There are several types of reverse mortgages designed for specific circumstances. Each option also comes with different lending criteria.
1. Home Equity Conversion Mortgage (HECM)
HECMs, the most common type of reverse mortgage loan, are insured by the FHA. To qualify, you’ll need to meet with a HUD-approved HECM counselor in person or over the phone. The maximum amount you can borrow will depend on your age, the interest rate, the value of your home and the HECM borrowing cap. The 2024 borrowing cap for a HECM loan is $1,149,825.
HECMs are non-recourse loans, meaning if the borrower or heirs default, the lender cannot seize other assets to pay off the remaining loan balance. If the loan balance surpasses the home’s value, heirs can only pay up to 95% of the appraised value; mortgage insurance covers the rest.
2. HECM for Purchase
This type of HECM is for borrowers looking to purchase a new primary residence using equity from their previous home, savings or other assets. The loan requires the borrower to make a sizable down payment (typically around 50%) and cover closing costs. The reverse mortgage finances the remaining balance.
Older borrowers looking to downsize, improve cash flow or relocate closer to family often get this mortgage. HECMs for Purchase are governed by the same obligations as standard HECMs, and the home must meet FHA property standards and flood requirements.
3. Single-Purpose Reverse Mortgage
This more restrictive type of reverse mortgage is distributed as a lump sum payment that borrowers 62 and older can use for a single, lender-approved purpose such as home repairs or property tax payments.
Less common than HECMs, single-purpose reverse mortgages are tax-free and offered by state and local government agencies as well as non-profit organizations. They are also usually the least expensive reverse mortgage option, making them a practical choice for low- to moderate-income borrowers.
4. Proprietary Reverse Mortgage
Also referred to as jumbo reverse mortgages, these loans are not federally backed and are less strict than HECMs. Some examples, such as Longbridge Financial’s Platinum Mortgage, allow you to borrow more cash (up to $4 million in some cases) than a standard reverse mortgage.
This loan type is suitable for eligible borrowers who own high-value properties that exceed the FHA limit and are also seeking to access cash beyond the federally insured loan limits. Age requirements for this loan type vary by lender, but many lenders accept a minimum age of 55.
