Qualifying for a Reverse Mortgage
Someone qualifies for a Reverse Mortgage
- When they are age 62 or more
- Own their own home or buying a home
- It’s their primary residence
That is sort of the reverse of it; we are paying them rather than them paying us.
It is really that simple. Lets break that down.
When They Are Age 62 or More
If there is one borrower and they have had their 62 birthday, they are qualified on this point. If there are two or more borrowers, they both have to be age 62. The calculation for how much money is available is based on the age of the youngest borrower. Many times I seen an adult child on title with their parent(s). That is usually easy to deal with and the loan can go forward with the adult child releasing their interest as part of the final closing. If the adult child is age 62 or older, they may stay on title but the amount available is going to be much less than a parent who is likely to be age 80 or older.
At times, on owner may be age 62 or more and the spouse may be under age 62. It is possible to remove the younger spouse from title and go ahead with the reverse mortgage but that may cause some problems down the road:
- We haven't gotten to it yet, but the loan is due and payable in full when the borrower moves, sells or dies. So if the borrower moves into a nursing home (there is a 12 month grace period) or dies, the loan is due and payable. While the spouse may be named in a will or trust as inheriting the home, the loan still needs to be paid. On the assumption, money was one of the reasons the reverse mortgage was done, the surviving spouse likely will not be able to pay off the loan. Typically, the surviving spouse will need to sell the home, pay off the mortgage and move. In most cases that is not a good situation and usually should be avoided.
- It also isn't possible to just add the younger spouse onto title when they turn age 62. Title cannot be changed without approval. The way to add a spouse when they reach age 62 is to refinance the reverse mortgage with a new reverse mortgage. This is costly. Additionally, they amount available will be calculated based on the age of the 62 year old. Depending on what changes have occurred since the first reverse mortgage was done, this will frequently be for less money. It may be that a new reverse mortgage would not provide enough money to pay off the first reverse mortgage and the younger spouse could not be added.
- I have seen rare occurrences where this could make sense. Once, I had an 85 year old man with a 57 year old wife. They lived out in the country in a very large and high valued home. When I discussed the problems with one spouse on title and one off title, the wife said that, on the assumption her husband predeceased her, she would sell the home and move to a smaller home in town. She did not wish to be in the country alone and with a big home to take care of for just herself. This is one of the few cases where taking the younger spouse off title could make sense.
- Another case might be in the case where foreclosure is imminent. If they both would lose the home otherwise, it may make sense to do the reverse mortgage now with the younger spouse taken off title. Care should still be used. This would work best if the younger spouse were just a year or two from age 62, the reverse mortgage paid off the old loan with a fair amount of money still available in the reverse mortgage that could be left in the Line of Credit option. Then, when the younger spouse turned age 62, they could do a new reverse mortgage, with the smaller amount the younger spouse received being enough to pay off the original reverse mortgage. If the qualifying spouse should die before the younger spouse turned 62 and/or the original reverse mortgage could be refinanced, the younger spouse may be no worse off than today with the foreclosure being faced.
Own Their Own Home or Buying a Home
The borrower(s) must own the home. If they own the home with a first and/or second mortgage, it has to be small enough to be paid off with the new reverse mortgage. They may not borrow the money to pay off the excess.
They may be buying the home if they have sufficient down payment. The existence of the down payment (which cannot be borrowed) must be proven, usually with two months statements from the financial institution where the money is at.
The property must be a single family or a 2-4 unit dwelling where the borrower lives in at least one of the units. Condominium units, townhomes, PUDs (Planned Unit Developments) and some manufactured homes or co-ops are eligible. Manufactured homes have a LOT of rules.
Mobile homes in a mobile home park or mobile home 'condo' complex are not eligible. Most mobile homes in a park are considered 'personal property'. The Reverse Mortgage is a Real Estate loan and the property must be 'real property'. The land under the home must be owned. The manufactured homes I've seen qualify are typically out in the country on their own lot. They have a permanent foundation with the wheels removed. Again, there are a lot of rules. Most Reverse Mortgages are approved and funded fairly easily. Most of the loans I have done that have NOT worked out have been manufactured homes because they didn't meet at least one of the rules.
It's Their Principle Residence
Pretty simple. They live there and consider it their principle residence. In general, it has been said that people take better care of the home they rely on for shelter.
Second homes are not eligible. Is it possible to claim your second home as your primary residence? Perhaps, but in my opinion, you don't want to play games with the federal government (FHA). If your ID doesn't match the residence of the property on the loan, it will set off red flags with the Underwriter. They will ask more and more questions until they are satisfied. What address does the utility bills go to? What address is used on tax returns? There may be other reports that may be seen which identify what most entities see as your primary residence.
From the above discussion, it should be easy to see that rentals, time shares and such are not eligible.
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