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Factor to Assess
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Score
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Explanation
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| I. Basic Requirements There are minimal requirements borrowers must meet to be eligible for a HUD/FHA Home Equity Conversion Mortgage (HECM), the most popular type of reverse mortgage. If you cannot meet these basic requirements, you will not be able to get a reverse mortgage. |
| 1 |
We meet ALL of the following basic qualifications:
- We live in this home as our principal residence at least 6 months out of the year.
- The youngest owner on the home's title is at least 62 (or will be 62 at time of loan application).
- Our home is in reasonably good condition and meets HUD's minimum property standards and flood requirements.
- Our home is at least one-year old and is a single-family residence (including condominium) in a 1-4 unit dwelling, but is not a mobile home
- We do not owe the federal government money for student loans, delinquent taxes or other debts.
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Score 150
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Reason: - Reverse mortgages are only available to senior homeowners. They are not available to renters.
- Reverse mortgages are only available for your principal residence. They are not available for vacation or second homes.
- The HECM reverse mortgage program was created to benefit "house rich, cash poor" senior citizen homeowners. The federal law creating the HECM program specifies age 62 as the senior citizen threshhold (also the minimum age for collecting regular social seurity benefits). Other major reverse mortgage programs have followed this lead.
- Your home must be free of serious hazards like faulty wiring, damaged plumbing, lead paint or structural problems. If your home meets code requirements for your local community, it will meet HUD's minimum property standards.
- One of the main selling points of a HECM reverse mortgage is that the borrower does not need a minimum income or credit score to qualify. Still, the government does check to ensure it is not endorsing a loan to someone owing it money.
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| II. What Is Your Age and Life Expectancy? The older you are, the more money you can get through a reverse mortgage. |
| 2 |
The age of the youngest homeowner is: |
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Reason: The "Goldilocks age" (not too young, not too old) best suited for reverse mortgage borrowers seems to be the mid-seventies. And, in fact, the actual average age of Home Equity Conversion Mortgage (HECM) borrowers in 2004 was 74 according to the US Department of Housing and Urban Development (HUD).
The Social Security Administration says a 74-year old male can expect to live 10.38 more years. At this age a borrower can obtain a reverse mortgage equal to a healthy share of their home equity and still expect to hold the loan long enough to amortize upfront costs.
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62 - 66 |
Score 1 |
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67 -73 |
Score 3 |
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74 -78 |
Score 7 |
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79 - 85 |
Score 3 |
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86 - 92 |
Score 2 |
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93 and over |
Score 1 |
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| 3 |
My spouse and I have each objectively assessed our life expectancies using a life expectancy calculator like this one. |
Score 2
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Reason: People tend to underestimate their life expectancy. A study by the Society of Actuaries found that 67 percent of retirees underestimated lifespans. This can cause people to underprepare financially and outlive their assets in retirement.
Using a life expectancy calculator provides a objective basis for you to make important financial decisions. You have information about your family health history, your lifestyle, and other factors that affect longevity that should taken into consideration.
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| 4 |
How long do you realistically expect to live (check most appropriate answer): |
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Reason: The longer the expected lifespan of the homeowner(s), the better the case for a reverse mortgage.
A 65-year-old couple has an 85% chance that one spouse will live to 85. And there’s a 36% chance that one will live to age 95.
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20+ years |
Score 5 |
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10 -19 years |
Score 3 |
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5-10 years |
Score 1 |
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less than 5 years |
Score -20 |
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| 5 |
My spouse's realistic life expectancy is (check most appropriate answer): |
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Reason: The longer the expected lifespan of the homeowner(s), the better the case for a reverse mortgage.
A 65-year-old couple has an 85% chance that one spouse will live to 85. And there’s a 36% chance that one will live to age 95.
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20+ years |
Score 5 |
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10 -19 years |
Score 3 |
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5-10 years |
Score 1 |
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less than 5 years |
Score -20 |
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| III. How Long Do You Expect To Live In Your Home? Reverse mortgages are less expensive the longer you stay in the home. |
| 6 |
Both my spouse and I are in reasonably good health. |
Score 2
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Reason: Failing health is a major reason many seniors are forced to move from their homes. A reverse mortgage can be a good way to pay for health-realted improvements that allow the homeowner to remain in the home. Still, if health issues are a major concern, you should consider carefully whether you and/or your spouse will be able to stay in the home long enough to make the reverse mortgage financially worthwhile.
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| 7 |
Both my spouse and I agree that if one of us dies or becomes ill and is forced to move, the remaining spouse will wish to remain in the home. |
Score 10
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Reason: Bear in mind that a reverse mortgage must be repaid when the homeowners die or move out. However, as long as all other program requirements are met, only one owner is required to occupy the property as a principal residence.
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| 8 |
If health deteriorates, we believe we have enough family or other support nearby to allow us to remain in the home. |
Score 3
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Reason: According to the Fidelity Research Institute, the major reasons cited by retirees for moving are to be closer to family and to find a home that is easier to live in. In determining how many years you believe you will remian in your home, it is important to assess the support network available to you.
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| 9 |
We have weighed the drawbacks of homeownership (including maintenance, property taxes, yardwork, etc.) and determined that we wish to remain in our home as long as possible. |
Score 3
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Reason: Taking on a reverse mortgage means you have committed to being a homeowner for the long haul. There are many benefits to homeownership, but be sure to weigh the downsides (like reduced flexibility) as well.
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| 10 |
All things considered, how many years do you and your spouse realistically expect to remain in your home (check most appropriate answer): |
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Reason: Because reverse mortgages have high upfront costs, the longer you remain in the home, the longer the period over which these costs can be spread. A reverse mortgage is an extremely expensive way to borrow for anyone who moves within five years.
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10+ years |
Score 10 |
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8-10 years |
Score 3 |
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5-7 years |
Score 1 |
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less than 5 years |
Score -125 |
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| IV. What Do You Consider Your Purpose for Getting a Reverse Mortgage? Since a reverse mortgage is a costly way to borrow, be clear about your motive for borrowing. |
| 11 |
Which of the following best describes your primary motive for seeking a reverse mortgage? |
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Reason: Clarifying your motives for considering a reverse mortgage will help you weigh the perceived benefits against the costs.
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- Basic Living Expenses - Our monthly income simply is not adequate to cover everday necessary costs.
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Score 7 |
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- Major Home Improvements - We need to make expensive improvements to our house but cannot afford monthly loan payments.
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Score 5 |
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- Living Bequest - We want to help our children and grandchildren with college costs and other needs, but don't want them to have to wait until our deaths.
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Score 3 |
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- Debt Consolidation - We want to pay off our mortgage and credit card debt and eliminate these monthly loan payments.
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Score 5 |
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- Improve Standard of Living - We've built up a nice home equity nest egg over the years and now want to enjoy it through travel and other nice things.
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Score 5 |
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- Emergency Fund - We want a source of cash readily available in case of emergency only.
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Score 3 |
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- Investment - We want to purchase investments that will appreciate faster than our home value.
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Score -5 |
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| V. Have You Considered Using Other Assets First? |
| 12 |
Our home is the only valuable asset we have |
Score 10
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| 13 |
Check the item below that best describes the proportion of your total welath accounted for by your home equity. |
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Reason: According to studies, more than 80% of Americans over 65 own homes worth a total of $3.95 trillion or, about 30% of seniors' total wealth holdings.
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- Home equity accounts for more than 75 % of our total wealth.
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Score 7 |
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- Home equity accounts for 50% -75 % of our total wealth.
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Score 3 |
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- Home equity accounts for less than 50 % of our total wealth.
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Score 1 |
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| 14 |
We have other investments like stocks and bonds, but prefer not to liquidate these. |
Score 3
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| VI. Have You Considered and Compared Other Available Options? |
| 15 |
We have looked into a home equity loan or home equity line of credit (HELOC)and determined it does not meet our needs. |
Score 2
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Reason: Fidelity Research Institute's research shows that HELOCs (home equity line of credit) are currently the most common choice for retirees who wish to leverage home equity while remaining in their homes with 15% choosing this option.
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| 16 |
We have checked with our Area Agency on Aging to see if grants, low-interest loans or specific purpose reverse mortgages are availalble through our state or local government and determined that this is not a viable option. |
Score 2
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Reason: These programs are for specific needs like home improvements, paying property taxes, etc. and are almost always very cost-effective - if you can qualify.
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| 17 |
We have considered selling our home and buying a smaller less expensive residence and decided against this option. |
Score 2
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Reason: Fidelity Research Institute research shows that among retirees who do use home equity to provide retirement income, 70% select options that involve moving from their homes. Within this group, selling a primary residence and buying a less expensive home was the most frequently used of these options with 29% adopting this approach.
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| 18 |
We have considered selling our home and renting a smaller less expensive residence and decided against this option. |
Score 2
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Reason: Fidelity Research Institute research shows this option of selling a primary residence and renting is the second most frequently chosen option or those retirees who sell their homes, at 21%. Single retirees are more likely to adopt this tactic or move in with family members (a financially similar option).
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| 19 |
We have considered selling our home and moving to a lower cost community but have decided against this option. |
Score 2
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Reason: Often areas with the highest home appreciation rates are also high living-cost areas. Retirees may get a double benefit by selling their home,capturing a home equity windfall and then moving to a lower cost community.
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| 20 |
We considered the possibility of an "intra-family" reverse mortgage, (borrowing from family members and securing the loan with our home), but determined this is not a good option for us. |
Score 2
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Reason: Intra-family financing arrangements can work in some circumstances and should at least be considered as an option
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| VII. Have You Weighed the Impact on Children or Other Heirs? The inescapable trade-off with a reverse mortgage is that cash flow for the senior homeowner comes at the expense of having less to leave to heirs. |
| 21 |
Check the item below that best describes your attitude about leaving a bequest: |
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Reason: The "bequest motive" is a uniquely personal and highly emotional issue. If you feel very strongly that a significant bequest must be an important part of your legacy, then a reverse mortgage may not be a good fit.
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- We have no children and no strong motive to leave a sizable bequest to anyone.
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Score 7 |
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- We have children and they are doing fine. They want us to live well in retirement and support tapping our home equity for retirement income.
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Score 7 |
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- Our needs come first. It makes no sense to struggle through our senior years sitting on unused home equity that could make our lives so much better.
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Score 7 |
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- Keeping our home in the family is an important goal for us. We would like to leave our home to our children with the smallest possible mortgage outstanding on it.
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Score -50 |
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| 22 |
We have discussed the possibility of a reverse mortgage with our children and they are supportive. |
Score 5
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Reason: Many adult children would prefer to see their parents live comfortably in retirement and not become a financial burden to them.
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| VIII. How Much Home Equity Do We Have and How Much Can We Get With a Reverse Mortgage? |
| 23 |
We have little or no mortgage balances outstanding on our home |
Score 5
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Reason: A reverse mortgage is always the first position lien on your home. This means that if you have an outstanding mortgage balance (including home equity loans), it will need to be repaid with loan proceeds from the reverse mortgage. Generally, if your outstanding mortgage is 25% or more of your home's market value, a reverse mortgage will not be feasible.
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| 24 |
The amount of equity in our home is: |
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Reason: A reverse mortgage is a form of home equity loan - the more equity you have built up in your home the higher loan amount you can get. If your equity stake is too small, steep upfront costs will probably make a reverse mortgage a bad option. On the other hand, if you have a lot of home equity you're probably better off looking at reverse mortgage product other than the HUD Home Equity conversion Mortgage (HECM).
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Under $50,000 |
Score -50 |
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$50,001 - $100,000 |
Score 0 |
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$100,001 - $150,000 |
Score 1 |
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$150,001 - $200,000 |
Score 3 |
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$200,001 - $300,000 |
Score 5 |
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Over $300,000 |
Score 7 |
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| 25 |
We have used a reverse mortgage calculator like this one to get a good idea of how much we can borrow. |
Score 10
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Reason: There are many reverse mortgage calculators on the internet, though most are licensed through one company and are near identical. The Financial Freedom calculator we've linked to is unique in that it summarizes reverse mortgage possibilities for all three major reverse mortage programs: HUD HECM, Fannie Mae HomeKeeper, and Financial Freedom's proprietary program.
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| IX. Have You Educated Yourself About Reverse Mortgages? It is important that anyone considering a reverse mortgage do their homework thoroughly to ensure their decision is the right one. |
| 26 |
Check the item below that best describes your level of knowledge about reverse mortages and how they work: |
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Reason: According to Fidelity Research Institute, two-thirds of pre-retirees and three-quarters of retirees consider themselves at least somewhat familar with reverse mortgages as a method of tapping into home equity for retirement income.
Still, there are many widely-held misconceptions about reverse mortgages that people need to be educated on. For example, many people believe that a reverse mortgage means the lender will get your house when you die. In fact, you (or your estate) retain full ownership of the home at all times.
Many other misconceptions are out there and the need for borrowers to become educated on the subject is great.
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- We are just starting to learn about reverse mortgages.
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Score 1 |
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- We have done a fair amount of research into reverse mortgages, but still have several questions to get answered before deciding if a reverse mortgage makes sense for us.
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Score 5 |
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- We have done a great deal of research on reverse mortgages and have attended a reverse mortgage counseling session.
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Score 10 |
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| 27 |
We know someone who has taken out a reverse mortgage and have discussed and learned from their experiences - both good and bad. |
Score 20
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Reason: The reverse mortgage market is still relatively small: less than 300,000 Home Equity Conversion Mortgages (HECM) have been endorsed in the program's entire history compared to tens of millions of home equity loans originated each year. If you're lucky enough to know someone who has taken a reverse mortgage, utilize the opportunity to learn valuable first-hand lessons.
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| 28 |
We understand that if we close on a reverse mortgage, we have three days to change our minds, after which the committment is final. |
Score 5
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Reason: This is known as the "right of recission" and is a federally required consumer safeguard.
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| 29 |
We understand that reverse mortgages have high upfront closing costs and we have researched the legitimacy of these costs and are comfortable with them. |
Score 10
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Reason: Perhaps the biggest mental hurdle for people considering a reverse mortgage are the steep upfront costs. Some people see these costs, assume it is a rip-off, and decide against a reverse mortgage. It is important that potential borrowers understand that the costs are legitimate, can be rolled into the loan, and will decrease as a percentage of the loan amount the longer the loan is outstanding.
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| X. How Healthy is Your Local Economy and Housing Market? Reverse mortgages are most popular in areas (like California) where home values have skyrocketed. |
| 30 |
Our home is located in an area best described as having: |
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Reason: Reverse mortages are "rising debt, falling equity" loans. In areas where home prices are falling, reverse mortgage borrowers' can see their home equity rapidly dissipate from the combination of falling values and growing debt. On the other hand, home equity growth in a strong housing markets can offset the decline in equity attributable to growing reverse mortgage debt.
But a reverse mortgage is sometimes sensible even in an area with declining values. Since the loan amount you qualify for does not change even if home value falls, it is way to "lock in" today's value.
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- a strong local economy with plenty of jobs and rapidly rising home values
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Score 15 |
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- an average economy with some unemployment and modestly rising home values.
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Score 5 |
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- a weak local economy with high unemployment and stagnant or falling home prices.
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Score -15 |
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Results:
Under 150 points:
It appears that you will not qualify for a reverse mortgage at this time.
151-180 points:
You can qualify for a reverse mortgage, but your score indicates you are not a strong candidate for one. Review all of you other options closely before deciding to pursue a reverse mortgage.
181-220 points:
You fall in the middle range and a reverse mortgage may well be a viable option for you.
Over 220 points:
Your score indicates you are strong candidate for a reverse mortgage.
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Total:
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This area for notes
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