Can You Get a Reverse Mortgage if You Have No Equity?

For some senior citizens, reverse mortgages may seem like the perfect solution to financial problems. As long as they continue to live in their home, they receive a monthly reverse mortgage payment from the Federal Housing Administration. It's easy to forget that reverse mortgages are loans against a senior citizen's equity in the home; however, if the senior moves or dies, the mortgage becomes payable.


Homeownership Requirement

You must own your home outright in most cases to qualify for a reverse mortgage. Thus, to qualify you usually must have equity in your home equivalent to the value of the mortgage you paid. The FHA considers the home's current value when determining how much of a reverse mortgage you qualify for, so your loan amount may not be equivalent to the equity you carry in the home.


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If you have not paid off your first mortgage, you must be able to pay it off using reverse mortgage funds to qualify. Thus, if your home is worth enough, you may qualify for a reverse mortgage even if you do not have full equity in the home or even any equity. For example, if your home is worth $120,000 and you have a balance of $100,000 left on your mortgage, you may qualify for a reverse mortgage if you qualify for a large enough loan to pay the $100,000 you owe.


Other Factors

When evaluating your reverse mortgage application, the FHA considers several factors besides the value of your home and your equity status: your age, current interest rates in your area and the mortgage insurance premium rate. You must be 62 years old or older to qualify for a reverse mortgage. The older you are, the higher a loan you are likely to get; however, if you and another borrower apply together for a reverse mortgage, the FHA considers the youngest borrower's age rather than yours.



Regardless of how much equity you have in the home, you should think carefully before applying for a reverse mortgage. Reverse mortgages become payable as soon as you stop using the home as your primary residence. Thus, if you become too ill to take care of yourself or decide to move to be closer to your children or grandchildren, your reverse mortgage will immediately become payable. In addition, if you live in the home until the end of your life, your heirs may have to sell the home to pay back the reverse mortgage. Thus, if you want to leave your home to your family, you should not get a reverse mortgage.