If you’re a homeowner that is at or near retirement age, a reverse mortgage is worth looking into as a way to turn your home equity into cash. With inflation at record levels and the cost of living continuing to go up, it’s understandable that you would want to create financial breathing room for yourself. The question you may now be wondering is, can I get a reverse mortgage at the age of 55?
The short answer is, yes you can qualify for a reverse mortgage starting 55 years old. The mortgage is called a proprietary mortgage and comes with additional stipulations since it is not government backed. Keep reading to learn more, but the gist of it is that while government-insured reverse mortgage loans require you to be age 62 or older, it is possible to qualify for a private, proprietary reverse mortgage at a minimum age of 55.
The Consumer Financial Protection Bureau (CFPB) talks about several different types of reverse mortgage loans:
- Home Equity Conversion Mortgage HECM loans insured by the Federal Housing Administration
- non-HECM mortgages offered by private lenders
- single-purpose reverse mortgage loans offered through state and local government programs.
To get a reverse mortgage at age 55, you’ll need to focus on option #2 (non-HECM mortgages offered by private lenders). There will also be other eligibility criteria which may include having a sufficient amount of equity in the home, confirming who will occupy the property, and ensuring the property is in good condition.
What is a reverse mortgage?
A reverse mortgage allows a homeowner to receive monthly payments in exchange for the equity they’ve built in the home. This is in contrast to a traditional mortgage where the homeowner makes payments to a lender.
The amount that can be borrowed is dependent on a few things, such as your age, the value of the home, and the prevailing interest rate. Each month a homeowner receives payments from the reverse mortgage, the loan balance owed to the lender grows. This balance can include interest and fees, and as the amount owed goes up, the equity in the home goes down. The loan is usually repaid after the homeowner decides to sell the property, moves out, or passes away.
A reverse mortgage allows you to continue holding title to the property as the owner.
You won’t need to make any monthly payments other than staying current on your property taxes, homeowner’s insurance, and any applicable homeowner’s association (HOA) dues. You’ll also be expected to maintain the property in good condition, and continue to adhere to any other requirements of the loan you’ve agreed to, which usually involves continuing to occupy the property as your primary residence.
Who can benefit from a reverse mortgage?
If you are at or near retirement age, have a significant amount of home equity, and need additional monthly income, you could be a great candidate for a reverse mortgage. The equity you have in your home is an asset, so why not turn it into cash?
Most reverse mortgages allow you to use the funds for a variety of needs. You can use the funds to cover recurring monthly expenses like groceries and medical bills. If you have extra cash left over at the end of the month, you could also save it for long-term expenses such as home or car repairs.
What are the different types of reverse mortgage loans and eligibility requirements?
The Consumer Financial Protection Bureau lists three major types of reverse mortgage loans, each with its own set of requirements. Depending on the type of loan, lenders could also have slightly different requirements. If you happen to be turned down for a reverse mortgage, you can always try another lender or consider another type of reverse mortgage.
The three major types include Home Equity Conversion Mortgages (HECMs), private non-HECM loans, and single-purpose reverse mortgage loans.
Home Equity Conversion Mortgage (HECM)
A HECM is insured by the Federal Housing Administration. Since this is backed by the government, you’ll find that the requirements will be virtually identical regardless of which lender you choose.
Some of the basic requirements to be eligible for a HECM include:
- Must be at least age 62 or older (also includes your non-borrowing spouse);
- Must live in the home as your primary residence;
- Property must be in good condition
- Must own the home free and clear (or have a significant amount of equity);
- Must pay off any federal debt owed (such as income taxes or student loans);
- Must have sufficient funds to pay ongoing expenses such as property taxes and insurance;
- Complete a HUD-approved counseling course
Private reverse mortgage (non-HECM)
Private lenders that offer a reverse mortgage can be a good alternative, especially if you do not meet the age requirement for government-insured HECM loans. With a private non-HECM mortgage, the age requirement drops from 62 down to 55. Some other eligibility factors, which may vary from lender to lender, can also include the following:
- Minimum age requirement of 55 or older (may be higher in select states);
- Must occupy the property as your primary residence;
- Must have at least 50% equity in the home;
- Homeowner to complete an approved reverse mortgage counseling course;
- Sufficient residual income from monthly cash flow to meet continuing financial obligations (such as home maintenance and repairs);
- A minimum credit score of 620
Single-purpose reverse mortgage
Single-purpose reverse mortgage loans are typically offered by non-profit, local, or state organizations. To find programs that might be offered in your area, you can search with your local Area Agency on Aging. Requirements can vary depending on the location and lender, but generally involve the following:
- Must age at least age 62;
- Homeowner must identify a qualified expense that the loan proceeds will be used for
What fees are involved with a reverse mortgage?
In general, a reverse mortgage can be much more expensive than a traditional home loan. Also, interest rates and closing costs are usually not as competitive as that of a traditional mortgage loan.
A single-purpose reverse mortgage loan tends to be the least expensive, but regardless of the program you choose, there are a few ways you can handle the costs of the loan. If you don’t want to pay for the costs upfront, you may have the option of rolling them into the loan amount. Doing this, however, will also impact how much cash you receive each month from the lender.
Some of the fees that you may encounter with a reverse mortgage can include the following:
- Reverse mortgage counseling (varies by lender and location)
- Origination fees
- Appraisal fees
- Title search fees
- Home inspection fees
- Credit report fees
- Government recording fees
- Mortgage insurance premium (may be charged annually and as a one-time cost of the loan)
The Consumer Financial Protection Bureau also reminds those interested in a reverse mortgage of ongoing expenses you’ll need to take into consideration, such as:
- Property taxes
- Homeowner’s insurance
- HOA dues
- Flood insurance
- Annual mortgage insurance premium
- Servicing fees to your lender
Proprietary reversement mortgage vs HECM
For most folks, the right type of reverse mortgage will depend on their own goals and personal circumstances. The different types of reverse mortgages each have their own set of features, qualifications, and characteristics that are best suited for certain situations.
To help you figure out which might be the best choice, here is a quick overview of some of the characteristics of each type of reverse mortgage:
- Age requirement: Age 55+ for non-HECM, otherwise 62+
- Occupancy requirement: Must be owner-occupied
- Home equity requirement: Must be owned free and clear, or have a significant amount of home equity
- Availability: HECM reverse mortgage loans have the widest availability. Single-purpose reverse mortgages can be difficult to find
- Fees: Can be high; single-purpose reverse mortgages tend to have the lowest fees
- Impact on other sources of income: HECM and non-HECM reverse mortgages may impact your eligibility for other sources of government income
- Use of funds: Unrestricted for HECM and non-HECM reverse mortgages; single-purpose reverse mortgages require approval by the lender
- Difficulty of qualification: A single-purpose reverse mortgage loan tends to have the easiest qualification criteria
What lenders offer a reverse mortgage product?
The specific type of reverse mortgage you’re looking for may not be offered by every lender. It’s also wise to shop around to make sure you’re getting the best deal possible. To help you get a head start on your research, we’ve rounded up some of the top reverse mortgage lenders using lists from Investopedia and Money.com.
Age 55+ Lenders:
- Mutual of Omaha
- Finance of America Reverse
- Reverse Mortgage Funding
Age 62+ Lenders:
- Open Mortgage
- American Advisors Group
Is a reverse mortgage the best choice for me?
Taking out a reverse mortgage has pros and cons and is a big financial decision, and there are a few things you should consider before signing on the dotted line. This might include thinking about whether you want anyone to inherit the home, how it could impact any other financial assistance you’re receiving, and whether there are potentially cheaper options besides a reverse mortgage.
Do you want someone to inherit the home?
Firstly, because you are agreeing to receive cash in exchange for your home equity, think about whether you have any family members you would like to take ownership of the house in the event you move or pass away. If you do want someone to inherit the house after you pass away, be aware that a reverse mortgage could impact whether or not they actually get to keep the house. If the balance of the reverse mortgage is too large compared to the value of the home, your heirs may wind up having to sell the property anyway.
Are you receiving any other type of government assistance or income?
If you are receiving any type of income or assistance from a government program (such as Social Security or Medicaid), the income you receive from a reverse mortgage loan could affect your eligibility for those programs. Generally speaking, reverse mortgages do not affect “non-means-tested” government benefit programs (for example, Social Security payments) but may impact with “means-tested” (like Medicaid) so you’ll want to factor this in when determining your monthly budget. Speak to a reverse mortgage advisor to understand how you will be impacted.
What are reverse mortgage alternatives?
Getting a reverse mortgage can be more expensive than a traditional home loan, so you should also consider whether other types of financing will help you take equity out of your home without the high costs of a reverse mortgage.
Some alternatives you could consider include a cash-out refinance, home equity loan, home equity line of credit, and home equity investments:
- Cash-out refinance: Replaces your existing home loan and allows you to obtain a lump sum of cash to be used as you see fit. Monthly mortgage payments are required.
- Home equity loan: A second mortgage that goes on top of any existing home loans currently on the property. You can receive a lump sum of cash to be used as you see fit. Monthly loan payments are required.
- Home equity line of credit (HELOC): Similar to a home equity loan, but allows you to continuously draw funds up to a maximum credit limit. Monthly loan payments are required.
- Home equity investments: Allows you to obtain cash in exchange for a percentage of your home’s future increase in value. No monthly loan payments are required.
Yes, you can get a reverse mortgage at age 55
Although reverse mortgage loans were previously restricted to those with a minimum age of 62, private non-HECM loans have now made it possible to obtain one as low as age 55. With inflation continuing to increase, the additional monthly income you can get from a reverse mortgage can go a long way in helping you cover your monthly expenses. These types of loans tend to be more expensive than traditional home loans though, so it’s important to consider alternative options of financing before making any final decisions.