I am 65 and my wife is 40. We have paid off a significant portion of our regular mortgage so we have quite a bit of equity in our home. Can we get a reverse mortgage?
It sounds like you can probably qualify for a reverse mortgage, but it might not be your best option.
Reverse mortgages have been touted as a great way for cash-strapped senior citizens and retired persons to get spending money without having to give up their homes. The most popular reverse mortgage is the FHA's Home Equity Conversion Mortgage (HECM). With a reverse mortgage, you receive payments from the lender based on the equity in your home and the loan doesn’t have to be paid back until you die, move, or sell the home. (Learn more about reverse mortgages in Nolo’s article Reverse Mortgages for Retirees and Seniors.)
Generally, to qualify for a reverse mortgage you must:
- be 62 years of age or older
- occupy the property as your principal residence, and
- have substantial equity in the property or own the home outright.
(You can find out more about how to qualify for a HUD-insured HECM from the FHA’s website at www.hud.gov by running a search for “reverse mortgage.”)
Since you are 65 years old, you appear to qualify for a reverse mortgage, but your 40-year old spouse does not. One way around this is to deed the title to the property solely into your name and leave your spouse off the reverse mortgage, but in the past this has caused problems.
The Problem With Leaving Your Spouse Off the Reverse Mortgage
Reverse mortgages have historically been written so that once the borrower dies, the surviving spouse (who was not named on the loan) is often told he or she has to repay the loan immediately or else the lender will foreclose on the property.
The law is changing. In 2013, a federal court ruled that the HUD regulation that allows lenders to demand that surviving spouses immediately repay reverse mortgage loans upon the death of their spouses violates federal law. Under new HUD guidelines, for loans issued on or after August 4, 2014, the non-borrowing spouse may remain in the home after the borrower dies (and the loan repayment will be deferred) so long as certain criteria is met. For HECMs taken out before August 4, 2014, the lender has the option to assign the reverse mortgage to HUD if the non-borrowing spouse meets certain criteria and the loan repayment will be deferred. (Learn more in Nolo’s article New Rule – Spouses Not Named on Reverse Mortgages Are Protected From Foreclosure.)
Another Issue: You Could Run Out of Money
You, and especially your spouse, are both relatively young to be taking out a reverse mortgage considering the average lifespan in the U.S. is almost 80 years. You could spend down the equity in your home early on and then not have enough funds available down the road to cover your expenses, which could likely include health care costs, as well as taxes, insurance, and upkeep for the property.
Also, keep in mind that to get the reverse mortgage you’ll typically first have to pay off the existing mortgage with the reverse mortgage funds. (Learn more in Nolo’s article What are my responsibilities if I get a reverse mortgage?)
Reverse mortgage lenders provide a finite number of payments and you could run out of money if you take out a reverse mortgage at this time.
Other Options to Consider
You don’t mention why you’re thinking of taking out a reverse mortgage, but if you need access to cash, a few other options for you to consider as an alternative to taking out a reverse mortgage include:
- getting a Home Equity Line of Credit
- refinancing your existing mortgage to lower the payments
- obtaining a loan modification for your existing mortgage to lower the payments
- downsizing to a more affordable home, and/or
- applying for federal, state, or local programs that provide financial assistance (to pay property taxes or make home repairs, for example) to seniors.
For more information about reverse mortgages, as well as other available options for older homeowners, at AARP’s website at www.aarp.org/revmort.