What to expect when applying for a home equity conversion mortgage
Home equity conversion mortgages, more commonly known as reverse mortgages, are another avenue for homeowners to add to their financial assets and retirement plans. Reverse mortgages give older homeowners another source of income, giving them a financial boost to remain in their home and age in place, or the funds to keep up with their pre-retirement lifestyle.
But how do you qualify for one of these loans? For a start, you must be 62 years of age or older.
It’s important to remember that while borrowers aren’t required to make monthly payments on a reverse mortgage, they are still responsible for making payments on property taxes, mortgage insurance and homeowners association fees. Borrowers do not have to make payments on the loan as long as they live in the home. If the borrower moves, sells the home, or dies, then the borrower or their estate is responsible for repaying the loan.
The U.S. Department of Housing and Urban Development outlines the basics of the HECM on its website. In addition to meeting the following requirements, all potential borrowers must take part in a HUD-certified counseling session.
Here are HUD’s requirements for reverse mortgages:
- Be 62 years of age or older
- Own the property outright or have paid down a considerable amount
- Occupy the property as your principal residence
- Not be delinquent on any federal debt
- Have financial resources to continue to make timely payment of ongoing property charges such as property taxes, insurance and homeowners’ association fees, etc.
- Participate in a consumer information session given by a HUD-approved HECM counselor
The following eligible property types must meet all FHA property standards and flood requirements:
- Single-family home or a 2-4 unit home with one unit occupied by the borrower
- HUD-approved condominium project
- Manufactured home that meets FHA requirements
- Income, assets, monthly living expenses, and credit history will be verified.
- Timely payment of real estate taxes, hazard and flood insurance premiums will be verified
Lori Trawinski, a director with AARP’s Public Policy Institute, said the counseling sessions are only an hour long and that those interested in reverse mortgages should do plenty of research and become familiar with them before the session.
“It’s a lot to take in,” she said. “The more people can read ahead and sketch out their questions, the more prepared they will be for the counseling sessions.”
Trawinski said the AARP Public Policy Institute encourages people seek out sources of unbiased information when getting these loans, from someone such as an elder law attorney or a trusted adviser.
“We also encourage including family members to take part. It’s a serious decision when you take out a loan and the most important thing is to be fully educated as to what you’re about to do and to what the terms of the loan are,” she added.