What Disqualifies You From Getting a Reverse Mortgage?
Understand the key factors that can prevent you from qualifying for a reverse mortgage, from eligibility requirements to financial and property considerations.
A reverse mortgage can be a useful financial tool for homeowners seeking to access their home equity without selling their property. However, not everyone qualifies, and understanding potential disqualifications is essential before applying.
Several factors can prevent approval, from eligibility requirements to financial considerations.
Not Meeting Age Requirement
Reverse mortgages are designed for older homeowners, with a strict minimum age requirement. The Federal Housing Administration (FHA), which insures Home Equity Conversion Mortgages (HECMs), mandates that borrowers be at least 62 years old. Private lenders offering proprietary reverse mortgages may have different terms but generally follow similar age restrictions.
If a homeowner is younger than 62, they cannot be listed as a borrower on an FHA-backed reverse mortgage. This can create complications for couples where one spouse qualifies and the other does not. In such cases, the older spouse can apply individually, but the younger spouse will not receive loan proceeds and may lack protections if the borrower moves into long-term care or passes away. Some lenders allow younger spouses to remain in the home under specific conditions, but they will not have access to funds.
Homeowners must wait until they turn 62 to apply. Those in need of funds before becoming eligible often explore alternatives such as home equity loans or lines of credit.
Lack of Primary Residence Status
Reverse mortgages are only available for homes that serve as the borrower’s primary residence. Seasonal homes, vacation properties, and investment properties do not qualify. Lenders verify residency through utility bills, tax records, and government-issued identification.
If a borrower moves out for more than 12 consecutive months—such as relocating to a nursing facility—the loan may become due. Shorter absences, like extended vacations or temporary medical stays, do not typically violate the residency requirement as long as the borrower maintains the home as their primary residence.
Lenders conduct occupancy checks to ensure compliance. Renting out the home or allowing others to live in it while residing elsewhere can lead to disqualification. After loan approval, periodic occupancy certifications may be required, and falsely claiming residency can result in foreclosure.
Inadequate Home Equity
A homeowner’s equity is a key factor in reverse mortgage eligibility. Lenders typically require at least 50% equity to ensure the loan is financially viable. Since reverse mortgages allow homeowners to access a portion of their equity without making monthly payments, lenders need assurance that the remaining equity will cover loan costs, interest, and future repayment.
Existing mortgage balances impact eligibility. If a homeowner still owes a significant amount, they may not qualify unless they can pay down the balance at closing. Reverse mortgage proceeds must first be used to eliminate any outstanding mortgage debt, which reduces the amount of cash available to the borrower. If the remaining equity is insufficient to cover both the existing mortgage and lender-required costs, approval is unlikely.
Property values also affect eligibility. FHA-insured reverse mortgages have a lending limit of $1,149,825 for 2024, meaning homes valued above this threshold will only have a portion of their equity considered. Conversely, if a home’s appraised value is too low, the homeowner may not qualify for enough funds to justify the loan. Declining property values can further reduce the available loan amount.
Unacceptable Property Condition
A home’s condition impacts reverse mortgage approval, as lenders require properties to meet safety and structural standards. Homes with major issues—such as a failing roof, foundation cracks, or outdated electrical systems—may be ineligible due to the risks they pose. FHA-insured HECMs require properties to comply with HUD Minimum Property Standards, ensuring they are safe, structurally sound, and habitable.
An appraisal assesses the home’s condition. If serious problems—such as water damage, termite infestations, or a non-functioning HVAC system—are identified, repairs may be necessary before approval. In some cases, borrowers can use a portion of their loan proceeds to fund required repairs, but if costs are too high, the loan may not move forward.
Financial Assessment Failures
Lenders evaluate a borrower’s ability to meet ongoing financial obligations, including property taxes, homeowners insurance, and maintenance costs. While reverse mortgages do not require monthly payments, borrowers must cover these expenses to avoid default. If a lender determines an applicant cannot sustain these costs, they may be disqualified or required to set aside a portion of loan proceeds to cover them.
Credit history and income are key factors in this assessment. A poor credit score alone does not automatically disqualify an applicant, but a history of late property tax payments, foreclosures, or delinquent federal debt raises concerns. Lenders also review income sources—such as Social Security, pensions, and retirement savings—to determine if borrowers have sufficient cash flow. If a borrower is deemed at risk of defaulting on property-related expenses, the lender may deny the loan or impose a Life Expectancy Set-Aside (LESA) to prepay these costs.
Unresolved Liens or Debt Issues
Outstanding financial obligations tied to the home can prevent reverse mortgage approval, as lenders require clear title ownership. Liens, judgments, or unpaid property taxes must typically be resolved before the loan can proceed. Since a reverse mortgage is a secured loan, the lender must ensure that no other claims take precedence over their interest in the property.
Tax liens, whether from unpaid property taxes or federal income taxes, are particularly problematic. Borrowers with delinquent property taxes may be required to pay them off using loan proceeds or other funds before closing. Similarly, federal tax liens from the IRS must be satisfied or subordinated, meaning the government agrees to take a lower repayment priority. If a borrower has unresolved debts that cannot be cleared, the reverse mortgage application will likely be denied. If liens or judgments are discovered late in the process, the loan may be delayed or canceled until the borrower resolves the issue.