As homeowners, many of us rely on various financial tools to help us manage our properties and achieve our long-term goals, the most common tools being mortgages. There are many different types of mortgages, but for some of us who are in or approaching retirement, a reverse mortgage can be a game-changing financial tool!
But what happens if you’re interested in exploring a reverse mortgage, but you still have a mortgage balance on your home? Can you still apply for a reverse mortgage while having an existing mortgage? Let’s examine these questions and get to the facts.
Start with the Basics
Before we dive in, it’s important to have a firm understanding of the reverse mortgage product. Put simply, a reverse mortgage gives you the power to convert a portion of your home’s equity into cash without having to sell your home or make regular monthly mortgage payments. Of course, like any mortgage, you must keep up with your property taxes, insurance, and home maintenance.
This unique loan is similar to a HELOC but was specifically designed for older homeowners. It can offer a supplement to your retirement income, making it a useful tool for achieving your financial goals. Unlike a traditional mortgage, a reverse mortgage doesn’t require regular monthly payments.1 Instead, the loan is repaid when you or the last surviving borrower permanently leave the home – this includes selling the property, moving out for more than 12 consecutive months, or passing away—or if you fail to keep current with your property taxes, insurance, and maintenance.
Now, let’s address the main question: Can you apply for a reverse mortgage if you already have a mortgage on your home? The answer is yes, it is possible to obtain a reverse mortgage even if you currently have an outstanding traditional mortgage. However, there are some important factors to consider.
Get all the Facts
First, it’s crucial to understand that the reverse mortgage must be the primary mortgage on the property. This means that if you have an existing mortgage, the reverse mortgage must be used to pay off the balance of the traditional mortgage – this is a requirement of the loan. To do this, your reverse mortgage lender will use the funds from your loan to satisfy the outstanding mortgage debt, thus eliminating your existing mortgage.
Second, you must meet certain eligibility requirements, including age and homeownership criteria. As mentioned earlier, reverse mortgages are available to homeowners aged 62 or older, with some proprietary loans, like Longbridge Platinum,2 available to those aged 55 and above.3 Additionally, you must reside in the property as your primary residence. These criteria apply regardless of whether you have an existing mortgage or not.
Make Your Own Decision
It’s important to note that applying for a reverse mortgage while having an existing mortgage may have financial implications. By taking out a reverse mortgage, you essentially convert your home equity into cash, which can reduce the value of your estate. Additionally, there are costs associated with obtaining a reverse mortgage, such as closing costs and fees, which should be carefully considered.
To navigate the complexities of reverse mortgages, it is highly recommended to seek professional advice from a trusted financial professional. An expert can assess your individual circumstances, explain the potential benefits and drawbacks, and help you make an informed decision.
Dive into the Details
If paying off your existing mortgage and taking out a reverse mortgage sounds like the right move for your financial future, it’s helpful to have all of the details before making a decision. How do you know if you meet the reverse mortgage qualifications? In addition to the age and homeownership criteria we already covered, there are some additional eligibility requirements you should be familiar with. Here are some common questions and answers about more specific reverse mortgage qualifications:
- How much equity do you need? 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, cover home modifications or in-home care expenses, or even take a trip. As a general rule, your equity should be at least 50% of your home’s value. And, as home values have risen, many homeowners are finding they can qualify for a larger amount than in the past. If you’d like to see how much you could qualify to receive, try a reverse mortgage calculator.
- What types of home qualify? The most common types of homes that meet the reverse mortgage qualifications are single-family homes. However, multi-family homes (up to four units) can also qualify, as long as one of the four units serves as your primary residence. Manufactured homes can qualify if they meet Federal Housing Administration (FHA) requirements and condominiums can also qualify for a reverse mortgage, however, not all condos are eligible for all types of reverse mortgages.
- Are there financial requirements? One of the qualifications for a reverse mortgage is homeowners must be able to pay their own property taxes, homeowner’s insurance, and home maintenance. HOA fees, if applicable, will also need to be paid. You must have paid your property taxes for the last two years and cannot be delinquent on any federal debt. You will also need to meet with an independent, third-party, HUD-approved reverse mortgage counselor before completing your loan application.
- How much can I borrow? Many factors can impact how much you can borrow. For example, the more your home is worth, the more you can borrow. Home values remain high in many parts of the country, so you might be surprised at how much equity you have. The amount you qualify for also depends on the age of the youngest borrower, with older borrowers receiving more, and other factors.
So, could you be a good fit for reverse? Even if you currently have a mortgage on your home, you can still apply for a reverse mortgage! But the reverse mortgage must become your primary mortgage, and the funds obtained from the loan must be used to pay off the existing mortgage. As with any financial decision, it is essential to carefully evaluate the implications and consult with professionals who can provide personalized guidance.
Remember, understanding the intricacies of reverse mortgages is crucial to make the best decision for your financial future. To learn more, speak with a reverse mortgage consultant at Longbridge today!