Can You Get a Reverse Mortgage If You Still Have a Mortgage?

A reverse mortgage is a specialized financial product designed for homeowners, allowing them to convert a portion of their home equity into cash while retaining ownership of their property. Unlike a traditional mortgage, a reverse mortgage does not require monthly mortgage payments to the lender; instead, the loan becomes due when the borrower no longer lives in the home permanently, sells it, or passes away. As part of the reverse mortgage process, any outstanding mortgage and other liens on the property must be paid off.

Addressing Your Existing Mortgage

Any existing mortgage or other liens on the property are paid in full during the closing process. This payoff typically comes directly from the proceeds of the new reverse mortgage loan itself. The reverse mortgage must assume the first lien position on the property, meaning it becomes the primary debt secured by the home.

In situations where the outstanding balance of the existing mortgage, combined with other closing costs, exceeds the amount of funds available from the reverse mortgage, the homeowner would need to cover the difference. This might involve using personal savings or other financial resources to bridge the gap at closing.

Qualifying for a Reverse Mortgage

To be eligible for a reverse mortgage, specific criteria must be met by both the homeowner and the property. The primary borrower, or the youngest borrower if there are multiple, must be 62 years of age or older for a Home Equity Conversion Mortgage (HECM), which is the most common type of reverse mortgage. The home must also be the borrower’s primary residence.

A significant amount of equity in the home is another prerequisite, at least 50%, to ensure sufficient funds. Eligible property types for HECMs include single-family homes, two-to-four unit properties (if one unit is occupied by the borrower), and certain FHA-approved condominiums and manufactured homes. All applicants are required to attend a mandatory counseling session with a HUD-approved independent counselor to understand the loan’s implications and alternatives. Lenders also conduct a financial assessment to ensure the homeowner can meet ongoing obligations like property taxes and homeowner’s insurance, which remain the borrower’s responsibility.

Calculating Available Funds

The amount of money a homeowner can receive from a reverse mortgage, known as the “principal limit,” is determined by several key factors. These include the age of the youngest borrower, the current interest rates, and the appraised value of the home. Older borrowers and homes with higher appraised values tend to qualify for larger loan amounts, while higher interest rates can reduce the accessible funds.

The existing mortgage balance and other closing costs are deducted from this gross loan amount to arrive at the net proceeds the homeowner will receive. For example, if a homeowner qualifies for a $200,000 reverse mortgage and has an existing mortgage balance of $50,000, plus $10,000 in closing costs, these amounts would be subtracted from the total. This leaves $140,000 as the net amount available. The remaining funds can be accessed in various ways, such as a lump sum, monthly payments, or a line of credit.

The Reverse Mortgage Application

The process of applying for a reverse mortgage involves several sequential steps. It generally begins with an initial consultation with a loan originator to discuss eligibility and potential loan amounts. All applicants must complete the mandatory counseling session with a HUD-approved counselor.

Once counseling is complete, the formal application is submitted, requiring documentation such as identification, proof of income, and current mortgage statements. An independent appraisal of the home is then conducted to determine its value and ensure it meets property standards. The loan then moves to underwriting, where all information is reviewed for final approval. The final stage is closing, where all loan documents are signed, and the existing mortgage and any other outstanding liens on the property are paid off directly from the reverse mortgage proceeds.