If you are over the age of 62 and have equity in your home, you may be eligible for a reverse mortgage. While it is a ‘mortgage’ since you borrow money from the bank, it’s not your traditional mortgage. In other words, you don’t make monthly payments to the bank to pay the loan down. Instead, you receive money to supplement your income as you deplete the equity in your home. The loan itself doesn’t become due and payable until you no longer live in the home, whether you move or pass away.
The reverse mortgage program is an FHA loan. Don’t worry, if you didn’t use FHA financing to buy your home, you may still be eligible. We discuss how to qualify for the program in depth below.
Qualifying for the Reverse Mortgage
First, you must know how to qualify for the reverse mortgage. As we stated above, you have to be at least 62 years old. You must also own your home free and clear. If you do have a small mortgage on the home still, the balance must be low enough that you can pay it off with the proceeds of the reverse mortgage. You must also be able to prove that you have the money to keep up with the home’s maintenance and property taxes. Finally, you must live in the home as your primary residence.
How Much Can You Borrow?
The bigger question is, how much can you borrow? The FHA determines your loan amount based on the ages of you and your co-borrower (spouse) if applicable. The FHA will use the age of the youngest borrower to determine how much money you can get. They will also need to know the value of the property and the interest rates at the time of your mortgage.
Right now, the maximum amount any borrower can obtain with a reverse mortgage is $679,650. Most borrowers will receive much less than this amount, though. HUD uses the age of the youngest borrower in the home to determine the amount you can receive because the younger borrower is more likely to be in the home longer. HUD uses your age and the interest rates to determine how long you could possibly take draws on the home’s equity. The older you are, the more money you can take at a time because you likely have less time in the home.
How do you Receive the Funds?
Assuming you can prove that you can afford the maintenance and taxes on the home, and there is enough equity in the home, you’ll want to know how to get your hands on the funds. You have several options including:
- You can receive the same monthly payment for the remainder of your life or the remainder of your co-borrowing spouse (if they outlive you)
- You can opt for fixed period where you receive a fixed payment for that time only.
- You can use it like a line of credit, drawing on the funds as you need them, and otherwise leaving the funds untouched.
- You can combine either the fixed period payments or the tenure payments with a line of credit account.
- You can also opt to receive the funds in one lump sum payment.
The reverse mortgage is meant to help older Americans stay in their home as long as possible. This way they don’t have to worry about medical bills or other concerns as they age. You are free to use the funds as you see fit – the FHA doesn’t determine what or how you can use the funds. Just keep in mind, when you sell the home or pass away and your relatives have to sell the home, the proceeds go to the reverse mortgage, with anything left over going to yourself or the estate (if you have passed on).