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Understanding if you are eligible

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Understanding Eligibility

DO YOU QUALIFY for a reverse mortgage?

Qualification for this loan requires an applicant to be the reverse mortgage age — at least 62 — and his or her home must be the primary residence.

In 2014, FHA revised the HECM age eligibility requirements to extend certain protections to spouses younger than age 62. Old guidelines stated that a reverse mortgage could only be written for a spouse who was 62 or older. If the older spouse died, the reverse mortgage balance became due and payable if the younger surviving spouse was left off of the HECM loan. If this younger spouse was unable to pay off or refinance the reverse mortgage balance, he or she was forced either to sell the home or lose it to foreclosure. This often created a hardship for spouses of deceased HECM mortgagors, so FHA revised the eligibility requirements in Mortgagee Letter 2014-07.

 

Qualified agent reviewing coverages

revised eligibility requirements

 

The new guidelines state that spouses who are younger than 62 at the time of origination retain the protections offered by the HECM reverse mortgage program if the older spouse who got the mortgage dies. This means that the surviving spouse can remain living in the home without having to repay the reverse mortgage balance as long as he or she keeps up with property taxes and homeowner’s insurance and maintains the home to a reasonable level.

Existing mortgage balances must be low enough to be paid off with the reverse mortgage proceeds for reverse mortgage to be a viable option. However, borrowers have the option of paying down their existing mortgage balance to qualify for a HECM reverse mortgage.

The HECM reverse mortgage follows the standard FHA eligibility requirements for property type. This means most 1-4 family dwellings, FHA-approved condominiums and PUDs qualify. Manufactured homes also qualify as long as they meet FHA standards. Before starting the loan process for an FHA/HUD-approved reverse mortgage, applicants must take an approved counseling course. An approved counselor should help explain reverse mortgages, the financial and tax implications of taking out a reverse mortgage, payment options and costs associated with a reverse mortgage. The counseling is meant to protect borrowers, though the quality of counseling has been criticized by groups such as the Consumers Financial Protection Bureau.