Areverse mortgage is a Federal Housing Administration (FHA)1 insured loan for homeowners age 62 years and older that enables you to access some of the equity in your home. Your home must be free from any liens, and any existing mortgages must be paid off with the funds received from the reverse mortgage loan at closing.
Perhaps you’ve seen the reverse mortgage commercials on television or maybe a friend has a reverse mortgage loan and is living comfortably in his/her own home. Whatever has sparked your interest in obtaining a reverse mortgage, it’s important to realize that while reverse mortgage loans can be very beneficial for some, there are also some reverse mortgage disadvantages.
Your home must meet certain property requirements to be eligible:
- Single family home or 2-4 unit home with one unit occupied by the borrower
- HUD-approved condominium or
- Manufactured home that meets FHA requirements
In addition, borrowers must meet specific requirements as well:
- Be 62 years of age or older
- Own the property outright or paid-down a considerable amount
- Occupy the property as your principal residence
- Not be delinquent on any federal debt
- Participate in a consumer information session given by a Housing and Urban Development (HUD)-approved reverse mortgage counselor
- Meet financial eligibility criteria as established by HUD
The amount that the borrower can access through a reverse mortgage is dependent on factors including their age, current interest rates and the lesser of the appraised value of the home, sale price or the maximum lending limit. Learn more about reverse mortgage closing costs.
The borrower must continue to meet the obligations of the loan for taxes, insurance and property upkeep. The borrower is responsible for paying all necessary property taxes, homeowner’s association fees (HOA’s), as well as maintain current homeowner’s insurance as required by law. The borrower is also responsible for maintaining the property in the condition it was in when they obtained the reverse mortgage loan. If for any reason you feel that you would not be able to meet these obligations, a reverse mortgage may not be right for you.
Downsides of Reverse Mortgage
A potential drawback is that the reverse mortgage loan becomes due when the borrower sells the home, moves out of the home as their primary residence, or passes away. Failure to meet the obligations of the loan may also cause the loan to become due and payable, which may be seen as a con of reverse mortgages.
As part of the process to obtain a reverse mortgage, borrowers must meet with a HUD approved reverse mortgage loan counselor. It is during this time that the counselor will go over all of the details of the loan, the loan process and answer any questions the borrower has and determine if the benefits outweigh any drawbacks.
For some folks, there may be other solutions that better meet their financial needs than a reverse mortgage loan. Therefore, it is very important to discuss your financial goals with a trusted financial advisor to confirm whether a reverse mortgage is the best option for you. A licensed reverse mortgage loan advisor may be contacted at 1-800-966-7211.
1As required by the Federal Housing Administration (FHA), you will be charged an initial mortgage insurance premium (MIP) at closing and, over the life of the loan, you will be charged an annual MIP based on the loan balance.
