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Reverse Mortgage Rules & Requirements

Types of Reverse Mortgages

There are Fixed and adjustable interest rate reverse mortgages.  Eligible borrowers can select one of the following payment plans:

  • Fixed or Tenure – These are fixed mortgage rates which provide the borrower with equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
  • Set Term – Borrower will receive equal monthly payments for a fixed period of months based on a fixed rate.
  • Line of Credit – Borrower established specific loan amount which they can draw on an unscheduled withdrawal or installment schedule until the borrower reaches the maximum established loan amount;
  • Modified Tenure – Borrower is able to establish an even more flexible loan structure based on their needs which is a combination of line of credit and scheduled monthly payments which provides them some regular cash but also allows them to access more if needed at a later date;
  • Modified Term – Is similar to a Modified Tenure because it includes a combination of line of credit plus monthly payments; however; it is for a fixed period of months which the borrower(s) can define.

Primary Qualifications & Requirements for a Reverse Mortgage

The primary qualifications for a reverse mortgage loan are:

  • The youngest homeowner must be at least 62 years old;
  • The subject home must be the primary residence of the borrower; and
  • There must be sufficient equity in the home for the borrower to cover the fees and the amount requested.

Note: there are certain financial eligibility criteria as established by the U.S. Department of Housing and Urban Development (HUD) which the borrower must all meet.

The Federal Housing Administration (FHA) calculation considers the following factors when determining eligibility; as well as, others:

  • Age of the youngest homeowner;
  • Assessed value of the property which must be conducted by a Certified FHA Appraiser;
  • Current balance of the existing mortgage and other liens filed against the home; and
  • Current interest rates which impacts the maximum loan amount which the borrower is eligible.

Key Borrower Requirements

Some of the key Borrower Requirement are:

  • One of borrowers/owners of the home is at least 62 years of age or older;
  • Borrower(s) either owns the property free and clear or has significant equity remaining in the home;
  • The home will be occupied by the borrower as a principal residence;
  • If applicable, all  delinquent federal debts must be cleared;
  • Have sufficient financial resources to ensure ongoing property charges and obligations such as property taxes, insurance and Homeowner Association fees, etc. and property are maintained; and
  • Borrower(s) must complete a consumer information session provided by HUD- approved Home Equity Conversion Mortgage (HECM) counselor.

Minimum Property Requirements

Eligible reverse mortgage property must meet:

  • All FHA property inspection standards and flood requirements:
  • Be a single family home or 2-4 unit home with one units being the borrower’s principle residence;
  • A condominium project must be on the HUD-approved list; and
  • Manufactured home must meet the minimum FHA requirements

Borrower Financial Assessment

  • Borrower(s) income, assets, monthly living expenses, and credit history will be verified; and
  • Verification of timely payment of real estate taxes, hazard and flood insurance premiums history.

It is important to note that there are other rules that must be followed. You should make sure that you understand all of the applicable rules before applying for a reverse mortgage on your home. To learn more about the different types of reverse mortgages, costs and the rules associated with them, check out our Free Guide to Reverse Mortgages.

 

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