Picture this for a moment. You just retired a few years ago and your retirement income is not sufficient to meet all your needs. You own a home which by all means makes the most of your net worth yet you are cash strapped. What do you do in this regard? Do you hope for the best or do you take into consideration the irresistible offer to turn your home into cash as advertisers of reverse mortgages like to put it? Well, before we can shed light on who qualifies for a reverse mortgage, it’s essential to have an idea of what a reverse mortgage is.
Simply put, a reverse mortgage is a unique type of loan that essentially allows older home owners to turn their home equity into cash and supplement their retirement income. In other words, with a reverse mortgage, you get the opportunity to access the home equity you have built over the years. However, unlike conventional loans, you do not pay the lender but rather the lender pays you a predetermined amount of money as reverse mortgage proceeds.
Now that we have an idea of what a reverse mortgage is, who qualifies for reverse mortgage?
In order to be considered for a reverse mortgage, it’s expected that a homeowner should be at least 62 years of age. Why is that so? Well, the government and rules set require that a person be 62 years or older in order to qualify for a reverse mortgage. What happens is that the older a person is, the more they can borrow and vice versa.
The other factor taken into consideration in order to qualify for a reverse mortgage has to do with the ownership status of a home. The applicant must fully own the home freely (a home with no financial attachment) or must have a small balance outstanding on their mortgage. By a “small balance”, we are essentially referring to a figure that can comfortably be cleared using the proceeds of the reverse mortgage. In addition to that, you also need to be in possession of the title to your home as well living in it as the primary residence.
In light of the above, you need to be cognizant of the fact that you cannot qualify for a reverse mortgage on a vacation home, a rental home or even on a home that initially used to be your primary residence but you no longer use it or you haven’t occupied for a period of one year.
Your home also needs to be in perfect condition in order for you to qualify for a reverse mortgage.
Granted, your finances do not play a huge role in determining whether you qualify for a reverse mortgage or not considering the fact that you will be the one receiving payments and not making payments as is the case with traditional mortgages. That said, your finances need to be in order as you need to be able to facilitate homeowner insurance, pay property taxes as well as carry out any repairs if need arises. On this note, inability to meet the aforementioned would essentially be putting the lenders collateral (your house) at risk. For this reason, to be on the safe side and mitigate risks, lenders tend to do financial assessment to ensure that you have enough income to meet the aforementioned. In the case that you have insufficient income, they undertake to put aside some of the proceeds of a reverse mortgage with the sole objective of covering insurance and property taxes.
Granted, not all of us are financially savvy and therefore can’t fully comprehend what we are getting into. Some go for a reverse mortgage because a friend did and end up regretting later. To qualify for a reverse mortgage, the federal government requires that you undergo mortgage counselling. This is specifically aimed at ensuring that a person taking the reverse mortgage fully understands the benefits, the costs as well as the disadvantages of taking a reverse mortgage. Reverse mortgage counsellors also help a person to explore various options of making ends meet rather than resorting to getting a reverse mortgage. Needless to say, if you are financially savvy and understand what you are getting into, you might find reverse mortgage counselling a waste of time and money.
The bottom line
The reality of the matter is that not everyone can apply or qualify for a reverse mortgage loan as we have outlined above. You need to be over and above the age of 62 years to even be considered for this type of financial product. The onus should be on you fully understanding what you are getting into before taking the final plunge. It is always better to be safe than sorry.