as a co-borrower on a reverse mortgage in that case. They could, however, be classified as a qualified non-borrowing spouse. This may be critical if the borrowing spouse dies first and wishes to retain residency rights afterward.
An eligible non-borrowing spouse is someone who is listed in the reverse mortgage loan paperwork but is not identified as a borrower. When obtaining the reverse mortgage, they must be married to the borrower, maintain their marriage throughout the borrower's lifetime, and continue to live in the house that serves as the security for the reverse mortgage funds. Age has no bearing on non-borrowing status eligibility. It makes no difference how much younger you are than your spouse—by five, ten, or even twenty years. You only need to be named in the loan documents, be married to the borrower, and live in the property.
You cannot be a non-borrowing spouse if you do not meet these requirements. The distinction is significant because, if your borrower spouse dies, you have the legal right to remain in the house if you are designated as an eligible non-borrowing spouse.
Looking to apply for reverse mortgages? Green Mortgage Solutions is here to help!
Aside from HECM, there are two other types of reverse mortgages: single-purpose reverse mortgages and proprietary reverse mortgages.
At Green Mortgage Solutions, our goal is to conscientiously guide you through the home loan process so that you can boldly choose the best mortgage for you and your family from the many choices available today. After you choose the loan that is ideal for you, we will keep working on your behalf to help you realize your dream of homeownership.
Give us a call today at 916-477-8050 for a free, personalized consultation. You can also apply online. It is fast, secure, and easy.