How to Get a Reverse Mortgage

by Miranda Marquit, Contributor

Many seniors, who are looking to improve their cash flow in retirement, are turning to a financial product known as the reverse mortgage. The idea is to use the equity built up in your home as source of income.

A reverse mortgage is a type of home equity loan, but instead of making loan payments while living in the home, the borrower can wait until he/she no longer lives there to repay the obligation. Normally, a reverse mortgage is paid off when the home is sold, after the borrower moves to another location or passes away.

Before you get a reverse mortgage, it is a good idea to determine whether or not such a move is right for you. If you decide that it is the right choice for your situation, you can go ahead and apply with a lender.

Getting Approved for a Reverse Mortgage

One of the advantages of a reverse mortgage is that your income level and credit score do not factor into the loan approval process. Instead, the requirements are based on your age and the amount of equity you have in your home. If you have sufficient home equity, a reverse mortgage will be fairly easy to obtain.

There are certain eligibility requirements that you must meet before you can be approved for an FHA-approved reverse mortgage loan. Some of these requirements include the following:

  • You must be at least 62 years old. (Some lenders will offer reverse mortgages to homeowners as young as 60, but these are not FHA-approved loans.)
  • You must have substantial equity in your home.
  • You must occupy your home as a primary residence (except in specific FHA-approved cases).
  • You may be subject to FHA-imposed loan limits, according to your county.

When you are ready to apply for a reverse mortgage, make an appointment with a reputable lender. You will have to fill out paperwork, and you should also be prepared for regular loan expenses (including interest, origination fees, and other costs). Note that these expenses may reduce the actual amount of money you receive from your reverse mortgage.

Many seniors opt to get a loan that is approved by the FHA (Federal Housing Administration). A reverse mortgage that is guaranteed by the FHA normally comes with specific protections that non-FHA loans may lack. Additionally, FHA-backed loans guarantee that your reverse mortgage balance will never exceed your home’s value. That means if your home decreases in value after the mortgage is made, the lender cannot collect more than the market value of your home (from you or your heirs) when the home is eventually sold to repay the loan.

With careful consideration, it is possible to use a reverse mortgage to your advantage and secure some income for your retirement years.