Can anyone take out a reverse mortgage loan? | Consumer Financial Protection Bureau (2024)

FAQs

Can anyone take out a reverse mortgage loan? | Consumer Financial Protection Bureau? ›

No. Home Equity Conversion Mortgages (HECMs), the most common type of reverse mortgage loan, are a special type of home loan available only to homeowners who are 62 and older. Age is one requirement for a HECM.

Reverse mortgages allow homeowners to access the equity in their homes during their retirement years. Applicants must be at least 62 years old and own a significant amount of equity in their home. 1 There are no credit score or income requirements for reverse mortgages. U.S. Department of Housing and Urban Development.

You may be disqualified from getting a reverse mortgage if you are below age 62, you have less than 50% equity in your home, or you don't have enough income or assets to afford the ongoing costs such as property taxes and homeowner insurance.

There is a popular misconception about reverse mortgage loans. Many people think that because it does not require a minimum income or credit score to qualify, they can never be denied. In reality, you can be denied a reverse mortgage loan.

Who is not a good candidate for a reverse mortgage? A reverse mortgage is a questionable proposition if you have sufficient income to pay your bills or are willing to sell your home to tap into the equity. If that's the case, it may make more sense to just sell it and downsize your home.

A reverse mortgage increases your debt and can use up your equity. While the amount is based on your equity, you're still borrowing the money and paying the lender a fee and interest.

There is no set minimum credit score that can tell you if applying for a reverse mortgage is worth your time.

Additionally, the program limits the amount of equity accessible within the first 12 months of your loan closing. Called the initial principal limit, you can only withdraw 60 percent of your available equity during the first 12 months, with the remaining equity becoming available after the first 12 months.

A reverse mortgage isn't free money: The borrowing costs can be high, and you'll still need to pay for homeowners insurance and property taxes. Reverse mortgages can also complicate life for your heirs, especially if they don't want the home or the home's value isn't enough to cover what's owed.

What is the easiest reverse mortgage to get? ›

One out of every ten reverse mortgage is in default and could face foreclosure. Reverse mortgages are expensive. After ten years, interest and ongoing fees on a lump sum reverse mortgage can add up to more than $100,000, after twenty years interest can reach more than $300,000 on top of the original loan amount.

Yes, inheriting a house with a reverse mortgage is possible. If a loved one decides to take out a reverse mortgage on the home, and then chooses you as the heir to that home, then you would inherit the home with the reverse mortgage on it.

A big downside to reverse mortgages is the loss of home equity. Because you're not paying down your reverse mortgage balance, you'll make less profit when you sell, or limit your borrowing power if you need a new loan. You'll pay high upfront fees.

In the early days of reverse mortgages, determining financial fitness was left to the borrower. Some borrowers who didn't fully understand their loan requirements, miscalculated their financial stability, or found themselves unexpectedly short on cash also found themselves in danger of losing their homes.

You remain eligible, whether or not you have a reverse mortgage. Social Security isn't typically affected by a reverse mortgage loan because it is a government-based program, primarily based on contributions you and/or your spouse made during your years in the workforce.

Your income or credit score is not a consideration in obtaining a reverse mortgage, since no payments are required until the loan ends.

A reverse mortgage is also known as a home equity conversion mortgage. According to California law, in order to qualify for a reverse mortgage homeowners must be age 62 or over, occupy the property as a principal residence, and own the home outright or have significant equity in the home.

Taking a loan too early

The earliest a homeowner is eligible to take out a reverse mortgage is age 62, but Orman considers it risky to do so. "If you tap all your home equity through a reverse at 62 and then at 72 you realize you can't really afford the home, you will have to sell the home," she said.