Seek the proper approvals
• Counselors. The first step to getting a home equity conversion mortgage is meeting with a counselor to discuss eligibility and whether a reverse mortgage loan is the right financing option for you.
• Condominiums. To take out a reverse mortgage on your unit, it must be your primary residence and the entire complex must have Department of Housing and Urban Development (HUD) approval, because home equity conversion mortgages are insured by the Federal Housing Administration (FHA), a part of HUD.
• Lenders. Only FHA-approved lenders can issue federally insured reverse mortgages.
• Search a list of approved HECM counselors, or call 800-569-4287 for referrals.
• Check the approval status of your condominium development.
• Search HUD's lender list online — Check the box for reverse mortgages and expand outward geographically if the search comes up empty. Or, ask your loan counselor for a list.
For many people, a home is their biggest investment.
In the third quarter of 2022, the median price for a single-family home in the U.S. (meaning half of prices are higher, half lower) was $398,500, according to the National Association of Realtors. In hot markets such as San Francisco, Seattle and Boston, house prices are much higher.
The problem for most people is tapping that investment.
Selling your abode and moving elsewhere is one solution, but that's a tough call for some people. If you've paid off a big chunk of your mortgage or paid it off entirely, a reverse mortgage can be a solution, but check it out carefully before you decide.
Listen: AARP podcast on reverse mortgages
Your home as a piggy bank
A reverse mortgage is a loan based on the paid-up current value, or equity, in your home. Unlike a conventional mortgage, your lender pays you — in monthly payments, through a variable line of credit or in a lump sum. You don't have to repay the loan until you sell your house, move or die.
Your balance is deducted from the proceeds of the sale when it comes due, and you or your heirs will get any money left over.
The most common reverse mortgage is a home equity conversion mortgage (HECM). These loans are insured by the Federal Housing Administration, a unit of the U.S. Department of Housing and Urban Development (HUD). You may also be able to get a reverse mortgage through your state or local government or through private lenders.
The federal insurance guarantees that if the loan balance exceeds the home's sale price, your heirs won't have to pay more than 95 percent of the appraised value. Mortgage insurance pays the remaining balance.