Reverse Mortgage Myth #2 – How Can I Qualify for a Reverse Mortgage When I Already Have a Mortgage?

Qualifying for a reverse mortgage while you already have an existing mortgage is possible, but there are some requirements and steps you must follow. A reverse mortgage allows homeowners aged 62 or older (55+ in California) to convert part of their home equity into cash without having to sell their home or be required to make monthly mortgage payments. Here is a guide on how to qualify.
Understand the Basics:
A reverse mortgage, specifically a Home Equity Conversion Mortgage (HECM), is insured by the Federal Housing Administration (FHA). It enables homeowners to borrow against their home equity. The loan is repaid when the borrower sells the home, moves out, or passes away.
Eligibility Criteria:
1. Age Requirement: A borrower must be at least 62 years old (55+ in California).
2. Primary Residence: The property must be the borrower’s primary residence.
3. Home Equity: You need to have approx.. 50% or more in home equity. Generally, the more equity you have, the higher Reverse Mortgage you can qualify for.
4. Financial Assessment: We will assess your income, assets, monthly living expenses, and credit history to ensure you can pay the property taxes, homeowner’s insurance, and maintenance.
Steps to Qualify:
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Consult with a Reverse Mortgage Counselor: Before an application is taken, you must meet with a HUD-approved reverse mortgage counselor. This session, which can be done over the phone, will help you understand the process, costs, and implications of a reverse mortgage.
Determine Your Home Equity:
To qualify, your existing mortgage balance must be low enough that the reverse mortgage can cover it. Typically, lenders require that the reverse mortgage proceeds be sufficient to pay off the existing mortgage. The remaining balance will be available to you as a lump sum, line of credit, or monthly payments.
Financial Assessment:
Lenders will perform a financial assessment to ensure you have the capacity to pay ongoing property-related expenses. They’ll look at your credit score, income, and assets. Poor credit won’t necessarily disqualify you, but you must demonstrate the ability to manage necessary payments.
Appraisal of Your Home:
An independent appraisal will determine your home’s current market value. This appraisal is critical because the amount you can borrow is based on the appraised value, the age of the youngest borrower, and current interest rates.
Pay Off the Existing Mortgage: The reverse mortgage funds will first be used to pay off your existing mortgage. If the reverse mortgage loan amount is insufficient to cover the current mortgage, you will need to contribute the difference. This might require personal savings or other sources of funds.
Conclusion:
Qualifying for a reverse mortgage with an existing mortgage is feasible if you have sufficient home equity and can meet the lender requirements. Start by consulting with me and I’ll go over the nuances and get some preliminary information. Once I answer all your questions and concerns, you can proceed with the counseling where the counselor will further help you understand all aspects of the loan, so you decide if it aligns with your financial goals.