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For many older Americans, their home is more than a place to live. It’s also their biggest financial asset. And, for those who need access to more income in retirement, tapping into that wealth can be a smart move, whether they need help covering medical bills, supplementing Social Security or simply want more financial peace of mind while living on a fixed income. That’s part of why reverse mortgages, which allow homeowners 62 and older to convert home equity into cash without monthly mortgage payments, have become a popular choice among retirees.
But while reverse mortgages are designed to provide an accessible borrowing option to aging households, they aren’t available to everyone. In fact, a surprising number of applicants don’t qualify. Part of the issue is that the reverse mortgage application process has grown increasingly rigorous over the last decade, so there are significant hurdles borrowers may face when applying. For example, borrowers now face mandatory financial assessments that are required to protect both lenders and borrowers from defaults, which can make it harder to qualify.
Understanding those hurdles is critical if you’re considering a reverse mortgage in retirement. You don’t want to begin the process only to discover that your home or finances won’t make the cut. So, what exactly can disqualify you from securing one of these loans, and what should you know before applying?
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What disqualifies you from getting a reverse mortgage?
While reverse mortgages can be a valuable tool, lenders must follow strict rules to protect both borrowers and the financial institutions backing the loans. These requirements mean that not every homeowner qualifies. Here are some of the most common disqualifying factors:
Not meeting the age requirements
While you must be at least 62 to qualify for a government-insured Home Equity Conversion Mortgage (HECM), the age requirement becomes tricky when spouses are involved. If your spouse is younger than 62, they can be included as a non-borrowing spouse, but this significantly reduces the loan amount you’ll receive since calculations are based on the younger spouse’s age.
Some proprietary reverse mortgages do allow borrowers as young as 55, though, depending on the lender and state regulations. However, these private loans typically come with stricter credit and income requirements that can disqualify borrowers who would otherwise qualify for an HECM.
The age factor also affects your borrowing power throughout the life of the loan. Leaving your home for extended periods, including long-term medical care, can trigger loan repayment requirements, making reverse mortgages unsuitable for seniors who may need nursing home care in the near future.
Find out what reverse mortgage loan options you could qualify for here.
Insufficient home equity and property value issues
You need at least 50% equity in your home to qualify, and your reverse mortgage proceeds must be sufficient to pay off any existing mortgage balance. This requirement trips up homeowners who’ve recently refinanced or taken out home equity loans, as well as those in areas where property values have declined. If your reverse mortgage can’t cover your existing mortgage balance entirely, you’ll need to bring cash to closing, a requirement that defeats the purpose for many cash-strapped seniors.
Property type restrictions also eliminate many potential borrowers. After all, reverse mortgages only work for single-family homes, FHA-approved condos or two- to four-unit properties where you live in one unit. Vacation homes, investment properties and certain types of manufactured homes don’t qualify, regardless of their value or your equity position.
Missing the mark on property condition and maintenance standards
Your home must meet FHA property standards, and major structural issues, health hazards or neglected maintenance must be addressed before approval. This requirement often surprises longtime homeowners who have deferred maintenance or live in older properties. An FHA appraisal will identify required repairs, and unlike traditional mortgages, where cosmetic issues might slide, reverse mortgage standards are particularly strict about safety and habitability.
Certain zoning restrictions can also disqualify properties, and unique or overly large properties may not meet HUD guidelines. Even seemingly minor issues like using your home for short-term rentals can disqualify you, as these are considered commercial uses that violate the primary residence requirement.
Issues with the credit and financial assessment
While reverse mortgages are more forgiving than traditional loans when it comes to credit scores, severe financial events like unresolved bankruptcies, recent foreclosures or federal debt delinquencies can disqualify you. You cannot owe any federal debt, such as federal income taxes or federal student loans, though you can use reverse mortgage proceeds to pay off these debts.
Lenders must also verify your ability to pay ongoing property-related expenses like taxes, insurance and maintenance. If your income or assets aren’t sufficient to cover these costs, you’ll be denied, even if you have substantial home equity. This financial assessment has become increasingly strict, too, with specific residual income requirements that vary by household size and geographic region.
Not meeting counseling and documentation requirements
You must complete a counseling session with a HUD-approved reverse mortgage counseling agency, and failure to attend this mandatory session results in automatic disqualification. This isn’t just a formality, either. During this session, counselors evaluate whether you understand the loan terms and may recommend against proceeding if they believe a reverse mortgage isn’t in your best interest.
The bottom line
Reverse mortgages can be a powerful financial tool for older homeowners looking to unlock equity without taking on new monthly payments. Qualifying isn’t as simple as owning a home and being retired, though. Age restrictions, property requirements, financial obligations and credit history all play a role in determining whether you’re eligible.
If you’re thinking about applying, it can help to get a clear picture of your financial health and your home’s condition before meeting with a lender. Addressing potential issues in advance — such as paying down debt, catching up on taxes or handling necessary repairs — can make the process smoother and improve your chances of approval.
