If you’re concerned that your retirement nest egg is not quite big enough, you may be right. More than half of Americans don’t know how much they’ll need to retire comfortably1. And what’s even scarier – over one-fifth of Americans enter the so-called ‘golden years’ with just less than $5,000 in savings1.
Even if you do feel confident in your retirement savings, the fact of the matter is this – retirement expenses are on the rise. With skyrocketing healthcare costs, a record amount of mortgage debt, and the hefty price tag that comes with home maintenance, there are plenty of financial challenges that today’s retirees face.
Fortunately, for many seniors there is an untapped source of wealth that can help – home equity. For the average 62-year-old American couple, home equity represents over two-thirds of total wealth2. And tapping into this equity with a Home Equity Conversion Mortgage (HECM) – also known as a reverse mortgage – has become a powerful financial tool to help senior homeowners live a more comfortable retirement.
With the ability to convert a portion of the equity in your home into cash, a reverse mortgage can provide an additional source of cash flow to pay off bills, make key home improvements, or supplement your retirement savings for future expenses. While there are several ways today’s retirees leverage reverse mortgage proceeds, the cash received from a reverse mortgage can be used however you wish, for whatever matters most to you.
But like all financial decisions, opting for a reverse mortgage is a big decision – and must be right for your unique situation. While there is no standard applicant for a reverse mortgage, there are certain qualities that could make you a good candidate for a reverse mortgage.
You Plan to Stay in Your Current Home
By now you may have heard of the ‘aging in place’ movement – with 90% of people over the age of 65 wishing to stay in their homes for as long as possible3. If you fall into this group and plan to stay in your home well into retirement years, a reverse mortgage could be a viable option. Like any other loan, reverse mortgages come with costs and fees – and it doesn’t make sense for you to pay these if you plan to relocate in the near future.
Reverse mortgages also require you to meet occupancy requirements – meaning your home must be your primary residence. Simply stated, you continue to meet this requirement as long as you do not leave your home as your primary residence for more than 12 consecutive months at a time. However, it’s worth noting that this residential requirement does not force you to live in the home 24/7/365 – you are free to travel and come and go as you please, as long as the home remains your primary residence.
You Meet Financial Obligations
One of the top benefits of a reverse mortgage is the ability to eliminate monthly mortgage payments4. However, there are still financial obligations. To qualify for a reverse mortgage, you must be able to pay your property taxes, homeowner’s insurance, and home maintenance. If applicable, HOA fees will also need to be paid. If you are considering a reverse mortgage, it’s important that you have a plan for how to manage these costs. Should you fall behind on any of these financial obligations, your loan can become due and payable.
To obtain a reverse mortgage, borrowers also cannot be delinquent on any federal debt. Prior to completing your reverse mortgage loan application, you will meet with a HUD-approved reverse mortgage counselor to review these loan terms and obligations to make sure that the loan is, in fact, best suited for your financial situation.
You’re at Least 62 Years Old
In order to be eligible for a reverse mortgage, you must be at least 62 years of age. And the older you are, the better! When it comes to calculating the amount of proceeds you can receive with a reverse mortgage, known as the “principal limit,” your age is a key factor. Since the principal limit accounts for the estimated length of the loan, the older your age, the more cash you’ll be able to receive. If you plan to have a spouse or co-borrower included on your reverse mortgage loan, the age of the youngest borrower will be used to determine the principal limit. Similar to collecting Social Security benefits, the longer you can defer tapping into your home equity, the more money you can ultimately receive.
Your Property Qualifies
When it comes to the FHA Home Equity Conversion Mortgage (HECM), you need to see if your home qualifies for financing. According to the US Department of Housing and Urban Development (HUD), the most common type of property eligible for a reverse mortgage is a single-family home. However, if your property is a multi-family home, you may still qualify – as long as one of the units is your primary residence.
Other property types eligible for a reverse mortgage include some manufactured homes and HUD-approved condominiums. If you live in one of these types of dwellings, you should check the FHA’s website as well as HUD to confirm your residence is eligible.
Property types that don’t qualify for a reverse mortgage include vacation homes, secondary homes, and homes on income-producing land – such as a farm. Learn more about property requirements for a reverse mortgage.
You Have Sufficient Equity in Your Home
Perhaps the most obvious qualification for a reverse mortgage is having enough equity in your home to tap into. The more equity you have in your home, the more likely it is that you can get cash from a reverse mortgage to supplement your retirement income. As a general “rule of thumb,” the equity in your home should be at least 50% of your home’s value. Fortunately, since home values have risen over the past year, many homeowners are finding that they can qualify for a greater amount than in the past. To get a better idea of how much you could qualify to receive, run the numbers with our reverse mortgage calculator. And check out ways to grow your home equity.
Sound like a good fit? Let’s talk. At Longbridge Financial, reverse mortgages are all that we do. We specialize in helping senior homeowners like you leverage your hard-earned home equity to address the financial challenges that impact so many American retirees.
We’re committed to recommending the reverse mortgage program only after we make certain the program is right for you and meets your needs. Our team of reverse mortgage experts will get to know you, your goals, your home, and your finances as we discuss your options. And you can rest assured that if we ever feel like this is not the best option for you, we will tell you so. Not all lenders make that pledge.
If you’re considering a reverse mortgage loan, check out our article on what to look for when selecting a lender. And for more information and answers to your reverse mortgage questions, contact the Longbridge team of experts today.
1 Newsroom | Northwestern Mutual – Planning & Progress Study 2019
2 How To Use Home Equity For Retirement – Forbes Advisor
3 Aging in Place: A State Survey of Livability Policies and Practices (aarp.org)
4 As with any mortgage, the borrower must keep current with property taxes, insurance, and maintenance.