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Since the Reverse Mortgage for Seniors program is all the rage these days, let's take a look at what is required to qualify for and to obtain a reverse mortgage. In the United States, a person must be at least 62 years of age and own their own home to qualify for a reverse mortgage. While most condominiums do qualify, there are some types of co-op apartment arrangements which do not. Also, lower value properties, such as smaller mobile homes, probably will not qualify either.

In a traditional mortgage, there is a great deal of emphasis on the creditworthiness of the borrower. In a reverse mortgage, that is not the case since the borrower will not be counted upon to pay off the loan. Even a pending bankruptcy may not slam the door on a reverse mortgage; however, it will probably slow the process down somewhat. The amount of equity you have in your home is the critical factor for a reserve mortgage. It is that equity that will be *funding* the payments into the future and you can be assured that the lender will get necessary appraisals and surveys, etc. to be certain of the real value of your home.

The amount of a reverse mortgage loan is determined by several factors including the Federal Home Administration (FHA) or Fannie Mae (FNMA) appraised value of the home, its location, and the age of the borrower. Fannie Mae has a limit of $200,000 for reverse mortgages closed under its program, but there are proprietary loan products from commercial lenders which can carry higher limits.

Unlike a traditional mortgage, there are no second or third mortgages allowed in a reverse mortgage deal, unless there is an increase in the value of the home after the reverse mortgage is taken out. This is because the home equity is planned to be drawn down to cover the payments (or *loan advances* as they are sometimes called) and there may not be adequate equity remaining to pledge toward a secondary mortgage vehicle.

To ensure that you enter into a reverse mortgage with your eyes fully open and to ensure that you are not taken advantage of or scammed, there is a Federal requirement that you must obtain financial counseling from a source that is approved by the Department of Housing and Urban Development (HUD). DO not discount this counseling. It is very valuable and can usually be obtained for free or at a very low cost. It is best that you get such counseling from an independent source, such as the American Association of retired Persons (AARP).

While there are obvious cash flow benefits to be derived through a reverse mortgage, there are also some drawbacks. One big one is the amount of up front costs associated with a reverse mortgage when compared to a traditional mortgage. A loan origination fee of 2% is typical and the FHA reverse mortgage insurance is another 2%. These are in addition to the normal closing items such as appraisals, surveys, title searches, etc. that one would expect. The AARP is attempting to initiate a program with the government that would minimize the upfront costs, but that is not yet in place. Anyway, as a result of these high closing costs, you should not consider a reverse mortgage option if you plan on living in the home for less than five years or so.

A senior citizen should carefully evaluate the requirements of the reverse mortgage and consider other, more conventional options, such a home equity line of credit or a second mortgage before moving forward to obtain a reverse mortgage. In any event the financial counseling required for reverse mortgages will serve to help you with these kinds of decisions.

Do you homework before committing to any sort of refinancing option. You'll be glad you did!