REVERSE MORTGAGE/HECM
Borrower Eligibility

A Reverse mortgage/Home Equity Conversion Mortgage (HECM)  is a government-insured reverse mortgage program that allows homeowners, aged 62 or older, to own a primary residence using a reverse mortgage. Unlike a traditional mortgage, a reverse mortgage/HECM loan enables eligible borrowers to finance a home without having to make monthly mortgage payments. Instead, the loan balance is paid when the homeowner sells the home, moves out, or passes away. The following is an outline of the borrower eligibility criteria for a reverse/HECM mortgage loan. 

Age Requirement
– The borrower (or at least one borrower, if married) must be 62 years of age or older.
– If a spouse is under 62, they may still qualify as an eligible non-borrowing spouse, but they will not be listed as a borrower on the loan.

Primary Residence Requirement
– The property being financed with the HECM loan must be the borrower’s principal residence. The borrower must live in the home as their primary residence for the majority of the year.
– Second homes, vacation properties, and investment properties do not qualify for a reverse mortgage/ HECM loan.

Financial Requirements
– Credit History
While there is no minimum credit score required, lenders will assess the borrower’s credit history to ensure that they have demonstrated a willingness and ability to meet financial obligations. This includes timely payment of real estate taxes, insurance, and other housing-related expenses.

– Residual Income and Cash Flow
Lenders will evaluate whether the borrower has sufficient residual income after paying off mandatory expenses. The borrower must demonstrate the ability to maintain the home, including property taxes, insurance, and upkeep.

– Equity
Borrowers are required to have substantial equity, usually between 30-70% of the value of the home depending on the borrower’s age and the loan amount. On a purchase, the down payment typically comes from the borrower’s own assets or proceeds from the sale of another property. The down payment cannot be borrowed, but it can come from savings, investments, or the sale of a previous home.

Counseling Requirement
– Borrowers are required to undergo HUD-approved counseling with an independent third-party counselor before obtaining a reverse mortgage/HECM loan. The purpose of this counseling is to ensure the borrower fully understands how a reverse mortgage works, including the financial implications and responsibilities that come with it.
– During the session, the counselor will review the borrower’s financial situation, the loan terms, and the alternatives to a HECM loan to ensure that the decision to proceed is well-informed.

Health and Mental Capacity
– Borrowers must demonstrate that they have the mental and physical capacity to live independently and manage their household expenses. This is essential because the borrower will be responsible for maintaining the home and paying associated costs like property taxes and homeowner’s insurance.

Occupancy and Maintenance Obligations
– Borrowers must continue to live in the home as their primary residence for the life of the loan. If the borrower moves out or lives outside the home for more than 12 consecutive months (e.g., for medical reasons), the loan will become due and payable.

– The homeowner is responsible for maintaining the property, paying property taxes, homeowner’s insurance, and any applicable HOA fees.

Reverse/HECM mortgage loans offer an opportunity for eligible older adults to buy a new home without taking on the burden of monthly mortgage payments, but there are strict eligibility requirements in place to ensure that the program is used appropriately. Age, property type, financial capacity, and ongoing responsibilities like property maintenance and taxes are all critical factors for borrower eligibility. Ensuring that these criteria are met helps protect the homeowner and the lender, while also allowing borrowers to secure a home that suits their needs in retirement.