In either case, you'll usually need at least 50% of equity based on the current value of your home, not what you paid for it to qualify for a reverse mortgage. With 100% equity, you may be able to qualify for a lump-sum payment of nearly 50% of the home's value. However, with 75% equity, that overall payment can be close to 25% of the value of your home. You can expect that you need at least a 50% equity interest in your home to use a reverse mortgage, although the exact share varies depending on the lender and the specific reverse mortgage program you use.
The reverse mortgage lender charges the origination fee to cover the cost of processing your loan application. It's best to talk to a HUD-approved counselor before committing to a reverse mortgage (and if you want to get a HECM, you'll be asked to do so). In addition, while not all reverse mortgage lenders use high-pressure sales tactics, some use them to attract borrowers. A payment is never due on a reverse mortgage and there is never a prepayment penalty of any kind.
The exact amount the reverse mortgage will pay you depends on several different factors, such as your age, the current value of the home, and your interest rate. One of the most popular types of reverse mortgages is the conversion mortgage with home equity (HECM), which is backed by the federal government. With a reverse mortgage, a homeowner who is the full owner of his home or who, at least, has significant capital to dispose of can withdraw part of his capital without having to return it until he leaves the house. While you may qualify for a reverse mortgage with as little as 50% of equity in your home, the amount of your potential payment increases along with your principal.
Even if payments are made on time, the home may need to be sold after the owner dies to pay the reverse mortgage. In addition to meeting these requirements, borrowers should meet with a certified HECM counselor to learn the details on how to obtain a reverse mortgage and repayment terms. According to Boies, the amount of money you can get from a reverse mortgage depends on several factors, such as the current market value of your home, your age, current interest rates, the type of reverse mortgage, your associated costs and your financial evaluation. Before taking out a reverse mortgage, you should consider alternatives such as the Unison HomeOwner program.
While reverse mortgages may be a tempting option if you have limited income, they're not without risk. Despite the concept of reverse mortgage in practice, qualified homeowners may not be able to borrow the full value of their home, even if the mortgage is canceled.
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