When you take out a reverse mortgage, the lender will let you borrow a percentage of your home equity. A reverse mortgage typically lets you borrow up to 60% of your home equity, but the actual amount you take out depends on a few factors, including:
Age. The older you are, the more you can potentially borrow. Since you can stay in your home for the rest of your life without paying back the reverse mortgage, the lender uses your life expectancy to estimate how long it will be until it’s repaid. As you get older, the lender lets you borrow a greater percentage because it predicts it will be paid back quicker.
Appraised home value. The more valuable your home is, the more you are able to borrow.
Current interest rates. A reverse mortgage is still a loan. The lender is charging interest on the amount of money you take out. The higher market interest rates are, the less money you will receive because a higher percentage will be going toward interest.
Type of reverse mortgage selected. Proprietary reverse mortgages could let you borrow a greater percentage than HECM reverse mortgages.
Your financial situation. Your credit score and income do not determine how much you can borrow. However, lenders will do a financial analysis to make sure you can still cover property taxes, homeowners insurance and other housing costs after taking out the loan.
If the lender determines you do not have enough income to cover your future housing costs, it may require that part of the reverse mortgage proceeds go toward a Life Expectancy Set Aside. The lender will set aside part of your loan to cover future housing costs. You will receive a smaller payout because part of your money is going into the LESA.
Lenders look at your credit report to see your historic willingness to pay debts. “If someone has income but hasn’t been making their debt and tax payments, they may be required to use a LESA. Exceptions can be made for extenuating circumstances. Like someone can show they ran into financial difficulties because of a medical illness or because a spouse recently passed away. Apply online with our secured online application.