What are the qualifications for a reverse mortgage?

Looking to bolster your cash reserves or tackle a financial goal in retirement? Homeowners have a few different ways to turn their home’s equity into cash—but a reverse mortgage loan isn’t available to everyone. To qualify, you’ll need to meet specific requirements, like being at least 62 years old and either owning your home outright or having significant equity built up. 

This post will explore all of the qualifications for reverse mortgages that homeowners must meet, and alternatives worth exploring.

What are the qualifications for a reverse mortgage?

To qualify for a reverse mortgage, you must meet the specific criteria listed below.

You must be at least 62

All borrowers listed on the home’s title must be 62 years or older. If your spouse is younger, they can sometimes qualify as an eligible non-borrowing spouse, which may provide them certain protections if you pass away first.

You need significant equity

Another non-negotiable qualification for a reverse mortgage is that borrowers need to own their homes outright or have enough equity to pay off their first mortgage with the loan. 

The home must be your primary residence

Your home also needs to be where you live most. Vacation homes, investment properties, or second homes aren’t eligible. 

You must demonstrate financial stability

While reverse mortgages don’t require monthly payments, you’re still responsible for paying for your home maintenance, all home repair costs, as well as property taxes and homeowners insurance. 

Lenders will conduct a financial assessment to confirm that you can cover these ongoing costs or require you to use part of the funds to pay for upkeep and other necessary expenses. 

You’ll need to be in good financial standing

To qualify for a reverse mortgage, you can’t have any federal debt, such as federal student loan debt or debt to the IRS. If you do have federal debt, it’s possible to use reverse mortgage funds to pay it off.

The home must meet property standards

The property itself must be in good condition. Most lenders will require that your home have no significant damage, such as major electrical, roof, or foundation issues. If pursuing a HECM reverse mortgage, you’ll also need to meet the Federal Housing Administration’s (FHA) guidelines.

You must complete HUD-approved mortgage counseling

Finally, to receive a reverse mortgage, you have to enroll and complete a Department of Housing and Urban Development (HUD) approved counseling session.

Reverse mortgage counselors will evaluate your personal situation, see if you’re eligible for other government benefits, and explain the pros and cons of a reverse mortgage.

Special considerations

When exploring requirements, it’s helpful to know there are various types of reverse mortgages. The most common option is the Home Equity Conversion Mortgage (HECM), which is federally insured and comes with protections like mandatory HUD-approved counseling and limits on how you can draw and use the funds. 

Beyond HECMs, there are single-purpose reverse mortgages, usually offered by state or local government agencies or nonprofits, which limit how you can use the funds—typically for specific needs like home repairs, improvements, or paying property taxes. 

Lastly, proprietary reverse mortgages (also known as “jumbo” reverse mortgages) are private loans designed for homeowners with higher-value properties. With proprietary loans, you may be able to borrow more, but you might face different requirements, stricter underwriting, and the trade-off of not having federal insurance. 

Each type has its own rules and best-fit scenarios, so it’s worth taking the time to compare them based on your needs and how you plan to use the funds.

Reverse mortgage guidelines

Qualifying for a reverse mortgage is just the first step. Once you have the loan, there are ongoing requirements you must meet to keep it in good standing — and to avoid the loan becoming immediately due and payable. That typically includes:

• Keep the home as your primary residence: If you move out for a long period of time — for example, into assisted living or a family member’s home — the loan generally becomes due.
• Stay up-to-date on your finances: Falling behind on property taxes, homeowners insurance premiums, or any homeowners association (HOA) fees can trigger default.
• Maintain the home: Lenders expect you to keep your home in a condition that meets the standards outlined in your loan terms. Major neglect, damage, or failure to complete required repairs could put your loan at risk.

Reverse mortgage alternatives

If you’re not sure whether or not a reverse mortgage is right for you, here are some alternatives to consider:

• Home equity loan: This is a lump-sum loan you can get using your home equity as collateral. You must have good credit and consistent income to qualify. The benefit of a home equity loan is that you repay it in equal monthly payments, which can streamline your finances.
• Home Equity Line of Credit (HELOC): A HELOC allows you to leverage your home equity and open a line of credit. You can borrow as needed up to your limit. This is beneficial for those who need access to cash for home repairs or maintenance, but don’t know how much they’ll need.
• Home Equity Investment (HEI): With this option, you partner with a home equity investment company and sell a portion of your home’s equity to them. The benefit is that you don’t have to make monthly payments and don’t need to have good credit to qualify.
• Downsizing: If you want to lower your housing expenses, another option is to sell the home and downsize. With downsizing, you can reduce your home maintenance costs. If you downsize from a house to a condo or townhome, you can also spend less time on outdoor maintenance.
• Government assistance programs: Several government assistance programs are available to help with household maintenance and repair costs. One example is the USDA Single Family Housing Repair Grant. Another is the Low Income Home Energy Assistance Program (LIHEAP), which helps qualified low-income families pay for energy-related home repairs.

Frequently asked questions

What would disqualify me from a reverse mortgage?

Not everyone qualifies for a reverse mortgage. Common reasons for being turned down include being under age 62, still owing too much on your current mortgage, or having unresolved IRS or federal student loan debt. You may also be denied if your home isn’t your primary residence, you plan to spend most of your time elsewhere, or the property is in poor condition. 

What types of homes do not qualify for a reverse mortgage?

Reverse mortgages are only for primary homes. So, you cannot get a reverse mortgage on a vacation home, rental property, or other type of investment property. Additionally, you cannot get a reverse mortgage for a mobile home, but it’s possible to get one for a manufactured home if it meets specific requirements, such as being built after a certain date.

What is an alternative to a reverse mortgage?

Options like a home equity line of credit (HELOC) or a home equity loan can let you borrow against your equity, usually with fixed or variable rates and regular monthly payments. Another alternative is a home equity investment (HEI), which lets you access cash from your equity without monthly payments at all. Instead, you share a slice of your home’s future appreciation when you sell or refinance. Each option has its pros and cons, so it’s worth comparing them to see which best fits your financial goals and lifestyle.

Final thoughts

Reverse mortgages are one way seniors can access cash using their home’s equity. However, the qualifications for reverse mortgages are strict, and there are also hefty fees. For this reason, homeowners should consider several other options first, such as a HELOC or a home equity investment (HEI), which can provide access to cash with fewer requirements than a reverse mortgage.

To learn more about a HEI, visit Point.