Who Is Eligible for Equity Release?

Equity release, commonly known as a reverse mortgage in the United States, allows homeowners to convert a portion of their home equity into cash. This financial tool enables individuals, typically older adults, to access funds while continuing to live in their homes and retaining ownership. The funds are generally tax-free and can be used for various purposes, such as supplementing retirement income, covering living expenses, or paying for home repairs. Unlike a traditional mortgage, borrowers do not make monthly payments; instead, the loan is repaid when the last borrower permanently leaves the home, sells it, or passes away.

Core Eligibility Criteria

To qualify for a reverse mortgage, the age of the applicants is a primary consideration. For a Home Equity Conversion Mortgage (HECM), which is the most common type and is insured by the Federal Housing Administration (FHA), all borrowers listed on the loan must be at least 62 years old. Some private or “proprietary” reverse mortgage programs may offer a lower minimum age, sometimes as young as 55, though these are not federally insured and may carry different terms and protections.

If one spouse meets the age requirement but the other does not, the younger spouse can be designated as an eligible non-borrowing spouse. This protects their right to remain in the home after the borrowing spouse’s death, provided they meet specific criteria, including being married to the borrower at the time of loan closing and occupying the home as their principal residence. However, they will not receive loan proceeds.

The property itself must also meet certain criteria to be eligible for a reverse mortgage. It must be the applicant’s primary residence throughout the life of the loan, meaning they live there for the majority of the year, typically at least 183 days annually. The Federal Housing Administration (FHA) allows for temporary absences of up to 12 consecutive months for reasons like medical treatment or extended vacations.

Eligible property types generally include single-family homes, two- to four-unit properties where the borrower occupies one unit, FHA-approved condominiums, and manufactured homes that meet FHA requirements, such as being built after 1976 and placed on a permanent foundation. Properties not typically eligible include vacation homes, rental properties (unless one unit is owner-occupied), co-ops, and commercial properties.

Lenders also require the property to have sufficient equity, typically around 50% or more, to qualify for a reverse mortgage. The home must also be in a reasonably good condition, and any urgent health or safety repairs may need to be completed before the loan can close. While geographical restrictions are less common across the United States, properties in poor repair or specific non-standard constructions might be excluded by individual lenders.

Financial Eligibility Factors

Any outstanding mortgage or other secured debts on the property must generally be paid off using the reverse mortgage funds at closing, making the reverse mortgage the primary lien on the home. If the reverse mortgage proceeds are insufficient to cover the existing debt, the borrower would need to use other funds to make up the difference. This ensures that the reverse mortgage holds the first lien position, which is a standard requirement.

Applicants must demonstrate sole legal ownership of the property or that all legal owners are included as borrowers or eligible non-borrowing spouses. This ensures clear title and simplifies the lending process. Lenders will verify ownership through title searches and other documentation.

Reverse mortgages do not typically have traditional income or credit score requirements like conventional loans, but a financial assessment is mandatory. This assessment evaluates the borrower’s capacity to meet ongoing property charges, such as property taxes, homeowners insurance, and any homeowners association (HOA) fees. Lenders review income sources like Social Security, pensions, and investments, along with credit history focused on payment of property-related expenses, to determine if funds need to be set aside from the loan proceeds to cover these future costs. This financial assessment is a safeguard to help prevent borrowers from defaulting on these obligations and potentially losing their homes.

Additional Key Requirements

All applicants are mandated to receive independent counseling from a HUD-approved reverse mortgage counseling agency. This counseling session, which can be conducted in person or over the phone, provides crucial education on the features, costs, benefits, drawbacks, and tax implications of a reverse mortgage, as well as potential alternatives. The counseling ensures borrowers make an informed decision and understand their responsibilities, including maintaining the property and paying ongoing taxes and insurance.

Borrowers must possess the mental capacity to understand and willingly enter into the reverse mortgage agreement. If an applicant lacks this capacity, applying through a legally appointed power of attorney may be possible, subject to specific legal and lender requirements. The process ensures that individuals are protected and fully comprehend the long-term financial commitment.