Reverse Mortgages 

A reverse mortgage allows older homeowners to convert a portion of their home equity into tax-free cash without having to sell the home or make monthly mortgage payments. This program is designed to provide financial flexibility and support for seniors during retirement.

The Federal Housing Administration (FHA) provides insurance on the most common type of reverse mortgage, the Home Equity Conversion Mortgage (HECM). Because the loan is federally insured, borrowers are protected if the loan balance grows to exceed the value of the home. Reverse mortgages are available in all 50 states, and the funds can be received as a lump sum, monthly payments, or a line of credit.

While monthly mortgage payments are not required, borrowers remain responsible for paying property taxes, homeowners insurance, and maintaining the property. To qualify, borrowers must meet age and home equity requirements, and complete a mandatory counseling session with a HUD-approved agency.

A reverse mortgage is a unique loan type designed for homeowners who have accumulated significant home equity. Unlike a traditional forward mortgage where you make monthly payments to a lender, the lender makes payments to you. The loan is typically repaid when the last remaining borrower passes away, sells the home, or permanently moves out. The Home Equity Conversion Mortgage (HECM) is the most common reverse mortgage and is insured by the Federal Housing Administration (FHA).

Borrower Requirements

  • You must be 62 years of age or older (some proprietary reverse mortgages may allow younger ages).
  • You must own the property outright or have a significant amount of equity (typically 50% or more).
  • The home must be your primary residence where you live the majority of the year.
  • You must not be delinquent on any federal debt.
  • You must complete a counseling session with a HUD-approved reverse mortgage counselor.

Financial Assessment

Lenders perform a financial assessment to verify your ability to meet ongoing property obligations. Key considerations include:

  • Proof of sufficient financial resources to pay ongoing property taxes, homeowners insurance, and homeowners association (HOA) fees.
  • An analysis of your income, assets, credit history, and monthly living expenses.
  • If the lender determines you do not meet the cash flow requirements, a Life Expectancy Set-Aside (LESA) may be required to pay taxes and insurance from the loan proceeds.

To qualify for an FHA-insured HECM, the property must meet specific FHA guidelines and be your primary residence. Eligible property types include:

  • Single-Family Homes
  • Two-to-Four Unit Properties (provided the borrower occupies at least one unit)
  • FHA-Approved Condominiums
  • Manufactured Homes that meet FHA wind, foundation, and safety standards
  • Townhomes

  • Eliminates Monthly Mortgage Payments (borrower remains responsible for property taxes, insurance, and maintenance)
  • Flexible Payout Options (lump sum, monthly tenure payments, line of credit, or a combination)
  • Non-Recourse Feature (you or your heirs will never owe more than the home's appraised market value when the loan is repaid)
  • You Retain Title and Ownership of the Home
  • The Line of Credit Option has a growth feature, meaning the unused portion grows over time
  • Funds received are generally tax-free (consult a tax professional for details)

You can apply for a HECM reverse mortgage through an FHA-approved lender. The standard application process involves several steps:

  • Schedule and complete a mandatory educational session with a HUD-approved housing counseling agency. You can locate an agency on the HUD website.
  • Provide the lender with your signed counseling certificate, which is required before any application fees can be collected or services ordered.
  • Submit financial documentation for the financial assessment (income, bank statements, tax returns).
  • An FHA-approved appraisal will be performed on the home to determine its current market value and physical condition.

Yes. If you already have a reverse mortgage, you may eligible to refinance it (referred to as a HECM-to-HECM refinance) if your home's value has increased or interest rates have decreased, provided it offers a net tangible benefit. Additionally, you can use a program called HECM for Purchase, which allows you to buy a new primary residence using reverse mortgage proceeds, reducing the amount of cash required for the purchase of the new home.

  • The loan balance grows over time as interest and service fees accumulate (compounding interest).
  • Failure to pay property taxes, homeowners insurance, or failure to properly maintain the home can lead to defaults and potential foreclosure.
  • Upfront closing costs, including the FHA Mortgage Insurance Premium (MIP) and origination fees, can be higher than traditional home loans.
  • The equity in your home will decrease over time, which may reduce the inheritance left to your heirs.