When You Can’t Get a Reverse Mortgage

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When You Can’t Get a Reverse Mortgage

By enabling qualified homeowners to access their home equity in retirement, reverse mortgages offer an extra source of income. But not everyone is eligible for them, nor are they for everyone.

Understanding what can exclude you from receiving this form of assistance is essential before submitting an application.

Key Takeways

  • Reverse mortgages let homeowners access their equity without having to make payments as long as they live there as their primary property.
  • Home equity conversion mortgages are reverse mortgages that must adhere to Federal Housing Administration (FHA) regulations (HECMs).
  • The eligibility for reverse mortgages may be restricted to certain property types.
  • A home equity loan or a home equity line of credit may still be available to homeowners who are not eligible for a reverse mortgage (HELOC).

What Is a Reverse Mortgage, and How Does It Work?

With a reverse mortgage, a homeowner receives payments from a reverse mortgage firm using the equity in their property as collateral. This funding may be obtained as a flat amount, regular monthly installments, or a line of credit and is normally tax-free. Reverse mortgage funds may be used by the homeowner to cover retirement expenditures.

As long as they continue to live in the house as their primary residence, the homeowner owes the reverse mortgage firm nothing. The reverse mortgage debt is due immediately if the homeowner sells the property, transfers into a nursing home or assisted living facility, passes away, or ceases to use the property as their primary residence for any other reason. This sum may be made up of the initial equity payout plus interest and costs.

Who Is Eligible for a Reverse Mortgage?

Depending on the sort of reverse mortgage you’re interested in, you may not be eligible for one. For instance, some charitable organizations and state and local governments provide reverse mortgages, but if you want a federally insured alternative, you must use a home equity conversion mortgage (HECM).The U.S. Department of Housing and Urban Development is backing these reverse mortgage products (HUD).

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Who then is eligible for a HECM? In order to qualify, homeowners often need to:

  • Be age 62 or older
  • Own their property entirely or have a mortgage payment that is mostly paid off
  • not owe any back taxes to the government
  • possess the means to pay for continuing expenses such as homeowners insurance, property taxes, upkeep, and repairs
  • Attend consumer counseling recognized by HUD.

You must also be the owner of and live in an eligible property. According to HUD regulations, qualifying properties consist of:

  • Single-family homes
  • residences with two, three, or four units, one of which is inhabited by the borrower.
  • proposals for condominiums with HUD approval
  • Individual condominiums that satisfies the conditions for Federal Housing Administration (FHA) approval
  • manufactured houses that adhere to FHA standards

If you’re acquiring a reverse mortgage via a program that is not connected to HUD, the requirements for qualified houses can be different. If you choose an independent lender, use extreme caution since there are dishonest people out there.

In addition to your financial resources, the reverse mortgage application procedure may also take into account your prospective future income and credit history.

Who Is Not Eligible for a Reverse Mortgage?

In general, if you don’t fulfill the fundamental criteria set out by HUD, you won’t be qualified for a HECM. You wouldn’t be able to receive one, for instance, if you still owe a lot on your mortgage or if you and your spouse are both under 60.

Your house itself can make it difficult to receive a HECM, too. Only mobile homes and condos that fulfill FHA and HUD requirements are eligible. You cannot get a reverse mortgage on a mobile home if it was built before the Manufactured Home Construction and Safety Standards came into effect in June 1976.

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Condominiums with a single unit must meet the following criteria in order to qualify as a single unit:

  • situated in an unapproved FHA project
  • Complete and prepared for habitation
  • containing at least five housing units
  • Not a manufactured home

Because of how intricate these regulations are, double-check before presuming that your apartment complies. Once again, any qualified property must be a house you occupy as your primary abode. Reverse mortgages are not available for investment properties or second houses like vacation homes.

You may seek for condominiums that have received FHA approval using a search engine provided by HUD.

Reverse Mortgage Alternatives

If a reverse mortgage is not an option for you, there may be alternative ways to cash in on your home equity. One of the options is a:

  • Home equity loan
  • credit line for home equity (HELOC)
  • Cash-out refinance

You may take out equity as a lump amount with a home equity loan. Given that the house is used as security for the loan, this is a kind of second mortgage. You pay interest to the lender on the amount you borrowed, usually at a predetermined rate. Five to thirty years are possible loan periods for home equity loans.

You may take out money from a home equity line of credit (HELOC) as required. You only pay interest on the money you take out of your credit line, which is a fraction of your home equity. HELOCs may have a grace period at the beginning during which no payments are necessary, followed by a term for payback (often 10 years).HELOC interest rates are often changeable.

A cash-out refinancing entails getting a new loan that is bigger than your existing one in order to pay off the existing loan and get cash at closing. If you wish to take money out of equity, you can think about a cash-out refi. You could even be able to secure a mortgage with a cheaper interest rate or monthly payment if rates are lower.

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Is it hard to get approved for a reverse mortgage?

The equity you own in your house, your age, and your financial resources all play a role in whether you are accepted for a reverse mortgage. If your house doesn’t fulfill the criteria or if you have little resources, you could not be accepted.

What disqualifies you from getting a reverse mortgage?

You could be unable to receive a reverse mortgage if you don’t use the house as your primary residence, don’t have enough equity in it, or don’t have the money to cover continuing expenses like homeowners insurance, property taxes, maintenance, and upkeep. Being in arrears on federal debt or residing in an unsuitable residence are two further exclusions.

When do you pay back a reverse mortgage?

As long as the borrower is using the property as their primary residence, there are typically no payments necessary on the reverse mortgage amount. The remainder is due in full if they sell the house, vacate, or pass away.

The Bottom Line

By generating additional income, reverse mortgages may contribute to the development of a more secure retirement. However, obtaining a reverse mortgage isn’t always straightforward since homeowners must be certain they can satisfy the many criteria for approval. If you’re thinking about getting a reverse mortgage, take the time to compare the top lenders to get the best deal for your circumstances.

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