Reverse Mortgage Eligibility

Age, Residency, and Ownership: The Borrower Requirements

Age is the first question a family usually asks. Under 12 U.S.C. § 1715z-20(d), a HECM must be signed by a borrower who qualifies as an "elderly homeowner." The statute defines that in 12 U.S.C. § 1715z-20(b) as a homeowner "who is, or whose spouse is, at least 62 years of age or such higher age as the Secretary may prescribe." HUD's regulation is narrower about borrowers on the loan: under 24 C.F.R. § 206.33, "The youngest borrower shall be 62 years of age or older at the time of loan closing."

A younger spouse is not always left out. HUD rules recognize an Eligible Non-Borrowing Spouse, a spouse who is not a borrower on the loan but may be protected under it. HUD's FHA Connection guide for lenders lists borrowers as "62 years of age or older" and adds: "Non-borrowing Spouse must be 18 or older." The age of the youngest borrower or eligible non-borrowing spouse also affects how much may be available.

Living there matters as much as age. Under 24 C.F.R. § 206.39, "The property must be the principal residence of each borrower, and if applicable, Eligible Non-Borrowing Spouse, at closing." The CFPB describes a principal residence as the place you live "the majority of the year."

Ownership comes next. According to the CFPB's eligibility page, a borrower must either own the home outright or have a low mortgage balance that can be paid off at closing, using the borrower's own funds or the reverse mortgage. Owning the home free and clear is permitted. For a homeowner retiring with a mortgage still owed, that payoff step is the central question.

Property Requirements: What Homes Qualify

The home itself has to fit the program. Under 12 U.S.C. § 1715z-20(d), the loan must be "secured by a dwelling that is designed principally for a 1- to 4-family residence in which the mortgagor occupies 1 of the units." The statute's definition of a mortgage also reaches some cooperative housing units and some long-term leaseholds. The eligible categories therefore include a single-family house and a building of two to four units where the borrower lives in one unit. The list continues, and a lender can say whether a particular property type qualifies.

Condition counts as well. HUD's lender guide states that a HECM property "must meet FHA property standards and flood requirements." The CFPB adds that if a house falls short, "the lender will tell you what repairs need to be made" before the loan can be made.

A HECM can also be used to buy a home. The HUD HECM program page explains that a borrower can purchase a primary residence by using cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs. The same eligibility rules and ongoing duties apply.

A reverse mortgage does place a lien on the house, meaning a legal claim securing the debt. Federal Truth in Lending rules at 12 C.F.R. § 1026.33 describe the transaction as one in which "a mortgage, deed of trust, or equivalent consensual security interest" is created in the borrower's principal dwelling. The title remains in the homeowner's name.

On a Fixed Income? How the Financial Assessment Works

Money questions are where a homeowner on a fixed income often feels least sure. The financial side of eligibility looks less at earning power and more at whether the borrower can keep up with the home's ongoing costs.

The CFPB lists several financial conditions. A borrower cannot owe federal debt, such as federal income taxes or federal student loans, although reverse mortgage money may be used to pay that debt off. A borrower must also "have enough of your own money or agree to set aside part of the reverse mortgage funds at your loan closing to pay ongoing property charges, including taxes and insurance, as well as maintenance and repair costs."

That set-aside is a portion of the loan held back to pay future property charges. HUD's rules call one form of it a Life Expectancy Set-Aside, or LESA: money reserved from the proceeds, at the start, for taxes and insurance over the expected life of the loan. Money held for this purpose is not available for other uses. The lender reviews the borrower's situation and explains whether a set-aside applies.

How much may be available is a separate question. HUD's program page states that the amount "varies by borrower" and depends on:

• the age of the youngest borrower or eligible non-borrowing spouse;
• the current interest rate; and
• the lesser of the appraised value, the HECM FHA mortgage limit, or the sales price.

HUD publishes the current mortgage limit, also called the maximum claim amount. Federal rules limit the origination fee, the lender's charge for making the loan, and the lender discloses it. Under 12 U.S.C. § 1715z-20(d), the borrower must also receive full disclosure of all costs, including which charges are required to obtain the loan and which are not.

The Required Counseling Session

Counseling is often the first real conversation a family has about this decision, and it is required before a HECM can move forward. Under 12 U.S.C. § 1715z-20(d), the borrower must have "received adequate counseling" from an independent third party not associated with or paid by anyone originating or funding the loan, or selling annuities, investments, long-term care insurance or other financial products. Under 24 C.F.R. § 206.41, the borrower, any Eligible or Ineligible Non-Borrowing Spouse, and any non-borrowing owner must receive counseling.

The statute lists what the counselor must discuss, including:

• options other than a HECM, such as other housing, social service, health and financial options;
• other home equity conversion options, such as sale-leaseback financing, deferred payment loans and property tax deferral;
• the financial implications of the loan; and
• a disclosure that a HECM may have tax consequences, affect eligibility for federal and state assistance, and affect the estate and heirs.

The CFPB's counseling questions page suggests questions to bring, such as how a spouse would be affected, or what happens if a move to a nursing home becomes necessary.

HUD's program page points to its HECM Counselor Roster, to a list of agencies offering telephone and face-to-face counseling nationwide, and to its line at (800) 569-4287. The FTC notes that agencies usually charge a fee, often around $125 as of August 2022, although it can be more. The fee can be paid from the loan, and a person cannot be turned away for being unable to afford it. Counseling is education. It does not commit anyone to take the loan.

The Three Types of Reverse Mortgages and Who Each Fits

A family weighing the age rule may hear about other kinds of reverse mortgages. They fall into three categories.

Home Equity Conversion Mortgage (HECM). HUD's program page states that the HECM is the only reverse mortgage insured by the U.S. federal government, and that it is available only through an FHA-approved lender. It follows the age, residence, property and counseling rules on this page.

Proprietary reverse mortgages. These are private loans that a lender designs and offers itself, without FHA insurance. Because the federal HECM rules do not set their terms, the lender sets the age minimums, property limits and costs, and these can differ from the HECM. The FTC notes that some lenders offering proprietary reverse mortgages also require counseling.

Single-purpose reverse mortgages. These are loans meant for one approved use, such as home repairs or property taxes. They may be offered by a government agency or a nonprofit, and where they exist, their rules come from that program.

For any product other than a HECM, a borrower can ask the lender or program in writing which rules, protections and costs apply. The HECM rules described here may not carry over.

If the home or the borrower's age does not fit the HECM rules, a different type of reverse mortgage may have its own terms worth understanding.

What Eligibility Requires After You Close

Qualifying at closing is not the end of eligibility. The duties described at the top of this page continue for the life of the loan: living in the home as a principal residence, paying property taxes and homeowners insurance, and keeping the home in good condition.

The rules spell out when the balance comes due. Under 24 C.F.R. § 206.27, the loan is due in full if a borrower dies and the home is not the principal residence of at least one surviving borrower, subject to a deferral period for an Eligible Non-Borrowing Spouse who meets HUD's requirements. It is also due if a borrower conveys all title and no other borrower keeps title. With HUD's approval, it can also become due if:

• the home stops being a borrower's principal residence for reasons other than death, and no other borrower lives there;
• for longer than 12 consecutive months, a borrower does not live there "because of physical or mental illness," and no other borrower lives there;
• the borrower does not pay property charges as required; or
• another obligation under the mortgage is not performed.

When a loan comes due, the homeowners or their heirs repay it, the CFPB notes, "usually by selling the home." If obligations go unmet, the lender may treat the loan as in default, and the mortgage terms provide for foreclosure proceedings. Under 12 U.S.C. § 1715z-20(d), the homeowner generally is not liable for more than the net sale proceeds or the insurance benefits. Meanwhile, interest and fees keep growing the balance, and the equity left in the home keeps shrinking.

Rules also change. The statute lets HUD set additional requirements by notice or mortgagee letter. One recent example: HUD's program page explains that adjustable-rate HECMs tied to the LIBOR index, which expired on June 30, 2023, moved to the CME Term SOFR index. HUD's program page carries current program notices.

Alternatives to Consider Alongside a Reverse Mortgage

A reverse mortgage is one tool, and a homeowner can turn home equity into cash in other ways. Each one involves something and trades something.

• A budget and benefits review. The CFPB notes that state and local programs can help with utilities, fuel and home repairs, and that many localities help with property taxes. This adds no debt, but the amount available depends on each program's rules.
• Help from family. A relative may cover a cost or share expenses, which avoids a loan but depends on that relative's means and on clear expectations.
• Selling or downsizing. Moving to a smaller or less costly home can free equity and lower expenses, though it means leaving the current home.
• A home equity loan or line of credit. A home equity loan is a lump sum. A home equity line of credit, or HELOC, lets a homeowner borrow as needed up to a set limit. The CFPB notes that these "might be a cheaper way to borrow" but "usually have monthly payments," and that qualifying depends on income and credit. The tradeoffs appear side by side in a reverse mortgage vs HELOC comparison.
• A cash-out refinance. A new, larger mortgage replaces the old one and pays out the difference in cash. That brings new monthly payments.

A HUD-approved counselor walks through alternatives in the required session. Which option fits depends on the homeowner's health, plans, income and wishes for the house. A counselor, an attorney or a financial adviser can help weigh those facts. Readers meeting the loan for the first time may find a plain account of how a reverse mortgage works a useful next read.