The Little-Known But Important Details You Need to Know about Reverse Mortgage Eligibility

Determining reverse mortgage eligibility is one of the areas where I get the most questions, and for good reason; while eligibility for the program may seem simple, some of the age and property requirements are a bit more confusing. I'll discuss some of the biggest concerns about establishing reverse mortgage eligibility below.

You Must Meet the Age Requirement

The youngest borrower on the title must be 62 or older. Disability does not affect eligibility. This means that if a borrower on the title is younger than 62, his or her name will have to be removed for the title, and the reverse mortgage will become due based on the status of the last borrower to live in the home over the age of 62 at the time the reverse mortgage is taken out.

You Must Own Your Home

To be eligible for a reverse mortgage, the borrower must own his or her home. The home cannot be on a 99-year lease. No portion of the home or land can be rented.

Your Property Type Must Be Eligible

The borrower must live in an eligible property as determined by the Federal Housing Administration (FHA). Some ineligible property types include:

• Co-ops
• Mobile homes that are not on a permanent foundation
• Manufactured homes built before 1976
• Working farms
• Vacation homes (if not the borrower’s primary residence)
• Bed-and-breakfasts
• Kennels

A note on co-ops: while co-ops are not currently eligible for a reverse mortgage, the industry expects them to become eligible within the next few months.

You May Be Required to Make Repairs

In order to establish one's eligibility for a reverse mortgage, the home must pass an FHA inspection, and if it does not, repairs must be made so that it meets FHA standards. This can include anything as minor as repainting a portion of the exterior or removing an infestation to redoing a roof or moving the boiler.

You Should Be Aware of Quirks in the System

Some of the FHA rules may seem a little out of the ordinary. I've witnessed homes be deemed ineligible for being too close to power lines, drawing water from a lake through an unapproved water purification system, and for being too close to the top of a volcano. The best advice is to ask if your home is eligible. There are enough quirks to make it worth getting looked at.

You Should Understand How Property Value Factors In

The property value of the home is one of the main factors that determines whether or not a reverse mortgage makes sense for the customer—and whether that person meets the standards for reverse mortgage eligibility. A home with a property value that is too low might not give the borrower enough money to justify the fees of a reverse mortgage. If the home has a property value that is too high, the lender may not be able to give the borrower a sum that is anywhere near as much as the home is worth (the current maximum property value limit is $625,500. This means that all homes worth more than $625,500 are, for the purpose of the reverse mortgage transaction, evaluated at $625,500).

The property value of the home is determined by a third-party appraiser. The appraiser bases the value of the home on comparable sales in the area and the condition of the home. As a result, a recent foreclosure in the neighborhood can have a significant effect on the property value of the home. Interior decorating and even a recently remodeled kitchen, however, are unlikely to have a strong (if any) effect on increasing the value of the home.

The only way to know for sure if you qualify is to talk to a licensed reverse mortgage specialist and get an appraisal, but by knowing some of the possible issues in advance, it may help you avoid frustration later.

Posted in Reverse Mortgages, Reverse Mortgages as an Option