Can You Qualify for a Reverse Mortgage If You Currently Have a Home Loan?

David Deem

A reverse mortgage can let you access a portion of your home equity while continuing to own and live in your house. The loan will have to be repaid when you die, sell the house or move out. You may be able to take out a reverse mortgage if you haven’t paid off your existing home loan.

Types of Reverse Mortgages
Home Equity Conversion Mortgages are federally insured and backed by the Department of Housing and Urban Development. Money from an HECM can be used for any purpose.

Some state and local government agencies and nonprofit organizations offer single-purpose reverse mortgages. A lender may specify that funds accessed via a reverse mortgage may only be used to finance home maintenance or repairs or to cover property taxes, for example. 

Proprietary reverse mortgages are private loans that are insured by the lenders that offer them. A proprietary reverse mortgage may be a good option for you if you have a high-valued house and a substantial amount of equity. 

No matter which type of reverse mortgage you choose, you won’t be able to access all of your home equity. A lender will only allow you to receive a percentage of the equity you have built up.

Reverse Mortgage Eligibility Requirements
To qualify for a reverse mortgage, every borrower who is listed on the house’s title must be at least 62 years old. The lender may limit eligibility to borrowers who live in specific types of homes and may require that the home be used as a primary residence. 

The federal government and some other reverse mortgage lenders require counseling to make sure that consumers understand all the terms. For example, you will be required to pay property taxes, homeowners insurance premiums and homeowners association fees, if applicable. You will also be required to keep up with routine maintenance and repairs to your house.

How an Existing Mortgage Can Affect Eligibility for a Reverse Mortgage
You will need a minimum amount of home equity to qualify for a reverse mortgage. Money that you receive from a reverse mortgage will first be used to pay off your existing mortgage balance and any other debts, such as property taxes. If you have a home equity loan or a home equity line of credit, the balance due on it will have to be paid off with funds you receive from a reverse mortgage. Then you will be able to use the remaining funds as you wish, in accordance with the program’s rules.

Is a Reverse Mortgage Right for You?
If you’re older, have limited income and haven’t paid off your home loan, a reverse mortgage can allow you to eliminate monthly payments and can provide funds that you can put toward other expenses. That can give you more financial flexibility, but it’s important to understand the fees, interest rate and other costs and how they can impact your family’s long-term financial health.




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